Iran in revolt: Neoliberalization, sanctions, repression

By Kayhan Valadbaygi

Published date 25 January, 2026

First published at Phenomenal World.

The recent unrest in Iran marks the fourth major uprising since 2017.1 Sparked by merchants in Tehran who closed their stores in protest at a sharp drop in the currency, the ferment soon spread across the nation, drawing in a wide cross-section of people — from students to business owners to the urban poor — who clashed with the increasingly repressive state authorities. Over the next three weeks, the turmoil only seemed to escalate: an internet blackout, a mounting death toll, apparent penetration of the protests by Mossad, threats of bombing and regime change from Washington.

And then, in a matter of days, the momentum ebbed away. The government appeared to regain control, using what one analyst described as a “systematic strategy to encircle and fatigue the protest movement.” For now, it seems the clerical establishment will remain in place, since the domestic opposition is not strong enough to dislodge it and the US is unwilling to risk a major intervention.

Yet the crackdown has done nothing to address the origins of the upheaval, which lie in the country’s political economy and social structure. These have been reshaped, in recent decades, by two primary forces: the neoliberalization of the post-revolutionary state since the early 1990s, and the dramatic expansion of international sanctions since 2012. This has reconfigured Iran’s patterns of accumulation, allowing a narrow set of actors — primarily the Islamic Revolutionary Guard Corps (IRGC) and the religious-revolutionary foundations — to consolidate power.

For everyone else, conditions have deteriorated. Inequality and poverty are on the rise. Casualization and wage repression are ubiquitous. Welfare has been eroded, the middle class has been hollowed out, and a growing stratum of educated youth are unemployed or underemployed. The result is a simmering crisis of legitimacy, which now routinely erupts into the open. In what follows, I will show how deep political-economic transformations created the context for the events of this month, and interrogate their meaning for the future of the Iranian regime. Roiled from within and menaced from without, what are its chances of survival?

Welfare-warfare state

Following the overthrow of the Shah in 1979, Islamist forces, loyal to the charismatic Ayatollah Khomeini and supported by a broad segment of the population, moved to crush their revolutionary rivals — using violent methods to suppress the communists, the nationalist liberals, and national minorities. The newly established Islamic revolutionary state had three main offices: the Supreme Leader, the President, and the Prime Minister. While the President was directly elected by the people, real executive power rested largely with the Prime Minister, who led the government.

This ruling apparatus went on to develop an economic agenda with two main pillars: achieving independence from the United States, and redistributing wealth to promote social justice for the “downtrodden” (mostazafan). Viewing nationalization as essential to these aims, the Revolutionary Council launched a wave of state takeovers in which the assets of former elites were confiscated and redistributed. They were classified as either governmental property (dolati) to be managed directly by state ministries, or as public property (omumi) which was placed under the authority of the Supreme Leader.

The dolati assets—ranging from private banks and insurance companies to heavy industries —  thus came under the control of newly created revolutionary ministries, all of which were part of the executive branch, with their leaders appointed by the Prime Minister. The omumi assets, on the other hand, were transferred to foundations known as bonyads: the Mostazafan Foundation, the Martyrs’ Foundation, the Imam Khomeini Relief Committee, the Fifteen Khordad Foundation, and Setad (Execution of Imam Khomeini’s Order). These were nominally public bodies that operated under the personal authority of the Supreme Leader and were therefore outside government oversight. Their purpose was to advance the cause of social justice by uplifting the mostazafan.

The bonyads’ access to resources and autonomy from government allowed them to grow quickly. During the Iran-Iraq War, their activities expanded to encompass large-scale relief and reconstruction efforts. Within a few years, they had evolved into sprawling, semi-private monopolies that wielded significant economic and social influence.

This gave rise to a factional division within the revolutionary power bloc. On one side, there were the bureaucrats who controlled the state enterprises under the authority of the government ministries. This state-bureaucratic faction advocated the subordination of individual property rights to perceived state interests. Politically, they were represented by the Islamist Left. On the other side, there was the group that coalesced around the bonyads, with their close institutional and social ties to the traditional merchant class of the bazaar. This bonyad-bazaar nexus favoured a conservative interpretation of Islamic law and charitable activity, and resisted greater government intervention in its economic affairs. This faction was represented by the Traditional Right.

