Index trend
Previous Quarterly Editions
Expropriation risk: 75 75 73 73 ► Political violence risk:67 67 67 90 ▲Terrorism risk:45 45 45 45 ►Exchange transfer and trade sanction risk: 73 73 73 73 ►Sovereign default risk:82 74 74 74 ►
Overall Risk Temperature: 78 (High 6) TREND ▲
Special topic: Political polarization
Polarization has become increasingly pronounced in Iran across multiple dimensions of society, creating deep divisions that shape the nation's social fabric and political landscape. This fragmentation is visible in several key areas, reflecting broader tensions within Iranian society.
Polarization along socioeconomic lines has intensified dramatically, primarily driven by currency devaluation that has devastated the purchasing power of ordinary citizens. As the Iranian riyal continues to lose value against international currencies, the gap between the wealthy elite — who often have access to foreign currency and assets — and the struggling middle and lower classes has widened significantly. This economic divide has created two distinct realities within the country: one where a privileged minority maintains its lifestyle, despite sanctions and economic challenges, and another where the majority face mounting financial hardship and diminishing opportunities.
Socially, Iran exhibits profound polarization regarding personal freedoms, particularly concerning women's rights and public expression. On one side stand those advocating greater social freedoms, including the abolition of mandatory hijab laws and restrictive dress codes for women in public spaces. Opposing them are traditionalists who support strict enforcement of Islamic dress codes and behavioral norms, viewing them as fundamental to Iranian identity and social order. Though transparent public opinion polling is unavailable inside Iran, observations from social media and reports from citizen journalists suggest that those who oppose social freedoms are a minority of the population. However, this group maintains disproportionate control and institutional power, allowing it to crack down on advocates for greater freedoms. This social divide manifests in everyday interactions, generational conflicts and public discourse.
Political polarization further compounds these tensions, with a stark division between those who support the current ruling establishment and those who oppose it. The ruling elite are determined to maintain their grip on power at all costs, having observed and sometimes facilitated methods of oppression in Syria during the years of conflict until the Assad regime's eventual fall. This suggests that the regime is unlikely to relinquish control peacefully. Opposition forces — both within and outside Iran — are convinced that the Islamic Republic has become fundamentally inefficient and unsustainable, no longer capable of addressing the nation's challenges or maintaining the country’s stability. This political schism underlies many of the country's most contentious issues and shapes its domestic and international relations, with each side becoming increasingly entrenched in its positions.
The polarizations that characterize Iranian society extend dramatically into the exiled opposition. Due to the regime's severe repression, viable opposition movements and leaders have been effectively eliminated within Iran's borders, pushing resistance activities primarily into the diaspora. This exiled opposition, however, is deeply fragmented along ideological lines. Some support the Mujahedin-e Khalq (MEK), a controversial organization with a complex history. Others advocate for a constitutional monarchy led by Reza Pahlavi, son of the last Shah. A third significant faction endorses republican principles while explicitly rejecting both the MEK and Pahlavi, though this group lacks a unifying figure or coherent leadership structure. This three-way split creates a volatile dynamic where competing opposition factions vie for international support and legitimacy while undermining each other’s efforts.
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The expropriation risk in Iran is a mixed picture. Most Western companies affected by sanctions have already withdrawn from the country, making traditional expropriation concerns less relevant for international investors. However, recent developments suggest a shifting landscape. Savola Group, the largest Saudi investor in Iran and a dominant player in its cooking oil market, has abruptly sold all its assets in the country — valued at approximately $188 million — and exited Iran's stock market. This high-profile departure highlights the challenging business environment, even for regional investors with established market positions.
Meanwhile, as military tensions rise and ‘maximum pressure’ economic policies continue to strain Iran's economy, the country appears increasingly likely to engage in indirect expropriation actions, particularly through tanker seizures conducted either directly or via proxy groups such as the Houthis. These actions, while not conventional expropriations, are a form of state-sanctioned asset seizure that raises the overall risk profile for any entities with maritime interests in the region, effectively expanding the concept of expropriation risk beyond traditional domestic business concerns.
Pre-emptive strikes against Iranian nuclear capabilities by Israel and the U.S. have caused extensive damage to military targets, key infrastructure, and some civilian buildings (during assassinations). While the conflict is ongoing, violence risks have risen dramatically. In the absence of a negotiated settlement, the blatant failure of Iran's conventional deterrent against Israel is likely to push the Iranian regime to renewed efforts to acquire nuclear weapons - an issue that may explain the U.S. entry into the conflict (with strikes against Iran's secure underground nuclear facilities such as Fordow).
