Water, air pollution and economic crises are nothing new for Iran; however, each seems to be reaching new levels of seriousness. They highlight chronic governmental mismanagement over decades while also posing potentially existential headaches for the regime.
Tehran’s two-track strategy. Iran stands ready for either renewed conflict or renewed diplomacy, according to foreign minister Abbas Araghchi. Araghchi urged foreign governments to choose between “the path of dialogue” set out in the 2015 nuclear deal and the “path of war” witnessed in June’s 12-day confrontation with Israel. He described that conflict a “success” for Iran, claiming Israel failed to meet its objectives. Israel reported roughly 1,480 targets struck and 3,500 munitions dropped across Iran during the campaign, which Tehran says killed 30 senior military commanders. Araghchi maintained that Iran’s defences were quickly restored and its nuclear programme is intact, dismissing Donald Trump’s assertions that American strikes crippled Iran’s nuclear capacity. He also argued that renewed diplomatic overtures from Western governments followed the failure of military pressure: “They did not achieve what they wanted through force.” Still, he said Tehran sees “no constructive intent” from Washington and therefore no current basis for talks. Supporting Araghchi, his deputy, Saeed Khatibzadeh, said any direct talks with the United States would occur only under “armed conditions,” blaming a deep mistrust: “…if there is to be negotiation, it will be an armed negotiation.” Khatibzadeh added that Washington had sent mixed signals through intermediaries, while Ali Larijani, Secretary of the Supreme National Security Council, confirmed Tehran had not issued new messages to the Americans. President Trump, meanwhile, stated publicly that Iran “now wants to negotiate” after the strikes he ordered, attributing this shift to America’s renewed military strength. Tehran has denied seeking talks and continues to reject demands for a full halt to uranium enrichment.
Pezeshkian’s unlikely protectors. Hardline newspapers in Tehran have launched an unusual defence of President Massoud Pezeshkian, accusing the moderate figures who helped bring him to power of trying to undermine his government. In a reversal of Iran’s usual political pattern, IRGC-linked Javan and the Supreme Leader-aligned Kayhan newspapers criticized Pezeshkian’s record yet directed their sharpest attacks at centrist outlets and politicians, calling them opportunistic and destabilizing. “Some reformists have been threatening the President and urging him to resign,” Javan wrote on Wednesday, branding their conduct as “spiteful and self-serving.” The paper appeared to refer to former MPs Hossein Marashi and Elias Hazrati, whose media groups recently circulated claims of an impending resignation. Kayhan, meanwhile, adopted a subtler approach, quoting reformist newspapers to deliver its own critique. It faulted government “inaction” and “misguided policies,” while criticising citizens for neglecting prayer amid the deepening water crisis. Citing Ham Mihan and Sharq, it relayed remarks describing Pezeshkian’s administration as “desperate” and short on solutions. The paper also mocked government spokeswoman Fatemeh Mohajerani for sending reporters a heart emoji, echoing a reformist taunt: “You are not a stand-up comedian.” While hardline media have long attacked moderate-backed presidents, this time they appear to be using reformist criticism as cover – undermining Pezeshkian while posing as defenders of institutional stability. Javan closed its piece with a pointed jab at both camps: “Someone preparing to resign does not kick the ball like that,” it wrote, referencing the president’s recent football-field photo-op. “Those hoping for his resignation have misjudged the game.”
The well runs dry. Tehran and other major Iranian cities are facing an imminent water crisis with millions at risk of depending on tanker deliveries as supplies dwindle. Used to annual droughts, Iran is currently facing a state in which demand has far outstripped sustainable supply and long-term reserves are already exhausted. Satellite data show reservoirs at historic lows: Tehran’s five main dams are near-record minimums, while those supplying Mashhad have dropped below 3% capacity. In some neighbourhoods, water is already being rationed at night, and authorities have urged residents to install storage tanks. Agriculture consumes about 90% of Iran’s water, protected for decades under food-security policies that prevent diversion to cities. For years the state has masked scarcity through dam-building, deep-well drilling, and long-distance transfers creating an illusion of abundance that spurred unsustainable urban growth. With aquifers and rivers depleted, Iran now has little backup. Acknowledging Tehran’s mounting water stress, energy minister Abbas Aliabadi said that diverting Persian Gulf water to Tehran could be used as a last resort. The comments attracted ridicule in the media. Major desalination plants are under construction in Chabahar, Bandar Abbas, and Khuzestan but these are intended to bolster southern supplies only.
