Iran’s Rulers Caught Between Trump’s Crackdown and a Fragile Economy 

Iran's Supreme Leader Ali Khamenei speaks during a meeting with Iranian students in Tehran, Iran, March 12, 2025. Office of the Iranian Supreme Leader/WANA (West Asia News Agency)/Handout via Reuters
Iran's Supreme Leader Ali Khamenei speaks during a meeting with Iranian students in Tehran, Iran, March 12, 2025. Office of the Iranian Supreme Leader/WANA (West Asia News Agency)/Handout via Reuters
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Iran’s Rulers Caught Between Trump’s Crackdown and a Fragile Economy 

Iran's Supreme Leader Ali Khamenei speaks during a meeting with Iranian students in Tehran, Iran, March 12, 2025. Office of the Iranian Supreme Leader/WANA (West Asia News Agency)/Handout via Reuters
Iran's Supreme Leader Ali Khamenei speaks during a meeting with Iranian students in Tehran, Iran, March 12, 2025. Office of the Iranian Supreme Leader/WANA (West Asia News Agency)/Handout via Reuters

For Iran's clerical leaders, engaging with the "Great Satan" to hammer out a nuclear deal and ease crippling sanctions may for once be the lesser of two evils.

Though it harbors deep mistrust of the United States, and President Donald Trump in particular, Tehran is increasingly concerned that mounting public anger over economic hardships could erupt into mass protests, four Iranian officials said.

That's why, despite the unyielding stance and defiant rhetoric of Iran's clerical leaders in public, there is a pragmatic willingness within Tehran's corridors of power to strike a deal with Washington, the people said.

Tehran's concerns were exacerbated by Trump's speedy revival of his first term's "maximum pressure" campaign to drive Iran's oil exports towards zero with more sanctions and bring the country's already fragile economy to its knees, they said.

President Masoud Pezeshkian has repeatedly highlighted the severity of the economic situation in the country, stating that it is more challenging than during the Iran-Iraq war in the 1980s, and pointing this month to the latest round of US sanctions targeting tankers carrying Iranian oil.

One of the Iranian officials said leaders were concerned that cutting off all diplomatic avenues might further fuel domestic discontent against Ali Khamenei - given he is the ultimate decision maker in the country.

"There is no question whatsoever that the man who has been the Supreme Leader since 1989 and his foreign policy preferences are more guilty than anybody else for the state of affairs," said Alex Vatanka, director of the Iran Program at the Middle East Institute think-tank in Washington.

It was Iran's weak economy that pushed Khamenei to give tentative backing to the nuclear agreement struck with major powers in 2015, leading to a lifting of Western sanctions and an improvement in economic conditions. But then-President Trump's renewed onslaught against Iran after he pulled out of the nuclear pact in 2018 squeezed living standards once more.

"The situation worsens daily. I can't afford my rent, pay my bills, or buy clothes for my children," said Alireza Yousefi, 42, a teacher from Isfahan. "Now, more sanctions will make survival impossible."

Iran's foreign ministry did not respond to a Reuters request for comment.

'ON EQUAL TERMS'

At the same time as upping the pressure on Iran with new sanctions and threats of military action, Trump also opened the door to negotiations by sending a letter to Khamenei proposing nuclear talks.

Khamenei spurned the offer on Wednesday, saying repeatedly that Washington was imposing excessive demands and that Tehran would not be bullied into negotiations.

"If we enter negotiations while the other side is imposing maximum pressure, we will be negotiating from a weak position and will achieve nothing," Iran's top diplomat Abbas Araqchi told the Iran newspaper in an interview published on Thursday.

"The other side must be convinced that the policy of pressure is ineffective - only then can we sit at the negotiating table on equal terms," he said.

One senior Iranian official said there was no alternative but to reach an agreement, and that it was possible, though the road ahead would be bumpy given Iran's distrust of Trump after he abandoned the 2015 deal.

Iran has staved off economic collapse largely thanks to China, the main buyer of its oil and one of the few nations still trading with Tehran despite sanctions.

Oil exports slumped after Trump ditched the nuclear deal but have recovered in the past few years, bringing in more than $50 billion in revenue in both 2022 and 2023 as Iran found ways to skirt sanctions, according to US Energy Information Administration estimates.

Yet uncertainty looms over the sustainability of the exports as Trump's maximum pressure policy aims to throttle Iran's crude sales with multiple rounds of sanctions on tankers and entities involved in the trade.

PUBLIC ANGER SIMMERS

Iran's rulers are also facing a string of other crises - energy and water shortages, a collapsing currency, military setbacks among regional allies and growing fears of an Israeli strike on its nuclear facilities - all intensified by Trump's tough stance.