Both factions competed for the support of the subaltern classes, promising to fulfil the promises of the revolution. Yet while the Shah had been ousted, little had been done to overturn his industrial policy of import-substitution industrialisation (ISI). Iran’s economy remained heavily dependent on domestic industries producing consumer goods, which in turn relied on imported technology and materials. It did not take long for this model to run into serious trouble. The conflict with Iraq forced Iran to divert a large amount of its oil income into the war effort, while also undertaking a massive redistribution of wealth to the poor, via food rations, cash stipends, and broader access to public services. This dynamic produced an expansive welfare-warfare state — but without a firm economic basis to maintain it.

As the country’s oil infrastructure was damaged by political upheaval and US sanctions, it became difficult to generate sufficient foreign exchange to finance imports. Agricultural output remained flat, industrial capacity was underutilized, and unemployment rose sharply. Between 1976 and 1989, real GDP per capita fell by 46 percent. Facing a crisis of accumulation, a powerful group within the state-bureaucratic faction, led by Hashemi Rafsanjani, advocated market liberalization and integration into the post-Cold War global economy as the only viable way forward. To sideline bureaucrats who were still committed to ISI, Rafsanjani and his allies formed an alliance with the bonyad-bazaar nexus. From the early 1990s onward, they succeeded in marginalizing the Islamist Left and setting an entirely new economic direction for Iran.

The neoliberal turn

Iran’s First Five-Year Development Plan, approved in June 1990, marked the beginning of this neoliberal era. Under President Rafsanjani, who ruled until 1997, and his successor Mohammad Khatami, whose tenure lasted until 2005, the state unleashed a series of pro-market policies. It abolished Iran’s multiple exchange rates — which had previously been maintained for different sectors and transactions — and created a single, market-based one. It moved to restructure the financial sector, rationalize prices, and phase out energy subsidies to reduce fiscal pressures. Efforts were made to replace non-tariff barriers with tariffs and to lower average tariff rates in line with emerging WTO norms. Legal and institutional reforms were introduced to attract foreign direct investment. The Tehran Stock Exchange was reopened. A suite of policies were designed to promote non-oil exports.

Although privatization was presented as the cornerstone of this new strategy, it only ever went so far. Efforts were made to partially open state-controlled industries to Western multinationals, with the aim of attracting capital, technology, and market access to support export-oriented industrialization. While Rafsanjani oversaw the sale of 391 government-owned companies, most of them were simply transferred to investment firms within the banking sector and pension funds which disguised themselves as non-governmental business groups. Such firms went on to become some of Iran’s largest diversified conglomerates, controlling dozens of holdings and hundreds of subsidiaries. Khatami accelerated the trend by privatizing another 339 enterprises and licensing new private firms in competitive sectors. More than a hundred spin-off companies from the National Iranian Oil Company were established as nominally private firms which continued to operate with state capital.

Rather than total privatization, then, Iran saw the proliferation of these “semi-private” enterprises: subsidiaries of ministries and government organizations, often tied to bureaucrats and their relatives, who were able to strike deals with powerful forces in the government. The result was not the dismantling of state control but rather its reconstitution through a web of semi-private conglomerates. This allowed political and bureaucratic elites to consolidate their power under the guise of market reform.

The outcome was the mutation of what was once the original revolutionary state-bureaucratic faction into new, Western-oriented faction of the ruling bloc. This group was primarily concerned with integrating Iran into the financial, trade, and institutional networks of OECD economies, mainly in Western Europe and North America. It found political representation in the New Right — most notably the Servants of Reconstruction Party, as well as reformist parties such as the Participation Front and the Mojahedin of the Islamic Revolution Organisation.

The military-bonyad complex

Yet the power of the Western-oriented faction would soon come up against a set of formidable rivals. Under this neoliberal regime, various institutions of the old order remained intact. The bonyad-bazaar nexus retained its influence and managed to carve out an exemption from the privatization agenda. The IRGC also enhanced its role in both the state and civil society, participating in reconstruction and other economic activities in the aftermath of the war with Iraq. Not even Khatami was capable of curbing the power of these autonomous actors — whose Eastern orientation was at odds with the state’s program of opening up to the West. Such forces became more deeply embedded after Mahmoud Ahmadinejad came to power in 2005, setting in motion a seismic shift in Iran’s political economy, which ultimately disempowered the Traditional Right and New Right alike.

A former IRGC commander, Ahmadinejad had close ties with both the Guards and the bonyads. Nearly two-thirds of his first cabinet were drawn from the military and security apparatus. He created the conditions for the bonyads to expand their economic role by transforming into large conglomerates — which were not simply expected to turn a profit, but also to contribute to national development, as part of an approach explicitly modelled on the large-scale corporate structures of East Asia. With that, a novel and more aggressive phase of privatization had begun.