Toxic Skies. Meanwhile air pollution reached hazardous levels across much of Iran during the reporting period. Fourteen cities in Khuzestan province are under red-alert conditions (‘unsafe for all residents’) and several others nearing dangerous thresholds, according to national air-quality data. Pollution spikes in recent weeks have caused hospital admissions to rise in affected areas by 15–20% in October and 25% in November compared to last year’s figure. Elsewhere, air quality in Mashhad remained unhealthy for sensitive groups for the eighth consecutive day, driven by fossil-fuel use in industry, power plants, and transport, compounded by stagnant atmospheric conditions. In Isfahan, air quality stayed in the red category for the eleventh day in a row, blanketing the city and its historic bridges in heavy smog. With stagnant weather conditions set to persist, Deputy Health Minister Alireza Raisi stated that 58,975 Iranians died from air-pollution-related causes in the past year, inflicting an estimated $17.2 billion in economic losses.
Rial. The rial remained at historic lows to end the reporting period at a black-market rate of 1,120,000 IRR to the USD.
The vanishing middle. Iran’s economy is now marked by a widening gap between rich and poor and the rapid erosion of its middle class. Labour Department officials estimate that around 40 million Iranians now live below the relative poverty line, including seven million in absolute poverty (defined as those who would suffer malnutrition even if they spent all their income on food). Bread, which supplies more than 40% of daily calories for low-income households, has nearly doubled in price within a year, while the real dollar value of wages has fallen from $500 in 2015 to less than $160 today. Food inflation exceeded 90% in October, with the minimum wage now covering barely one-third of basic costs, meaning that even proposed wage hikes of 35% would fail to restore purchasing power.
The vanishing medicines. Prices of medicines, medical equipment, and healthcare services have surged by around 70% following the government’s decision to abolish the subsidized exchange rate for drug imports. The Daroyar reform plan, intended to cushion the impact through expanded insurance coverage, has failed to meet its goals, leaving patients to absorb most of the cost. Rising foreign-exchange rates, liquidity shortages among importers, and broad inflation have led to worsening drug shortages in hospitals and pharmacies. The government had allocated $3.4 billion in foreign currency for medical imports this year, but a 10–20% shortfall has already emerged halfway through the Iranian year, and import timelines have doubled to six months.
The vanishing billions. The Central Bank of Iran has reported record capital flight in 2025, highlighting the scale of the country’s worsening financial pressures. According to the Bank’s latest quarterly report, the capital account balance for the first fiscal quarter (beginning March 21) stood at minus $9 billion – the largest outflow ever recorded. Last year’s total was nearly triple the 2020 figure. If the current pace continues, capital flight will approach 10% of GDP. It remains unclear how much of this outflow stems from ordinary citizens moving savings abroad versus transfers by politically connected individuals and businesses. The economy minister recently claimed the private sector handles only 15% of foreign trade, suggesting that quasi-state actors account for much of the outflow. The report also recorded a sharp decline in export revenues. Oil income fell by $3 billion year-on-year to $15 billion, while non-oil exports dropped below $11 billion. The situation appears to be worsening as Iranian oil offloading at Chinese ports has fallen to roughly 1.2 million barrels per day, down from 1.5 million earlier in the year. As a result, officials are warning of acute foreign-currency shortages and limited Central Bank capacity to fund imports or investment.
None of the themes in this reporting period are new, but all are on a downward trajectory. Without any realistic prosect of diplomacy in the near term, it’s difficult to see how the regime gets out of the hole it has dug for itself.