If Iran changes, the region's economy would change with it

The future of the Islamic Republic is unresolved, but if and when change comes, Iran’s return to global trade would carry far-reaching consequences for the region’s economy.

A deadly crackdown may have quieted Iran’s streets for now, but the state appears increasingly brittle, with no clear answer to a deepening economic crisis that is eroding living standards and confidence.

External pressures are also likely to intensify after Tehran’s crackdown on protesters, narrowing revenue channels and shrinking the government’s economic room to maneuver.

Left unresolved, those pressures are likely to generate further unrest and, in time, a political transition that seeks normalization with the world.

A normalized Iran—able to trade, borrow, insure cargoes and receive investment like other upper-middle-income economies—would likely enjoy a large upside, given how much of its economy has been operating below potential.

Its advantages are straightforward: scale, in the form of a large domestic consumer market; a relatively diversified industrial base by regional standards; deep energy and petrochemical capacity; and a geographic position that could turn the country into a natural junction linking the Persian Gulf, the Caucasus, Central Asia and Turkey.

The most immediate gains would come from energy exports unleashed from sanctions and sharply lower transaction costs. Over time, however, the larger prize would be productivity. Access to global supply chains and affordable capital, combined with Iran’s labor force, could lift output across all sectors.

None of this would be automatic. The payoff would depend on restoring basic economic credibility: stable money, predictable regulation and a solid banking system.

Turkey stands out as the clearest short-term beneficiary of such a shift in Iran. Proximity, road links and established distribution networks would allow Turkish firms to move quickly, while airlines and tourism operators would likely benefit from a surge in outbound Iranian travel.

Iraq would gain from formal payment channels and more predictable energy trade, easing pressure on the dinar and reducing transaction costs.

Pakistan’s upside would lie in infrastructure: if sanctions risk were removed, long-stalled energy links could become commercially viable, easing power constraints and lowering industrial costs.

The United Arab Emirates would likely lose some of the high margins associated with sanctions-bypass trade but gain as a platform where Iran-bound capital is raised, structured and eventually deployed.

Azerbaijan could benefit if Iran became a reliable bridge to Russia and Eurasia through freight, swaps and grid connections.

Israel could also emerge as a beneficiary. A normalized Iran would lower the region’s risk premium and potentially reduce energy costs, while Israeli firms—particularly in technology and water and agricultural solutions—could potentially compete for contracts in a large, untapped market.

The clearest losers would be producers and hubs that have quietly benefited from Iran’s isolation.

In energy markets, a sanctions-free Iran re-entering at scale would intensify competition between price and market share, leaving oil-dependent exporters such as Saudi Arabia and Kuwait more exposed to revenue volatility and fiscal trade-offs.

In gas, Qatar’s dominance in Asian LNG contracting could face pressure as investment and technology return to Iran’s side of South Pars, potentially narrowing bargaining power and affecting pricing over time.

Iran’s reintegration would also challenge business models built on being indispensable detours. Kuwait, for example, could find that costly hub ambitions become less compelling if Iraq–Iran rail and port combinations offered cheaper trade routes.

More subtly, some early beneficiaries could face second-round competition once Iran begins producing and exporting at scale.

Turkey may initially sell heavily into the Iranian market, but over time a revitalized Iranian manufacturing sector could begin displacing Turkish goods in nearby markets.

For Pakistan, cheaper Iranian energy would be an opportunity, but a fully functional Chabahar and Iran-centered transit corridors could divert trade away from Gwadar unless Pakistan integrates its infrastructure into those routes.

If Iran were to return as a normal economic actor, regional debates would shift from ideology to competition. The central question may no longer be who can contain Tehran, but who can compete with it.

In that environment, the advantage would likely accrue to states that adapt fastest, moving away from protected niches and easy rents toward productivity, technology and integration.

A reopened Iran would not simply add another participant to the regional economy; it would change the structure of the marketplace itself.

Iran’s crisis and the limits of sovereignty

Jan 14, 2026, 09:11 GMT

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Shahram Kholdi

The events of the past two weeks in Iran point toward an openly regime-change movement, with protesters calling for the end of the Islamic Republic itself.

Revolutions differ from episodic unrest not by the scale of any single demonstration, but by their structure and direction. They are sustained rather than spontaneous; cumulative rather than cathartic. Their power lies in endurance, in the gradual erosion of legitimacy, authority, and administrative control, until the system itself becomes untenable.

