Last Updated on March 4, 2026 by Chicago Policy Review Staff
On February 28, 2026, the United States & Israel conducted joint large-scale military strikes against Iran, hitting military and nuclear targets across cities including Tehran, Isfahan, Natanz, and Fordow. A number of key Iranian leaders have been killed, including Ayatollah Ali Khamenei, Armed Forces Chief of Staff Abdolrahim Mousavi, and Commander-in-Chief of the IRGC Mohammad Pakpour.
Iran responded by firing missiles and drones at multiple U.S. military bases across the Gulf region, including at Al Udeid Air Base in Qatar, Ali Al-Salem Air Base in Kuwait, Al Dhafra Air Base in the UAE, and the U.S. Navy Fifth Fleet headquarters in Bahrain, with many of the missiles intercepted and only limited confirmed damage or casualties.
While this escalation changes the context, the structural fragility that made Iran combustible in the first place remains present.
Iran has seen new rounds of nationwide protests since December 2025, with demonstrators demanding an end to the political order established after the 1979 Islamic Revolution.
The response from Western governments and commentators has been swift and familiar: condemn the government’s abuses and call for regime change.
Before Supreme Leader Ali Khamenei, who had ruled Iran since 1989, was killed along with his family, he had repeatedly made clear that he had no intention of relinquishing power and had dismissed protesters as vandals and saboteurs rather than citizens with legitimate grievances. His public statements framed unrest not as systemic failure, but as a security threat to be suppressed.
Now that he is no more, it remains to be seen how the country he led will fare on its own. A system so dependent on the judgment of a single individual cannot adapt without leadership change. Yet, his departure alone will not resolve the deeper crisis driving these protests: economic collapse, mismanagement and currency depreciation.
Iranians Are Fed Up
The Iranian rial has lost 40 percent of its value since June 2025, part of a broader collapse that has erased nearly 90 percent of its value since sanctions were reimposed in 2018. Inflation remains above 40 percent, with food inflation even higher, eroding real wages and household purchasing power.
Iran carries large, rigid government obligations, including a bloated public-sector wage bill and pension system. At the same time, a sprawling state apparatus shaped by bureaucratic expansion and corruption channels labor and capital into low-productivity roles. As revenues shrink and deficits widen, reliance on currency printing deepens inflation and turns macroeconomic mismanagement into a daily household crisis.
As savings evaporate, wages lag far behind prices, and basic goods become unaffordable, ordinary Iranians have increasingly concluded that endurance is no longer viable.
Functional democracies require rooted political parties, neutral courts, an independent security apparatus and elites willing to transfer power peacefully. Iran does not have these prerequisites at this time.
Recent regional experience shows that removing an incumbent or holding elections is not, by itself, a transition strategy. Egypt replaced Mubarak but left the military intact. Iraq and Libya dismantled central authority before rebuilding security institutions, creating power vacuums. Afghanistan’s fragile state collapsed entirely, allowing a cohesive extremist movement to monopolize power.
The lesson is that transitions that ignore institutional sequencing tend to fail. Sudden political collapse in Iran could produce fragmentation, paramilitary consolidation, or an IRGC-dominated order rather than stable democracy.
Some have looked to the former Shah’s son as a transitional figure. Still, Reza Pahlavi’s unwillingness to fully confront his father’s authoritarian record and the 1953 coup undermines his claims to democratic leadership, raising concerns that a restoration would revive polarizing strongman politics rather than build a constitutional, accountable system. His embrace of royalist populism risks deepening divisions instead of unifying Iranians around a democratic future.
For most citizens, the lived experience of governance matters more than abstract guarantees on paper. People care about currency stability, jobs, healthcare and physical security.
When inflation is contained and daily life remains stable, dissatisfaction rarely translates into coordinated dissent. When predictability collapses, unrest follows.
The Only Viable Path: Sequencing Growth Before Liberalization
Iran’s future cannot be a sudden leap to liberal democracy, nor could it have remained indefinitely centralized around an aging Supreme Leader. The only viable path is gradual decentralization of power paired with a pro-industry shift toward private enterprise and export growth.
The Islamic Revolutionary Guard Corps (IRGC) is widely estimated to control a sizable portion of Iran’s economic activity through formal conglomerates, informal patronage networks, and privileged access to state contracts. In addition, sanctions restrict access to international capital markets, limit correspondent banking, and increase transaction costs for exporters.
For export-led growth to take root under current conditions, Iran would first require gradual commercial disentanglement of the IRGC from non-strategic sectors and the establishment of predictable commercial courts insulated from security institutions. Export-oriented firms would need legal guarantees against arbitrary regulatory intervention and access to credit conditional on performance rather than political loyalty. Without these institutional changes, export promotion would remain symbolic rather than structural. Such restructuring would likely require negotiated internal realignment with the IRGC rather than abrupt expropriation.
The core reform required is institutional: decentralize fiscal and regulatory authority to elected local governments and independent oversight bodies, reducing reliance on security-linked institutions. Economic reform must accompany political reform.
The lesson is not that authoritarianism is desirable. It is that growth anchored the currency, generated hard-currency earnings, and created institutional capacity before liberalization.
Without comparable engines of growth, fiscal reform or rapid political change in Iran risks collapsing under inflation and a new war.
Rather than subsidizing loss-making state enterprises insulated by religious authority, Iran would need to pivot toward export-capable private firms, grant them policy stability and credit access, and gradually privatize inefficient state entities at transparent valuations.
A Narrow Diplomatic Window
The death toll has climbed and now ranges from around 7,000 protesters to an estimated 30,000 (as reported by local health officials). As US carrier groups have moved into the region and violent confrontation has begun, there is still a window of time to pursue a more diplomatic pathway forward.
The Trump administration is, in U.S. history, uniquely more transactional than ideological. Iran could offer structured investment access in oil and gas, joint ventures and long-term supply guarantees in exchange for sanctions relief, an end to regime change efforts and freer movement of foreign direct investment.
Nevertheless, the 2018 unilateral U.S. withdrawal from the JCPOA — despite documented Iranian compliance at the time of withdrawal and amid strong opposition from allies — demonstrates that even verified compliance was insufficient to preserve the deal, underscoring how fragile any future arrangement would be.
Without institutional reform at home and credible commitments abroad, Iran’s crisis will remain cyclical rather than transformational.