How Western sanctions on Iran have hurt the same middle class that drives reform

By Leila Gharagozlou, CNN

(CNN) — The Iranian middle class, long a force of political moderation, stability, economic growth, and the base of the country’s reform movement, is shrinking fast under the pressure of Western sanctions, researchers say. Left in its wake are rising societal resentments and an ever-increasing wealth gap.

A study published in the European Journal of Political Economy has used an innovative method to investigate the true extent and damage of Western sanctions on Iran since 2012 and how they have resulted in a dwindling middle class, leaving more Iranians to struggle on low incomes as a small elite prospers.

Resentment between the social classes is clear when speaking with Iranians, and the frustration felt by a young, highly educated population is more palpable than ever. Iran’s current unemployment rate is 7.4% according to the Statistical Center of Iran, while the International Monetary Fund (IMF) puts the rate at 9.2% for 2025.

“You can feel the difference between rich and poor more than ever; everything has become expensive, whether it’s bread or chicken. Meanwhile, you see people in luxury coffee shops, luxury restaurants,” said Elham, a schoolteacher in Tehran who is trying to make ends meet. Elham asked to be identified by her first name due to security concerns, as did other Iranians in the country who spoke with CNN.

The minimum wage in Iran is approximately 104 million rials, about $110 per month. The prices of basic goods have risen, with an annual inflation rate of 42.4%, according to October figures from the IMF. In South Tehran, the price of basic household staples like rice has nearly quadrupled, according to shopkeepers and residents. Meanwhile, on the other side of the city, wealthy residents attend exclusive Pilates studios charging 17 million rials.

The recent conflict with Israel highlighted the wealth gap. While the Israeli bombing of Iran’s capital targeted both wealthy and less well-off areas of Tehran, residents with means and access to extra fuel amid a fuel shortage were able to flee the city and even the country. One resident, Reza, 36, said: “I couldn’t leave Tehran, even if I wanted to. I couldn’t get fuel to drive anywhere, and I can’t afford the trip to Armenia or Turkey.”

The growing wealth gap and inequality are like a festering wound and Mohammad Reza Farzanegan, a professor of the economics of the Middle East at the University of Marburg in Germany and one of the authors of the new study, told CNN the gap could lead to deep social resentment and damage national unity in the country of around 92 million.

While the Iranian elite continue to reap the benefits of the current system, he said, “the rest of society is left to compete for declining resources in a diminishing economy. The result is a society with increasing inequality and perception of inequality.” The perception of inequality, he added, is even more dangerous to societal stability than the true inequality that exists.

Sanctions have long been billed by the West as a humane tool in the foreign policy and diplomatic arsenal, often described by proponents as being surgical and precise, targeting governments and leaders with minimal civilian impact. However, by studying Iran, one of the most heavily sanctioned countries in the world, the researchers have found that not only have sanctions decimated the economy, they have also punished the segment of the Iranian population which has historically pushed for reforms and change, the middle class.

Farzanegan and his co-author, Nader Habibi, a professor of economics at Brandeis University in the United States, used a synthetic control method to create a data-driven, non-sanctioned “twin” of Iran and compare that twin to the real, sanctioned Iran. The results reveal the significant humanitarian, societal, and political impact of this economic tool on the general population.

According to the study, from 2012-2019, when comparing the real Iran and the non-sanctioned “twin,” researchers found that, were it not for sanctions, the Iranian middle class would have expanded by 17%. By 2019, the middle class of the real Iran was 28% smaller than it should have been, according to their modeling. A separate study published in the book “How Sanctions Work” looked at household data in Iran and estimated that roughly 9 million people lost middle-class status between 2011 and 2019.

Farzanegan believes Iran provides a unique case study. Firstly, the scale and intensity of the sanctions imposed on it are unique. While the country has faced sanctions on and off since the 1979 Islamic Revolution, when the Western-installed Shah Mohammad Reza Pahlavi was overthrown, paving the way for clerical rule, Iran was hit with the strictest sanctions in modern history in 2012 under the Obama administration. A short respite came after the signing of the nuclear deal known as the JCPOA in 2015, but Iran was once again sanctioned by President Donald Trump in 2018, through his “maximum pressure” policy.

