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Empirical Data and Street Riots Expose Iran Regime’s Misplaced Priorities as the True Engine of Economic Devastation

Written by Mansoureh Galestan

AI-generated image depicting an economy in free fall

Five-minute read

Iran is facing an economic crisis of unprecedented scale. Rampant inflation, bankrupt factories, and staggering poverty rates are not just abstract statistics—they are the painful, defining realities of ordinary Iranians’ lives. However, the people do not blame foreign sanctions for their suffering; they blame the true architect of the devastation: the regime itself.

Sanctions hurt Iran’s economy. They cut oil revenue, raise transaction costs and block access to Western capital and technology. Academic studies put the cumulative GDP loss at 12–19 percentage points. Oil earnings fell from roughly $95 billion in 2011 to lows of $5–11 billion in the worst years.

But food, medicine, medical devices and agricultural goods have never been sanctioned. US law (Trade Sanctions Reform Act 2000), OFAC rules (31 CFR §560.530 and successive general licenses), EU regulations and UN resolutions all carve them out explicitly. Iranian pharmaceutical imports hit $1.92 billion in 2022 — higher than the 2011 peak. Foodstuffs and live animals reached a record $12.74 billion in 2023.

The deeper, longer-running crisis — chronic 20–45 percent inflation, a rial that has collapsed from about 10,500 to the dollar in 2010 to 1.5 million by January 2026, blackouts in a country sitting on the world’s second-largest gas reserves, collapsing living standards and mass emigration — is driven by the regime’s own choices. Iranian budget laws, the Court of Audit, the Majlis Research Center, the Central Bank, the Statistical Centre and the regime’s own officials document this clearly. The regime acquires large volumes of food and medicine. Those goods do not reach ordinary households or stabilize markets because of diversion, preferential access for insiders and deliberate prioritization of military, ideological and patronage spending.

Purchases, Aid and Allocations That Never Reached the People

Iran continues to import and produce substantial quantities of exempted goods. Domestic pharmaceutical production covers 95–99 percent of volume needs. Life expectancy rose and child mortality fell for years even under pressure. Yet shortages of specialty drugs, infant formula and basic foodstuffs keep recurring.

The reason is internal. Between 2018 and 2021 the government allocated roughly $46 billion at the preferential 4,200-rial rate for essential imports. Iran’s own Supreme Audit Court found $4.821 billion of that currency issued in a single year for goods that never arrived. Some of the money bought dental floss, toys and pet food. Health Minister Bahram Eyn-ollahi said openly that the preferential rate “generates corruption and must be eliminated.” The Debsh Tea scandal alone involved $3.3–3.7 billion in preferential currency, much of it resold on the open market. Subsidized medicine is routinely smuggled to Afghanistan — a fact Iranian officials themselves have cited. Industry groups reported four-to-five-month delays in foreign-exchange allocation as the direct cause of acute shortages in late 2025.

The regime bought or allocated the goods. Diversion, rent-seeking and bureaucratic blockage ensured ordinary Iranians saw little benefit. Inflation and food prices continued to climb. Minimum wages covered only a fraction of basic living costs.

When Sanctions Were Lifted, Ordinary Lives Did Not Improve

The JCPOA period after January 16, 2016, is the clearest test. Nuclear-related sanctions were removed. Iran regained access to frozen assets and restored oil exports. Headline GDP grew 6.6–13.4 percent. Inflation fell to a 25-year low of 7–9 percent in 2016–17.

The recovery was narrow and short-lived. Non-oil growth was only 0.9 percent according to the IMF. Realized foreign direct investment reached $3.4–5 billion a year against roughly $50 billion in announced deals. Liquidity growth stayed in double digits. Military spending rose. A contemporary poll found 70 percent of Iranians — including a majority of President Rouhani’s own voters — said the relief had not improved their living conditions. Nationwide protests erupted in December 2017, almost two years after Implementation Day and months before the United States left the agreement.

Sanctions relief restored oil revenue. The domestic system that turns national income into household welfare remained broken. The money flowed to the same institutions that had captured earlier oil windfalls.

What Iranians Chant in the Streets: They Blame the Regime, Not Sanctions

The pattern of protests since 2017 shows where ordinary Iranians place responsibility.

In late December 2017 and early 2018, demonstrations began over rising food prices, unemployment and the collapse of unlicensed “shadow banks” that wiped out tens of thousands of depositors’ savings. They quickly spread nationwide. Protesters chanted “Death to the Dictator,” “Death to Khamenei,” “Neither Gaza nor Lebanon, my life for Iran,” “Reformists, Principlists, the game is over,” and “Let go of Syria, think about us.” The slogans targeted the Supreme Leader and the entire system, not foreign sanctions.

Water shortages produced the same response. In 2021, in Isfahan, farmers and residents repeatedly protested the drying of the Zayandeh Rud river and upstream diversions. They chanted “Our enemy is right here, they lie it’s America,” “Death to the Dictator,” “Death to Khamenei,” and “When we have no water, we don’t need officials — we’ll put a cow in their place.” Similar protests in Ahvaz and Khuzestan in 2018 and 2021 focused on water scarcity, dust storms and electricity cuts. Slogans included “Death to Khamenei,” “The people want the fall of the system,” and “Neither Gaza nor Lebanon, my life for Iran.” In 2021, in Saravan (Sistan and Baluchestan) protests over fuel traders and local repression produced anti-regime graffiti and chants of support for the local population against “the mullahs.”