The energy and water sectors are suffering from a lack of investment in infrastructure, overconsumption driven by subsidies, declining natural gas production and inefficient irrigation, all leading to power blackouts and water shortages.

The Iranian rial has shed more than 90% of its value against the dollar since the sanctions were reimposed in 2018, according to foreign exchange websites, officials and lawmakers.

Amid concerns about Trump's tough approach, Iranians seeking safe havens for their savings have been buying dollars, other hard currencies, gold or cryptocurrencies, suggesting further weakness for the rial, according to state media reports.

The price of rice has soared 200% since last year, state media has reported. Housing and utility costs have spiked sharply, climbing roughly 60% in some Tehran districts and other major cities in recent months, driven by the rial's steep fall and soaring raw material costs, according to media reports.

Official inflation hovers around 40%, though some Iranian experts say it is running at over 50%. The Statistical Center of Iran reported a significant rise in food prices, with over a third of essential commodities increasing by 40% in January to leave them more than double the same month the previous year.

In January, the Tasnim news agency quoted the head of Iran's Institute of Labor and Social Welfare, Ebrahim Sadeghifar, as saying 22% to 27% of Iranians were now below the poverty line.

Iran's Jomhuri-ye Eslami newspaper, meanwhile, said last week that poverty rates stood at around 50%.

"I can barely cover the rent for my carpet shop or pay my workers' salaries. No one has the money to buy carpets. If this continues, I will have to lay off my staff," Morteza, 39, said by phone from Tehran's Grand Bazaar, giving only his first name.

"How do they expect to solve the economic crisis if they refuse to talk to Trump? Just talk to him and reach a deal. You cannot afford pride on an empty stomach."

NUCLEAR RED LINE

Based on Iranian state media reports, there were at least 216 demonstrations across Iran in February, involving retirees, workers, healthcare professionals, students and merchants. The protests largely focused on economic hardships, including low wages and months of unpaid salaries, according to the reports.

While the protests were mostly small-scale, officials fear a deterioration in living standards could be explosive.

"The country is like a powder keg, and further economic strain could be the spark that sets it off," said one of the four officials, who is close to the government.

Iran's ruling elite is acutely aware of the risk of a resurgence of the unrest similar to the 2022-2023 protests over Mahsa Amini's death in custody, or the nationwide protests in 2019 over fuel price rises, the officials said.

The senior Iranian official said there had been several high-level meetings to discuss the possibility of new mass protests - and potential measures to head them off.

Nevertheless, despite the worries about potential unrest, Iranian officials said Tehran was only prepared to go so far in any talks with Trump, stressing that "excessive demands", such as dismantling Iran's peaceful nuclear program or its conventional missile capabilities, were off the table.

"Yes, there are concerns about more economic pressure, there are concerns about the nation's growing anger, but we cannot sacrifice our right to produce nuclear energy because Trump wants it," the senior official said.

Ali Vaez, Iran project director at the International Crisis Group, said Iran's rulers believed that negotiating with Trump under coercion would signal weakness, ultimately attracting more pressure than reducing it.

"That is why Khamenei seems to believe that the only thing that is more dangerous than suffering from sanctions is surrendering to them," he said.



Europe’s Military Personnel Shortfalls Exposed as Trump Warns US Security Priorities Lie Elsewhere 

Lithuanian Land Force soldiers attend the Allied Spirit 25 exercise in Hohenfels, Germany, 12 March 2025. (EPA)
Lithuanian Land Force soldiers attend the Allied Spirit 25 exercise in Hohenfels, Germany, 12 March 2025. (EPA)
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Europe’s Military Personnel Shortfalls Exposed as Trump Warns US Security Priorities Lie Elsewhere 

Lithuanian Land Force soldiers attend the Allied Spirit 25 exercise in Hohenfels, Germany, 12 March 2025. (EPA)
Lithuanian Land Force soldiers attend the Allied Spirit 25 exercise in Hohenfels, Germany, 12 March 2025. (EPA)

In the year after Russia launched outright war on Ukraine, NATO leaders approved a set of military plans designed to repel an invasion of Europe. It was the biggest shake-up of the alliance’s defense readiness preparations since the Cold War.

The secret plans set out how Western allies would defend NATO territory from the Atlantic to the Arctic, through the Baltic region and Central Europe, down to the Mediterranean Sea. Up to 300,000 troops would move to its eastern flank within 30 days, many of them American. That would climb to 800,000 within six months.

