Iran ends its worst year and enters an uncertain future

The Iranian year 1403 ending on March 20 marked one of the most challenging yet for the country’s ruling elite, which has been beset by economic malaise at home and historic setbacks abroad.

At the start of the year in March 2024, Iran was already grappling with a broken economy and the looming threat of political unrest. Regionally, however, it still appeared strong and could plausibly project itself as a serious challenge to US and Israeli interests.

Conflict with Israel

As the year began, Israel was deeply engaged in its war with Iran-backed Hamas in Gaza. Tehran confidently claimed that its regional adversary was stuck in an unwinnable conflict, boasting about its so-called Resistance Front and threatening to escalate against both Israel and US interests. Yemen's Houthis were already disrupting shipping in the Red Sea and launching missiles at Israel.

Houthi attacks on maritime trade which began in November 2023 following a declaration by Iran’s Supreme Leader Ali Khamenei inflicted an estimated $200 billion in losses on the global economy.

Less than a month into the Iranian year, Tehran launched a large-scale missile and drone strike on Israel In April 2024 in response to Israeli attacks on Iranian targets in Syria.

While most projectiles were intercepted with minimal damage, the Islamic Republic framed it as a significant blow against the "Zionist entity." At the time, Tehran appeared strong, seemingly capable of deterring its most determined adversary.

However, the tide began to turn in late July when Hamas leader Ismail Haniyeh was killed in an explosion while staying at a government guesthouse in Tehran.

It remains unclear whether the incident was caused by a planted explosive or an Israeli missile strike, but the ability of Tehran's arch-foe to strike seemingly anywhere was lost on no one.

The assassination would be just one of many, crescendoing with the killing of Hezbollah leaders via their bomb-laden communication devices and culminating in the assassination of its storied leader Hassan Nasrallah.

Political crisis

Before these epochal blow, Iran suffered another major shock in May when hardline President Ebrahim Raisi and his foreign minister died in a mysterious helicopter crash in northwestern Iran.

Many doubted the official explanation of bad weather, which was never conclusively proven, fueling speculation about a high-level internal plot or an Israeli operation.

Raisi had been widely regarded as ineffective, presiding over a rapidly deteriorating economy since taking office in 2021.

In June, Iran held presidential elections, with several key candidates disqualified through a vetting process controlled by Khamenei. Ultimately, Masoud Pezeshkian, a politician with no executive experience, faced hardliner Saeed Jalili in a low-turnout runoff and won.

During his campaign, Pezeshkian made it clear that he had no plans beyond executing Khamenei’s directives.

Some Iranians still hoped for limited reforms and a diplomatic breakthrough to ease US sanctions. However, when Khamenei formally banned negotiations in early February 2025, Pezeshkian pledged loyalty to his decision, disappointing even his Reformist supporters.

Economic crisis

By mid-2024, with Hezbollah and Hamas weakened and Israel growing more confident in striking Iranian military targets, Iran’s economic woes deepened. The rial, which had been around 550,000 per dollar in September, plunged to 900,000 by February and even hit one million by March 18.

The worsening economic picture underscored a government unable to halt a downward spiral. Severe energy shortages crippled both households and industries throughout fall and winter, with the government regularly announcing power shutdowns across the country due to heating and electricity failures.

Iran’s oil exports to China continued through intermediaries and at deep discounts, but the Trump administration escalated sanctions on oil tankers and trading entities following Biden’s late-term crackdown on exports.

Revenues from these limited exports fell far short of meeting the government’s foreign currency needs, especially given Tehran’s ongoing financial commitments to regional proxy groups.

Bleak outlook

Many political insiders in Tehran now say Pezeshkian’s administration may be incapable of addressing the worsening economic crisis. The only potential relief would come from easing US sanctions, but Khamenei has so far resisted Trump’s pressure to make concessions.

It remains unclear whether Washington seeks only a binding agreement to prevent Iran from enriching uranium to weapons-grade levels or whether it also aims to curb Tehran’s ballistic missile program and regional activities.

Khamenei appears to be employing delaying tactics, hoping circumstances shift in his favor or that he can stall until the next US elections. Meanwhile, Trump continues to tighten sanctions and increase military threats, either directly or through Israel.

Another critical challenge is the risk of public unrest due to soaring prices and a growing sense of political instability.

While the Islamic Republic has repeatedly demonstrated its willingness to use deadly force against protesters, its ability to quash mass uprisings is not guaranteed.

If essential goods approach hyperinflation levels, even the security forces and loyalist cadres—who rely on fixed incomes—could begin to waver.