The January 2026 wave followed the same logic. It began in late December 2025 in Tehran’s bazaar after the rial crashed past 1.5 million to the dollar and inflation spiked. Within days it spread to Mashhad, Isfahan, Tabriz, Ahvaz and hundreds of other cities. Crowds chanted “Death to the Dictator,” “Death to Khamenei,” “This is the year of blood, Seyyed Ali will be toppled,” and again “Neither Gaza nor Lebanon, my life for Iran.” The regime responded with internet blackouts, mass arrests and deadly force, while state media and officials blamed “rioters” acting for the United States and Israel.

In every major wave the economic trigger is real. The political diagnosis from the street is consistent: the problem is the regime’s corruption, mismanagement and priorities, not the existence of sanctions.

While Iranians on the ground chant against the system, some of the regime’s most visible Western advocates continue a different narrative. The regime’s wide web of lobbies, mouthpieces and so-called “Iran Experts” have for years argued that sanctions are the primary driver of ordinary Iranians’ suffering, that they hollow out the middle class and that lifting them is the path to relief. NIAC reports and statements repeatedly frame sanctions as collective punishment that “hurt the Iranian people,” claim the economy has shown “resilience” under pressure, and present sanctions relief as the key to improving daily life. These arguments appear in Capitol Hill briefings, op-eds and organizational statements even as protesters inside Iran reject the same framing.

Where the Money Actually Goes

Iranian budget documents show the priorities. Officially, military and security institutions receive roughly one-quarter of the general public budget and 47–51 percent of oil-export resources in recent years, with further off-treasury transfers. The IRGC’s allocation substantially exceeds that of the regular army. The National Development Fund, created to save oil wealth for future generations, has seen roughly 82 percent of its resources spent; 88 percent of its lending has gone to the government and the IRGC, according to the Majlis Research Center in 2025. Explicit ideological and propaganda line items exceed the budgets of civil aviation, the science vice-presidency and the Department of Environment.

Energy subsidies, by the state’s own figures, run $100–127 billion a year — larger than the entire recorded national budget. Iran flares more gas than many countries produce (17.5 bcm in 2022, 20.4 bcm in 2023 — the world’s third-highest). Schools close in winter for lack of gas and factories shut in summer for lack of electricity. Agriculture consumes 87–92 percent of water withdrawals while contributing about 10 percent of GDP. Lake Urmia has lost most of its volume; the Zayandeh Rud no longer flows permanently; large parts of the country are subsiding irreversibly from groundwater over-extraction. The Majlis Research Center itself has stated that mismanagement, not rainfall, is the main cause.

Parastatal foundations under the Supreme Leader’s office — Setad, Astan Quds Razavi, Bonyad Mostazafan — control vast assets with minimal transparency or tax. “Privatization” under Article 44 transferred major firms to IRGC-linked cooperatives and pension funds (the phenomenon Iranians call khosulati). Smuggling of $12–30 billion a year occurs largely through official customs channels, according to a 2020 Majlis report. Corruption cases such as Debsh Tea, the petrochemical FX diversion (€6.6 billion) and Babak Zanjani’s oil proceeds ($1.9–2.7 billion) show insiders using opaque channels created partly by sanctions to steal from the state.

Iran remains on the FATF blacklist solely because its own Expediency Council refuses to ratify the necessary conventions. That pure self-imposed penalty adds 7–8 percent to trade-finance costs.

The Human Cost and the Long-Term Record

Iran’s Welfare Ministry reported in 2023 that about 60 percent of the population lives below the relative poverty line and 20–30 million people in absolute poverty. Per-capita meat consumption has fallen 17 percent since 2010; red-meat intake is far below global averages. Real GDP per capita in constant dollars remains below its 1976 peak. The largest single collapse occurred during the revolution and Iran–Iraq war — before modern sanctions. Banking insolvency and negative capital adequacy in multiple institutions date back more than a decade and predate maximum pressure. Capital flight and skilled emigration continue at high levels for reasons sanctions cannot fully explain.

Former Supreme Leader Ali Khamenei admitted on August 13, 2018, the day maximum pressure began: “The main cause of these problems is not only sanctions, but also wrong decisions and shortcomings… The root of this issue is not foreign, it’s internal.” He repeated the formulation in 2022. Economy ministers, the Court of Audit and the Majlis Research Center have issued similar assessments of mismanagement across successive administrations.

Conclusion

Sanctions constrained the regime’s revenue and access to technology. The regime’s priorities determined who paid the price. Food and medicine were never prohibited; the state’s own preferential-currency system diverted them. Energy was never sanctioned; the state maintains subsidies larger than its budget and flares gas on a global scale. Water was never sanctioned; the state built the dams that emptied the rivers. Talent and capital leave institutions people do not trust. The FATF blacklist is maintained by a vote Tehran refuses to take.

Street protests from 2017–18 through Isfahan, Ahvaz, Saravan and January 2026 show Iranians understand this. Their slogans target the regime, not the sanctions. Western advocates who continue to present sanctions as the decisive cause of ordinary suffering are arguing against the evidence on the ground and against the regime’s own recorded admissions.

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