This was enabled by the reform of Article 44 of the 1979 Constitution. The clause had originally stated that Iran’s economy was primarily state-controlled, confining the cooperative and private sectors to peripheral roles. Yet a reinterpretation of the article, ratified by the Supreme Leader in 2004, altered the government’s role: replacing direct ownership and management with policy-making, supervision, and oversight. Two years later, this was extended to authorize “public, non-governmental entities and organs, the cooperative and private sectors” to invest in, own, and manage up to 80 percent of shares in major state industries, including banking, insurance, energy, telecommunications, transport, and even defence. The Ahmadinejad administration thus had a legal framework to transfer substantial state assets from government ministries to firms affiliated with the IRGC and bonyads.

Though the law still required state assets to be tendered competitively on the stock exchange, the government argued that bidders had failed to appear and that it therefore had to carry out direct transfers, using a mechanism known as “liabilities clearance.” This effectively meant handing large enterprises over to their creditors, many of which were bonyads and IRGC-affiliated firms. What was presented as debt repayment actually functioned as a form of asset transfer.

Assets were also transferred through so-called “justice shares,” in which the government allocated 40 percent of shares in major enterprises to low-income households, war veterans, families of martyrs, and members of the Basij. They were doled out at steep discounts or sometimes free of charge, with repayment supposed to occur over ten years through company profits. Roughly 49 million people were deemed eligible for the scheme and 30 provincial justice-share investment companies were created to administer it. Once again, management of the shares was concentrated in bonyad-linked institutions, such as the Imam Khomeini Relief Committee and the Mostazafan Foundation. Welfare distribution thus became yet another means of selling off the state, further tightening the grip of bonyads and the military over the economy.

Between 2005 and 2013, the Ahmadinejad government transferred assets at nearly fifty times the pace of privatization under Khatami. This was framed as part of the same “liberalization” drive pursued by previous administrations. But its effects were wholly different. Rather than fulfilling the dreams of the Western-oriented faction, who wanted to remake Iran as a model neoliberal nation, Ahmadinejad’s reforms entrenched the power of traditionalist parastatal actors and increased their economic significance — allowing the conservative, Eastern-oriented elements within the Islamic Republic to gain the upper hand.

The IRGC moved swiftly to exploit this new phase of privatization through its network of affiliated financial firms. Groups like the Sepah Cooperative Foundation, the Ansar Financial and Credit Institution, and the Armed Forces Social Welfare Organisation captured major stakes on the Tehran Stock Exchange. Sepah came to control investment groups like Tose’eh E’temād Mobin; the AFSWO took over dozens of firms; and Ansar grew into a credit network of 600 branches serving six million customers. Even the Basij, once a paramilitary street force, reinvented itself as a stock market player. Revenues from all IRGC firms were shielded from tax and oversight on the pretext of funding anti-poverty initiatives.2

The bonyads followed a similar trajectory. The Mostazafan Foundation pruned smaller firms and reinvested in strategic sectors, building Sina Bank and the Sina Financial and Investment Company. With ten major holdings and more than 200 subsidiaries, it established a strong footing in agriculture, energy, mining, construction, services, and finance. Pursuing similar diversification, the Imam Reza Shrine Foundation extended its control to over 150 companies and 400,000 hectares of land, while the Martyrs’ Foundation deepened its political ties under Ahmadinejad while expanding into finance and industry. Setad morphed into a vast holding company with an investment arm that spanned finance, pharmaceuticals, and agriculture. It defended its tax-free privileges by claiming to assist rural development.

Thus, what was presented as privatization, charity, and national development was, in reality, the consolidation of this vast parastatal empire. Through debt settlements, tax exemptions, and opaque networks, the IRGC and allied foundations turned state retreat into monopoly power, blurring the line between welfare and predation. In so doing, they marginalised their traditional allies, namely the bazaar merchant classes (the very same group that sparked the uprisings of 2026). Sanctions further contributed to these shifting power relations, as Iran was forced to develop a network of smuggling routes to circumvent the trade restrictions, allowing the IRGC to leverage the ports and airports under its control.

By the late 2000s, the rise of these interlocking conglomerates and subsidiaries had created an extremely powerful faction: the military-bonyad complex, whose political representatives are known as the Principlists. While the Traditional Right maintained its ties with the bazaar, this new group came to dominate both the ruling class and the state apparatus, forging close ties with the Supreme Leader himself.