Compared with past protest waves, the current unrest appears more nationally synchronised, socially broad, and symbolically convergent. Equally significant is the re-emergence of a shared national language of opposition that Tehran has long sought to crush through ideology, patronage, and repression.

This matters because revolutions do not target the security apparatus alone. They strike at the regime’s ability to govern routinely. A state under revolutionary pressure must deploy coercion continuously rather than episodically. That is costly, exhausting, and politically corrosive.

Iranian police have circulated text messages warning families to keep young people and teenagers at home, citing the alleged presence of “terrorist groups” and armed individuals at demonstrations and threatening decisive action. The author has independently verified these messages.

Such warnings are not merely informational; they are designed to shift responsibility for state violence onto families themselves.

Yet repression alone does not explain the regime’s present fragility. For much of its rule, governance in the Islamic Republic has been hollowed out by a deeply entrenched kleptocratic system, in which political authority, security power, and economic privilege are fused.

Years of sanctions, chronic inflation, currency collapse, and fiscal mismanagement have hollowed out state capacity. Recent military setbacks have compounded internal strain. The result is a regime increasingly reliant on force at a moment when its economic and institutional resilience is at its weakest.

Mass killing

Iran International reported on Tuesday that at least 12,000 people had been killed in the recent protests, describing the crackdown as “the largest killing in Iran’s contemporary history.”

The emerging scale of violence therefore places Iran’s crisis under increasing strain within the framework of the Responsibility to Protect doctrine (R2P). When a state is credibly accused of mass killing, collective punishment, and systematic efforts to conceal casualties, its claim to sovereign non-intervention comes under acute pressure.

R2P does not mandate automatic military action, but it does impose an obligation on the international community to consider diplomatic, economic, legal, and—if atrocities escalate further—coercive measures.

In this sense, the internationalisation of Iran’s crisis would be the consequence of Tehran's own conduct, not foreign imposition.

In 2011, the UN Security Council invoked the Responsibility to Protect in Libya when the Gaddafi regime threatened mass atrocities during the Arab Spring. Western alliances have acted to prevent large-scale civilian harm even in the absence of an explicit UN mandate.

From Bosnia and Kosovo during the wars of the former Yugoslavia to Sierra Leone and parts of the Sahel, the underlying logic has been consistent: when states engage in or enable mass violence against civilians, sovereignty ceases to function as an absolute shield.

Trump’s intervention

It is in this context that US President Donald Trump’s increasingly explicit warnings to the Islamic Republic should be understood.

Earlier today, Trump issued a direct message to Iranian protesters on Truth Social, urging them to “KEEP PROTESTING–TAKE OVER YOUR INSTITUTIONS,” announcing that he has cancelled all meetings with Iranian officials, and declaring that “HELP IS ON ITS WAY” if the killing of protesters does not stop.

This marks a notable escalation in both tone and signalling.

Trump has now repeatedly framed continued repression as a red line, stating that the United States will not tolerate mass killings of civilians.

It is unlikely that US planners would ignore the lessons of Israel’s recent 12-day campaign against Iran, a campaign in which American forces ultimately participated and which demonstrated both the reach and the limits of strikes narrowly focused on infrastructure.

Any strategy under consideration would likely be shaped less by symbolic targets than by the regime’s security architecture itself: the institutions, decision-making structures, and coercive networks that sustain repression.

Whether such pressure remains declaratory or translates into action, the signal is unmistakable: the regime’s own conduct has pushed the crisis beyond routine diplomacy and into active contingency planning.

Change in strategic terrain

The comparison most often drawn is with 2009. But the analogy is misleading.

The Green Movement was largely urban, middle-class, and procedural in its demands. It challenged an election outcome, not the foundational legitimacy of the system itself. The current movement contests the regime’s right to rule altogether.

Nor does this moment resemble many leaderless uprisings of the past century, which fractured under pressure or collapsed into ideological ambiguity. What distinguishes the present phase is the growing convergence around a figure and a direction.

Reza Pahlavi, the son of Iran’s last shah—whose reign ended in February 1979 following the revolution led by Ruhollah Khomeini—appears to be functioning, through popular recognition rather than formal appointment, as a focal point for disparate strands of opposition.

Whatever one’s view of monarchy, the presence of an identifiable political centre of gravity marks an important departure from previous cycles of unrest.

For now, the Islamic Republic retains formidable coercive capacity. Revolution does not guarantee swift collapse. What it does guarantee is a change in the strategic terrain.

The question is no longer whether the regime can suppress protests tonight, but whether it can sustain governance tomorrow, next month, or next year under unrelenting strain.