But the Trump administration warned last month that US priorities lie elsewhere. Europe must take care of its own security, and those goals now seem questionable. Mustering just 30,000 European troops to police any future peace in Ukraine is proving a challenge.

Billions of euros are being shifted to military budgets, but only slowly, and the Europeans are struggling to fire up production in their defense industries.

Beyond funding, tens of thousands more European citizens might have to complete military service, and time is of the essence. NATO Secretary-General Mark Rutte has warned that Russian forces could be capable of launching an attack on European territory in 2030.

Concerned about Russia's intentions, Polish Prime Minister Donald Tusk wants to introduce large-scale military training for every adult male, and double the size of Poland's army to around 500,000 soldiers.

“If Ukraine loses the war or if it accepts the terms of peace, armistice or capitulation ... then, without a doubt — and we can all agree on that — Poland will find itself in a much more difficult geopolitical situation,” Tusk warned lawmakers last week.

The scale of Europe's military personnel shortage

The Stockholm International Peace Research Institute estimates that Europe, including the UK, has almost 1.5 million active duty personnel. But many can't be deployed on a battlefield, and those who can are hard to use effectively without a centralized command system.

The number of Russian troops in Ukraine at the end of 2024 was estimated to be around 700,000.

NATO troops are controlled by a US general, using American air transport and logistics.

Analysts say that in the event of a Russian attack, NATO’s top military officer would probably dispatch around 200,000 US troops to Europe to build on the 100,000 US military personnel already based there.

With the Americans out of the picture, “a realistic estimate may therefore be that an increase in European capacities equivalent to the fighting capacity of 300,000 US troops is needed,” the Brussels-based Bruegel think tank estimates.

“Europe faces a choice: either increase troop numbers significantly by more than 300,000 to make up for the fragmented nature of national militaries, or find ways to rapidly enhance military coordination,” Bruegel said.

The question is how.

Making up the numbers NATO is encouraging countries to build up personnel numbers, but the trans-Atlantic alliance isn't telling them how to do it. Maintaining public support for the armed forces and for Ukraine is too important to risk by dictating choices.

“The way they go about it is intensely political, so we wouldn’t prescribe any way of changing this — whether to go for conscription, elective conscription, bigger reserves,” a senior NATO official said on the condition of anonymity because he wasn't authorized to brief journalists unless he remained unnamed.

“We do stress the point that fighting with those regional plans means that we are in collective defense and likely in an attrition war that requires way more manpower than we currently have, or we designed our force models to deliver,” he added.

Eleven European countries have compulsory military service: Austria, Cyprus, Croatia, Denmark, Estonia, Finland, Greece, Latvia, Lithuania, Sweden, and non-European Union nation Norway. The length of service ranges from as little as two months in Croatia to 19 months in Norway.

Poland isn't considering a return to universal military service, but rather a reserve system based on the model in Switzerland, where every man is obliged to serve in the armed forces or an alternative civilian service. Women can volunteer.

Belgium’s new defense minister plans to write a letter in November to around 120,000 citizens who are age 18 to try to persuade at least 500 of them to sign up for voluntary military service. Debate about the issue goes on in the UK and Germany.

Confronting the challenges

Germany’s professional armed forces had 181,174 active service personnel at the end of last year — slightly lower than in 2023, according to a parliamentary report released Tuesday. That means it’s no closer to reaching a Defense Ministry target of 203,000 by 2031.

Last year, 20,290 people started serving in the German military, or Bundeswehr, an 8% increase, the report said. But of the 18,810 who joined in 2023, more than a quarter — 5,100 or 27% of the total — left again, most at their own request during the six-month trial period.

The German parliament’s commissioner for the armed forces, Eva Högl, said that army life is a hard sell.

“The biggest problem is boredom,” Högl said. “If young people have nothing to do, if there isn’t enough equipment and there aren’t enough trainers, if the rooms aren’t reasonably clean and orderly, that deters people and it makes the Bundeswehr unattractive.”

At the other end of the scale, tiny Luxembourg has unique demographic challenges. Of its roughly 630,000 passport holders, only 315,000 are Luxembourgers. The number of people of military service age — 18 to 40 — is smaller still.

Around 1,000 people are enlisted. That’s small compared to some European powers, but bigger per capita than the UK armed forces. Recently, Luxembourg — where unemployment is low and salaries are high — has struggled to find just 200-300 military personnel.

Military service comes with many challenges too, not least convincing someone to sign up when they might be sent to the front, and hastily trained conscripts can't replace a professional army. The draft also costs money. Extra staff, accommodation and trainers are needed throughout a conscript's term.