Sanctions and geopolitics

There are several areas of overlap between the Western-oriented faction and the military-bonyad complex: both gained power by exploiting state institutions to channel public assets into “semi-private” conglomerates, effectively erasing the line between state and private capital. Yet the two have entirely different approaches to international capital and foreign relations. The Western-oriented faction supports an increased role for multinational corporations, particularly European ones, in strategic state-dominated industries — viewing this as Iran’s most viable source of funding, technology, and access to export markets.

This perspective naturally pushes foreign policy in a more Western-friendly direction, as demonstrated by the administrations of Rafsanjani, Khatami, and later Hassan Rouhani. It also aligns with a more “democratic” reading of Islam, emphasising “pluralism” and “good governance” as euphemisms for integration into the post-Cold War world order. Among this faction, support for free elections and institutional reform is mostly tactical rather than ideological: it is essentially an attempt to push back against the overbearing power of the military-bonyad complex. Because the latter benefits from the hybrid structure of the Islamic Republic, in which a range of unelected bodies — the judiciary, Guardian Council, bonyads, armed forces — are controlled by the Supreme Leader, calls for greater democratic opening are a means of challenging this factional hegemony.3

The military-bonyad complex meanwhile casts itself as the guardian of the 1979 revolution, arguing that greater entanglement with Western capital would pose a threat to the revolutionary ideal of “self-sufficiency.” It rejects the notion that foreign firms would bring technology or lower production costs, and portrays pro-FDI policies as instruments of Western domination. Unlike the Rafsanjani and Khatami administrations, which sought rapprochement with Europe and the US, Ahmadinejad pursued a security-driven foreign policy designed to limit further integration with the West. He brushed off Washington’s new sanctions as a “worthless piece of paper,” while the Supreme Leader touted them as an opportunity to cultivate economic independence.

The military-bonyad complex also sees China’s economic rise and Russia’s growing geopolitical assertiveness as a welcome departure from the period of unchecked American domination. This, it believes, could present Iran with new opportunities to leverage its strategic position. The Ahmadinejad administration tried to convince Beijing of the importance of Iran’s energy reserves, promoting itself as the region’s only “independent and secure” supplier, beyond the grip of the US. As the military-bonyad complex expanded its presence in the built environment — construction, contracting, development, telecommunications — and came to dominate major infrastructure projects, including railroads, highways, and dams, it styled itself as an ideal partner for Chinese capital, while the latter embarked on the Belt and Road Initiative. Principalists saw the rising East as a means to shore up their embattled revolutionary state.

Decline

Since Ahmadinejad left office, these two factions have continued to wrestle for control. In 2012, the unprecedented US and EU sanctions on Iran’s energy and banking sectors sharply reduced oil exports, plunging the country into a crisis that paved the way for the Western-oriented “reformist” Rouhani to win the presidency and embark on the Joint Comprehensive Plan of Action with the Obama White House. Following the election of Donald Trump, however, it became clear that there was little hope of appeasing Washington, which waged a relentless “maximal pressure” campaign against Tehran, hoping to destabilize and ultimately topple the regime.

This caused the political pendulum swing back against the reformists, tightening the grip of the military-bonyad complex and accelerating the “Look East” pivot. This reorientation culminated in Iran’s signing of a 25-year Cooperation Agreement with China in 2021, accession to the Shanghai Cooperation Organisation in 2023,entry into BRICS in 2024, and the conclusion of a 20-year Strategic Partnership Treaty with Russia in 2025. Even though the incumbent president, Masoud Pezeshkian, was supported by the Western-oriented camp, he has been unable and unwilling to reverse this trend. Both the balance of forces in Iran and the dynamics of US-Israeli escalation militate against any such decision.

Predictably, neither the Western- nor Eastern-oriented bloc has managed to deliver on their plans for economic regeneration. From the outset, there has been a contradiction between maintaining the privileges of these ruling elites and keeping the revolution’s original promise of supporting workers and the poor. This dilemma has been greatly intensified as the economy has come under siege. Embedded interest groups, linked to both the reformists and the conservatives, ensure that it cannot be resolved in favor of the general population.

Instead, they have stuck to a neoliberalization program which has redistributed wealth upward. Under the banner of market reform, state assets have been transferred to parastatal conglomerates. Under the pressure of sanctions, access to trade, finance, and infrastructure has been monopolized by institutions shielded from oversight. Under the banner of “self-sufficiency” and “economic resistance,” coercive power has fused with economic privilege. The effect has been to profoundly reshape the subaltern classes.

