Developments this month are narrowing the gap between diplomacy and confrontation. Washington has increased military pressure while pushing for a faster negotiating timeline; Israel is pressing to expand any agreement beyond the nuclear file to include missiles and regional proxies; and European institutions have stepped up pressure on Tehran in response to the domestic crackdown. Inside Iran, the picture remains unsettled: elite messaging is inconsistent, the state is moving against reformists and activists, and exiled opposition figures are trying to convert heightened international attention into momentum. The economy remains under strain – renewed pressure on the rial, falling equities and persistent inflation – but that same volatility is also increasing the incentive for all sides to probe limited diplomatic off-ramps.
A. Crisis Momentum. The US-Iran standoff has sharpened as Israel pushes to widen the scope of any nuclear deal and Iran’s opposition steps up mobilisation. After an inconclusive first round of talks in early February, Washington ordered a second aircraft carrier, the USS Gerald R. Ford, to the Middle East. Trump warned that failure to reach an agreement would bring “very traumatic” consequences and urged Tehran to move quickly — the opposite of Iran’s familiar strategy of stretching talks to buy time. Netanyahu said Trump’s tougher line could force Iranian concessions, but argued any deal must also address ballistic missiles and proxy networks. Regional powers including Turkey, the UAE and Saudi Arabia are urging dialogue to avert conflict; Turkey is advocating a step-by-step approach, starting with the nuclear file. In parallel, the US has reportedly shipped thousands of Starlink terminals into Iran, signalling more direct support for internal dissent, while Reza Pahlavi has called for coordinated rooftop protests to coincide with diaspora demonstrations. Iran has warned that war would imperil energy security and could trigger closure of the Strait of Hormuz.
B. Waiting on Khamenei. Tehran’s messaging on war versus diplomacy appears less like a coordinated strategy than a symptom of elite disunity. IRGC-linked outlets and Khamenei’s public remarks underline the contradiction: talks may be possible, regional war is a live risk, yet Trump’s terms are framed as unacceptable. Hard-liner rhetoric has escalated, with some Majlis members calling for measures such as closing the Strait of Hormuz and ending cooperation with the IAEA. Others made theatrical claims about preparing graves for US soldiers – remarks even local officials criticised as irresponsible. The overall effect is noise rather than direction: factions argue for concessions, resistance or escalation, while the system waits for a clear signal from the top.
C. Monarchy Momentum. Reza Pahlavi, the exiled son of Iran’s last shah, has stepped up efforts to position himself as a leader-in-waiting. Over the past month he has intensified lobbying in Washington, sought meetings with lawmakers and diplomats, and will attend the Munich Security Conference. He argues Iranians want outside support, including potential US intervention. Inside Iran, some protesters have chanted his name and pro-monarchy slogans, while his online following has surged. He has tried for years to consolidate a fragmented opposition, raising his profile after the “Woman, Life, Freedom” protests, touring European capitals and meeting Netanyahu in 2023. His transition plan casts him as “Leader of the National Uprising” and outlines interim governing structures after regime collapse. Questions remain over his support base inside Iran, funding, and the baggage of the Pahlavi legacy. While he appears to enjoy strong backing in Israel and visibility in diaspora media, US officials remain cautious: he has met figures such as Senator Lindsey Graham and Trump adviser Steve Witkoff, but Trump has indicated he prefers to “see who emerges,” and even Iran hawks have stopped short of endorsement.
D. Reformists Rounded Up. In further signs of regime insecurity, security services detained four senior reformist politicians on allegations of plotting to topple the system. Those held include Azar Mansouri, head of the Reformist Front, Mohsen Aminzadeh, a former deputy foreign minister for US affairs, and veteran politician Ebrahim Asgharzadeh, along with an unnamed fourth detainee. Other senior figures have been summoned by the judiciary. State media accused the detainees of undermining national unity, opposing the constitution, working with “enemy propaganda,” promoting “surrender,” and establishing “secret mechanisms” to overthrow the system. In recent Instagram posts, Mansouri suggested deep doubt that change is possible within the current political structure and urged President Masoud Pezeshkian to resign. Separately, three prominent activists calling for a constitutional referendum have also been detained.