Israel has hinted that regime change may be among its goals. The track record of air power in achieving regime change is poor. Where a civil war is in progress, and air power can support partisans on the ground, air power can be decisive in achieving the overthrow of a regime (although in recent years, even these cases, most prominently Afghanistan and Libya, must be considered, at best, partial successes). That said, the Israeli strikes could perhaps provoke a military takeover, or ongoing civil violence. The exile dissident group MEK is the only opposition group with armed capabilities and an organizational structure designed for militant action. Should any scenario involving regime overthrow materialize, the MEK's military capacity and ideological orientation make it particularly likely to employ violence to attempt to secure power against both regime loyalists and competing opposition factions, potentially triggering a broader conflict with elements of civil war characteristics.
Prior to the Israeli assault the Iranian regime was becoming increasingly fragile, and divided on policy issues. Over the past two decades, supreme leader Ayatollah Khamenei had systematically expanded his influence across all Iranian affairs, creating a state-within-a-state. This concentration of power extended beyond him personally to encompass his entire office as a political institution, comprising trusted advisors, inner circle confidants, and family members, most notably his son, Mojtaba Khamenei, who was increasingly mentioned publicly as his potential successor. Many of these key figures have now been assassinated by Israel.
Meanwhile, tensions were growing within the Iranian power structure. Khamenei's rejection of direct negotiations with the Trump administration over the nuclear issue had created visible rifts with other political figures. President Masoud Pezeshkian had publicly indicated his preference for diplomatic engagement, only to be directly contradicted by the supreme leader. Similarly, the recent resignation of Mohammad Javad Zarif as vice president for strategic affairs, while officially unexplained, had fueled speculation that it stemmed from similar disagreements over diplomatic strategy with the U.S. These public displays of high-level policy discord were a significant departure from the regime's typical presentation of elite unity, but may well be papered over in the wake of the Israeli bombing campaign.
Terrorism risk in Iran is intricately connected to the broader landscape of political violence and potential regime instability. While the current government maintains tight security control across most of the country, any scenario involving regime overthrow would create dangerous security vacuums hospitable to terrorist activity.
The collapse of a strong central government would likely trigger opportunistic mobilization among various groups with historical grievances. The Taliban could leverage its proximity and influence to mobilize sympathetic elements among Iran's Baluchi population in the southeast, exploiting shared ethnic ties and religious interpretations. Kurdish groups, with their long history of armed struggle against Tehran and persistent secessionist aspirations, would likely intensify activities in western provinces. Arab separatists in the oil-rich Khuzestan province could accelerate militant operations with possible external support.
These centrifugal forces, combined with the potential for remnants of the security apparatus to form militant resistance cells, create a complex terrorism risk matrix that could rapidly deteriorate following any significant political upheaval. The existing polarization both within elite circles and among opposition groups would further complicate counterterrorism efforts, as competing factions might tolerate or even instrumentalize certain militant groups to strengthen their relative positions in a post-regime environment.
Iran's economic landscape remains profoundly shaped by the trade and financial sanctions regime, particularly following the reinstatement and intensification of measures under the Trump administration's ‘maximum pressure’ campaign. These comprehensive sanctions are aimed at cutting Iran’s access, including through back channels and subsidiaries, from international banking systems.
This is expected to drastically restrict the country’s ability to conduct trade operations or access foreign exchange markets. The Iranian riyal has experienced catastrophic devaluation as a result, contributing significantly to the economic polarization discussed above. A recent statement by the U.S. treasury secretary suggests a trajectory of potentially harsher sanctions that could trigger further currency collapse.
For businesses maintaining any Iranian exposure, these conditions create nearly insurmountable challenges for legitimate transactions, as even technically non-oil trade faces extreme hurdles in securing financing or payment mechanisms.
U.S President Donald Trump is keen to reinforce and expand the sanctions rapidly. This is exacerbating all existing economic fragilities. The combination of external economic pressure and internal political polarization creates a particularly volatile environment where desperate economic conditions could accelerate political instability, potentially triggering more aggressive responses from a regime that feels increasingly cornered both domestically and internationally.
However, if a new nuclear deal is agreed, then U.S. sanctions could be eased dramatically.
Iran faces rising socioeconomic risk driven by a perfect storm of structural economic weaknesses, acute operational crises and corruption.
The country's financial stability is increasingly threatened by severe infrastructure failures that signal systemic economic breakdown. Widespread electricity blackouts have crippled industrial production and disrupted daily life, while critical water shortages have intensified social dissatisfaction. Perhaps most alarming for a major energy producer, Iran has experienced unprecedented gas supply shortages for heating during early winter months, forcing shutdowns of manufacturing facilities, schools, universities and government buildings, which highlights profound mismanagement of natural resources.
These operational crises occur against a backdrop of rapidly depleting foreign exchange reserves, which have been steadily eroded by sanctions and the inability to repatriate oil revenues through normal banking channels.
The government faces a growing budget deficit that has become increasingly difficult to finance, leading to monetization practices that further accelerate inflation and currency depreciation. Iran has historically demonstrated resilience in managing economic isolation. However, the combination of intensifying domestic polarization and worsening basic service provision indicates a potential breaking social, political and economic point.