Labor-market deregulation has given rise to a precariat which is now the largest segment of the workforce: whereas only 6 percent of workers were employed on temporary contracts in 1990, this figure rose to 90 percent by the late 2000s. By 2021, an astonishing 97 percent of workers had contracts lasting less than six months. Economic restructuring has also sharply increased unemployment, particularly among university-educated young people aged 15 to 30. In a country with a median age of 32, this cohort constitutes the largest share of the population. The proportion of this emerging social group within the total unemployed population has risen steadily, from 10 percent in 2001 to 20 percent in 2005; from 42 percent in 2015 to over 50 percent by the end of the 2010s.

The deprivation of the traditional poor continues to deepen. Subsidy cuts for basic food and energy, persistent inflation, and the depreciation of the national currency have disproportionately affected households in rural areas, small towns, and among rural migrants in major cities. Although some remain partially covered by welfare organizations, the erosion of subsidies and purchasing power has still severely undermined their living standards. The result is a spike in inequality. Since 1994, the richest 10 percent of the population have earned, on average, around fifteen times more than the poorest 10 percent, while the top 20 percent captured nearly half of total income compared to just 5.5 per cent for the bottom 20 percent. By the end of the 2010s, official estimates showed that 25 per cent of the population lived below the extreme poverty line (the real figure is widely considered to be higher).

Throughout the neoliberal period Iranian workers have engaged in strikes and protests, fighting back against redundancies, short-term and temporary contracts, poor working conditions, and low wages. Riots have also broken out as a result of subsidy cuts, inflation, and declining living standards. After 2017, however, there was both qualitative and quantitative shift in the Iranian opposition, marked by a rise in labor unrest and the eruption of four nationwide uprisings.

The first wave, known as the Dey protests, began in Mashhad and lasted from December 2017 to January 2018, catalyzed by a sudden 40 percent increase in the prices of basic foodstuffs. Second, the Aban protests of November 2019 kicked off in Khuzestan province following the government’s abrupt announcement of fuel price increases. Third, the Women, Life, Freedom movement of September 2022 were initiated in Kurdistan after the death of Mahsa Amini while in custody of the Morality Police. And, finally, the most recent wave began on 28 December 2025 in Tehran’s historic bazaar, precipitated by the collapse of the currency.

From one uprising to the next, we have seen increases in both the geographical scope of the protests and the level of anti-state sentiment. While the 2017 protests took place in roughly 75 towns and cities, the most recent ones have spread to 200 locations across all 31 provinces. In parallel, the scale of state repression has risen, accompanied by near-total communications blackouts. Whereas there were around 20 deaths and 4,000 arrests in 2017, these figures have risen to an estimated 4,500 deaths and 26,000 arrests in 2026. The upward trend suggests a mounting structural crisis, caused by decades of neoliberalisation, economic mismanagement, and international sanctions. These processes have strengthened an unaccountable military-bonyad complex, dismantled the limited social protections of the post-revolutionary state, and produced a vast, precarious population of workers and youth who are vulnerable to economic shocks.

Each protest wave — whether triggered by food price hikes, fuel increases, the brutality of the morality police, or currency collapse — has expressed pent-up social frustration. Each has been broader, more geographically dispersed, and more socially diverse than the last. The Islamic Republic’s response has showcased its formidable coercive capacity, which appears to have succeeded in reclaiming the streets for now. Yet repression alone cannot restore stability or ensure the long-term viability of the regime.

• 1

  The empirical foundations of this article are drawn from my book, Capitalism in Contemporary Iran: Capital accumulation, state formation and geopolitics(Manchester University Press, 2024; paperback edition January 2026). 

• 2

  The IRGC-affiliated construction conglomerate Ghorb embodied this rise. By 2017, Ghorb claimed to have completed over 2,500 projects, spanning highways, metro lines, dams, hospitals, and agricultural schemes. Rather than damaging Ghorb’s position, the sanctions regime helped to consolidate it. When Shell and Total withdrew from South Pars, Ghorb subsidiaries were awarded no-bid contracts. Hidden behind a dense network of subsidiaries, front companies, and charitable shells, it is difficult to measure the true scale of Ghorb’s operations, but by 2010 it reportedly controlled more than 800 registered firms. 

• 3

  It is worth noting that, unlike during the first decade of the revolution, the 1989 constitutional reforms abolished the prime ministership and concentrated executive authority in the presidency.