The recent unrest originated with merchants in Tehran's Grand Bazaar, a group that prioritizes stability. Their protests highlight the crisis's economic roots: inability to access hard currency for imports, rampant inflation, and collapsing consumer demand, making business untenable for even multi-million dollar traders.
An entrepreneur established a bank, offered high interest rates to attract deposits, and then loaned the majority of that money to his own construction companies. The resulting collapse was so massive (requiring a $5 billion infusion) that it forced the government to amend the national budget, fueling public rage against systemic corruption.
Due to sanctions, Iran's oil exports go almost exclusively to China. This monopsony gives Beijing immense leverage, allowing it to demand deep price discounts and pay in yuan. The funds are held in Chinese banks, restricting Iran to using them only for Chinese goods, crippling its ability to buy essentials elsewhere.
The government's response to protests involved a near-total information blackout, shutting down not just the global internet but also Iran's controlled domestic network. This paralysis extended to essential services like ATMs, making it an unsustainable tactic for the regime as it halts the entire economy.
Following recent conflicts and internal unrest, the Iranian stock market is driven by overwhelming fear rather than fundamentals. The median price-to-earnings ratio has fallen below three, near all-time lows. This indicates that investors are pricing in a constant state of extreme geopolitical risk, creating a uniquely distressed market.
After a two-week stock market shutdown during a previous conflict, a massive sell-off occurred. This was a liquidity event, not a reflection on fundamentals. Retail investors, who dominate the market, were locked out of their funds and sold at any price simply to access cash, creating a cascading effect.