E. IRGC Blacklisted. The European Parliament condemned what it described as systematic repression of protesters, warning reported killings could amount to crimes against humanity. It cited claims that the death toll may be around 35,000; called for UN documentation and evidence preservation; urged an end to abuses including arbitrary detention and torture; and pressed for expanded EU sanctions and the release of detainees, including Nobel laureate Narges Mohammadi. EU foreign ministers then unanimously designated the IRGC a terrorist organisation. The IRGC is already listed by the US, Australia and Canada. Abbas Araghchi condemned the EU move as a mistake and a “PR stunt,” accusing Europe of inflaming tensions. Although many IRGC figures were already sanctioned, the designation broadens restrictions to anyone linked to the organisation – including travel bans and asset freezes – and further severs access to the European financial system. France had previously warned of risks to Europeans in Iran and to diplomatic channels, but shifted position citing the severity of the crackdown and the IRGC’s role. Spain and several smaller member states moved with France. The UK is not expected to follow, in part due to concerns about keeping its embassy in Tehran open and preserving options in any future political transition.
F. Rally Reality. Iranians used social media during the anniversary of the 1979 Revolution to dispute the Islamic Republic’s claims of mass support, sharing clips of anti-government chants and questioning the authenticity of state coverage. Authorities said “tens of millions” joined rallies nationwide in support of Supreme Leader Ali Khamenei, while opponents argued attendance was often coerced and official images overstated turnout. State TV broadcast long, choreographed marches as heavy security deployments, including special police and armoured vehicles in Tehran, were framed by officials as stability but cited by critics as intimidation. The eve of the anniversary featured fireworks and the usual calls for rooftop “Allahu Akbar” chants, but videos from multiple cities showed counter-slogans such as “Death to the dictator,” sometimes drowning out pro-state chants. Online users also alleged that public employees, teachers and conscripts faced pressure or incentives to attend, with buses reported to have transported people to rally sites. One widely shared claim alleged families of detainees were encouraged to post rally photos to help secure releases. Scepticism also focused on state media itself. A viral clip appeared to show the same woman, holding portraits of Khamenei and Ayatollah Khomeini, in live footage from two different cities, fuelling accusations of staged or recycled content. Opposition voices similarly dismissed televised interviews -including with women shown without traditional hijab praising the leadership – as carefully curated propaganda rather than a reflection of broader public sentiment.
G. Rial. The rial fell to a new black-market low of 1,630,000 IRR/$ on 4 February, before recovering slightly to around 1,600,000 IRR/$ by the end of the reporting period.
H. Risk-off rush. Iranian equities fell sharply as conflict risk compounded an already weak outlook. The TEDPIX dropped for several consecutive sessions, down roughly 10% in the week of the US talks, while trading volumes thinned markedly. Investors continued shifting into perceived safe havens, including gold and foreign currency.
I. Net losses. Internet disruption during the unrest reportedly cost digital platforms and online businesses more than $20mn per day. Local outlets said corporate representatives were granted around 30 minutes of “strictly supervised” internet access at Tehran’s Chamber of Commerce.
J. Inflation. Annual consumer inflation reached 60% this month — the highest in more than a decade, according to the Statistical Center of Iran. Food prices rose after the government scrapped the official subsidised FX rate for importers of basic goods in February, raising production and import costs.
External pressure is increasing faster than Tehran’s ability to absorb it, while internal fragmentation and economic strain are narrowing the regime’s room for manoeuvre. The central constraint remains scope, meaning that US military action against Iran remains the most likely outcome: Trump cannot claim victory for a deal that includes only nuclear concessions (he criticised Obama for this and pulled out of the JCPOA because it was too limited and gave too much away in his/his advisors’ opinion); Khamanei will not concede on the only two assets with regional effect (missiles and militias).