This gamble to reform its system may be economically rational on paper, but politically it borders on reckless. In the short term, it is already doing what subsidy reform almost always does in fragile states: pushing up the price of basic goods, eroding trust, and feeding the very unrest it was meant to contain.
At the core of the reform is the removal of preferential exchange rates for importers of essential goods. For years, the state allocated cheap foreign currency to importers of agricultural commodities and staples to shield consumers from sanctions-driven inflation.
In theory, subsidised dollars meant cheaper food. In practice, the policy degenerated into a rent-seeking machine. Importers arbitraged subsidised FX instead of importing; large conglomerates captured billions; and the prices of basic goods still rose in line with the open market rate. The poorest Iranians saw little benefit, while the state hemorrhaged scarce foreign currency.
Pezeshkian’s solution is to scrap the preferential rate and replace it with direct electronic transfers - roughly seven dollars per person per month - to be spent on groceries. For low-income households, this is not negligible.
It is also an admission that the old model had failed on every metric: equity, efficiency, and credibility. Parliament Speaker Mohammad Baqer Qalibaf framed it bluntly: “The time of billions of dollars in exclusive rents has come to an end.” Pezeshkian himself has said he is uninterested in reelection and focused instead on dismantling rent-seeking.
Yet timing is everything. The government’s own spokesperson has acknowledged that most basic goods will rise 20-30%, with eggs, chicken, and cooking oil jumping far more. This comes as the U.S. dollar’s value on the open market increased by 80% over the past year and food inflation reached new heights.
People did not take to the streets over abstract macroeconomic distortions; they did so because wages collapsed in real terms while groceries became unaffordable. The new reform designed to protect livelihoods is likely to accelerate the squeeze in the short-term.
Hardliners believe this vindicates their worldview. To them, Pezeshkian’s conciliatory posture - both economically and politically - signals weakness, not pragmatism. In the first days of the protests, the state attempted a familiar narrative split: legitimate economic protesters versus “foreign-backed rioters”.
That distinction collapsed almost immediately. This time, protests featured openly pro-Pahlavi slogans and symbols, introducing a paradigm the security establishment was unprepared to manage. Ambiguity, in their eyes, invited escalation.