Secondly, Iran holds a unique position among sanctioned countries due to its demographics, which includes a “large, educated and previously growing middle class,” Farzanegan said. The Western sanctions, he explained, have “attacked the very heart of Iran’s modern social structure.”

Century in the making

The creation of the Iranian middle class – made up of civil servants, teachers and professionals – has been a century in the making, with efforts over the last 45 years focused on lifting poor, marginalized communities through education and opportunity.

From the 1990s, after the Iran-Iraq war of the previous decade, the Iranian middle class saw increased growth through 2012.  Beyond its role in politics, the middle class in Iran has also been a generator of entrepreneurship, giving birth to some of its most successful startups, like Snapp, Iran’s answer to Uber, or Digikala, the Iranian equivalent of Amazon.  But many young Iranians say they see few opportunities now.

“I spend a lot of time wondering if I should leave, thinking about where I should go, and where I can even get a visa. I drive Snapp, and I do courier services at the moment, but it is still a struggle. I’m not sure what else to do with so few jobs,” said Ali, a 34-year-old based in Tehran.

Ali, like many Iranians, has fallen on hard times. Educated as a computer engineer, he has struggled to find work in his field. His concerns have only grown since Israel and the United States carried out strikes in Iran in June, targeting its nuclear program, and as diplomatic efforts between the US and Iran have fizzled, entrenching sanctions further.

The political damage from years of sanctions can already be seen within Iranian society, analysts say. “Sanctions have weakened independent economic actors while strengthening state-linked and security-sector players like the IRGC and bonyads,” said Sina Toossi, a senior fellow at the US-based Center for International Policy think tank. The Islamic Revolutionary Guard Corps, or IRGC, is one of the most powerful branches of the Iranian military, also holding political, ideological and economic power, and bonyads are government-backed charitable trusts.

“By channeling resources to actors who benefit from isolation, sanctions have tilted the balance toward factions built on control and confrontation, entrenching hardliner power,” Toossi said.

Changed face of protest

The middle class is historically a force of moderation and stability in Iran, bridging the gaps in society and counteracting extremes. “The middle classes have the economic security and education to advocate for civil liberties and political accountability,” said Farzanegan. “Our research shows that sanctions have systematically taken this security. When people are busy with daily survival, their capacity for organized, long-term political engagement is severely diminished.”

The Iranian middle class has long been the backbone of the reform movement, and the driver of many of Iran’s protest movements over the decades. It has been the base for reformist leaders like President Mohammad Khatami in 1997, President Hassan Rouhani in 2013 and now President Masoud Pezeshkian.

With a reduced middle class, Farzanegan warns that one begins to see a small, elite group profiting off and simultaneously insulated from sanctions at the top, and, at the bottom, what he calls “the new poor” – millions of Iranians pushed down the socio-economic ladder. “Sanctions, combined with corruption, function like Robin Hood in reverse, taking from the middle class and poor to enrich the powerful,” he said.

This doesn’t fully destroy political engagement but changes it. “The political mantle has shifted from a middle-class demand for rights and reforms to a working-class cry for survival and bread,” says Farzanegan.

This shift can be seen in working-class-led protests like the November 2019 fuel protests. While those types of protests are an important force, Farzanegan said, they are “more fragmented and focused on short-term economic grievances, making them both volatile and vulnerable to state repression.”

Another issue is that pushing people into poverty increases their reliance on government services. In Iran, this means relying on IRGC-connected social services that have themselves been hamstrung by sanctions, creating an “unsustainable trap,” Farzanegan said.

Sanctions have crippled the government’s primary source of revenue, oil exports, limiting the state’s ability to provide for millions of impoverished Iranians through social safety nets.

Where Iran goes from here is unclear, even as concerns of renewed conflict linger. Rebuilding a middle class, while possible, is a “generational challenge,” said Farzanegan. “It is not a switch that can be flipped back on, even if all sanctions were lifted tomorrow.”

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