US Treasury Secretary Scott Bessent has claimed that the US government engineered a dollar shortage in Iran, causing the rial to collapse and sparking street protests.
In December and January, Iran faced the largest anti-government protests since the 1979 Islamic Revolution, in the wake of a severe economic crisis.
Protests against soaring prices in Iran began on December 28, 2025, when shopkeepers in Tehran closed their shops and began demonstrating after the rial fell to an all-time low against the US dollar in late December. Protests then spread to other Iranian provinces.
The government led by Supreme Leader Ayatollah Khamenei responded with force. More than 6,800 protesters, including at least 150 children, are believed to have been killed in the government’s sweeping crackdown on protests.
So how did Washington create a “dollar shortage” in Iran and ultimately cause the rial to collapse? And what effect did it have on the Iranian people?
What is a “dollar shortage”?
A “dollar shortage” refers to a country not having enough US dollars to buy what it needs from other countries.
The US dollar is the main currency used in world trade, especially for oil, machinery, and loan repayments, and countries require a steady supply of US dollars.
Dollars could become scarce if exports decline and sanctions cut off access to the U.S. financial system. As a result, the local currency depreciates, the price of imported goods increases, and inflation worsens.
Mohammad Reza Farzanegan, an economist at Germany’s Marburg University, said Iran’s “dollar shortage” was orchestrated by simultaneously cutting off two major foreign exchange (FX) inflow channels: oil exports and international banking access. The US did this by imposing sanctions on Iranian oil. This means anyone who buys or sells Iranian oil will be subject to punitive measures.
Given Iran’s dependence on oil for revenue, economic sanctions against the country’s oil could create severe exchange constraints.
“By threatening global companies that trade dollars with Iran with secondary sanctions, the United States is locking up Iran’s existing foreign exchange reserves overseas and preventing new dollars from entering the domestic market,” Farzanegan told Al Jazeera.
What does U.S. Treasury Secretary Scott Bessent say?
Treasury Secretary Bessent answered questions about the country’s response to Iran at a Congressional hearing last week, explaining the U.S. strategy to depreciate Iran’s currency.
“What we did at the Treasury created a dollar shortage in the country,” Bessent said, adding that the strategy “culminated in December with the collapse of Iran’s largest bank…The Iranian currency collapsed, inflation exploded, and as a result we saw Iranians take to the streets.”
“We have seen the Iranian leadership sending money out of the country like crazy,” Bessent added. “The fact that the rats are leaving the ship is a good sign that they know the end is near.”
Earlier, Bessent gave an interview to Fox News at the World Economic Forum in Davos last month, in which he explained the role of U.S. sanctions in spurring recent nationwide protests.
“President Trump ordered the Treasury Department to apply maximum pressure on Iran, and it worked.” “Because the economy collapsed in December. You couldn’t get imported goods, and that’s why people took to the streets.”
In both cases, Bessent referred to his previous remarks at the New York Economic Club last March outlining how the White House would use President Donald Trump’s “maximum pressure” campaign to collapse Iran’s economy.
In a speech there, Besent said the United States had “intensified its sanctions campaign against (Iran’s) export infrastructure and targeted every step of Iran’s oil supply chain,” along with “vigorous government engagement and private sector outreach” to “cut off Iran’s access to the international financial system.”
How has the dollar shortage affected Iran?
The Iranian rial was trading at 1.5 million rials to the dollar in January, a significant drop from about 700,000 rials in January 2025 and about 900,000 rials in mid-2025. The plunging currency has caused soaring inflation, with food prices rising by an average of 72% over last year.
In 2018, during his first term as president, Trump withdrew from the 2015 Joint Comprehensive Plan of Action, an agreement between Iran and world powers that limited Iran’s nuclear program in exchange for sanctions relief.
Since his re-election last January, President Trump has doubled down on so-called “maximum pressure” efforts to cripple Iran’s economy and force Iran into renegotiating its nuclear and regional policies. President Trump last month threatened to impose 25% tariffs on countries doing business with Iran.
Economist Farzanegan said that by completely cutting Iran off from the international financial system by creating a dollar shortage, the United States had forced Tehran into severe “import compression”. “(As a result) Iran was unable to pay for the intermediate goods and machinery needed for domestic production.
He said the US strategy is “particularly devastating because it leverages commercial risk management against humanitarian needs.” In short, the U.S. government’s strategy “exposes the small Iranian market to commercial liability” for all companies, even those that only deal in pharmaceuticals, Farzanegan added.
A research paper published last year by Farzanegan and Iranian-American economist Nader Habibi found that without U.S. action, the size of Iran’s middle class would have grown by an average of about 17 percentage points a year between 2012 and 2019.
According to the study, the estimated size of the decline in the middle class share of Iran’s population in 2019 was 28 percentage points.
“People lost their purchasing power and their savings disappeared,” the economist told Al Jazeera. “This is a long-term destruction of the human capital of this country.”
In addition to U.S. actions, there are existing vulnerabilities in Iran’s economic structure due to factors such as a long period of misgovernment, high rates of corruption, and an overreliance on oil revenues.
While US sanctions caused an external shock, the lack of domestic structural reforms left the government with “no fiscal space to cushion the blow.”
What is America’s ultimate goal here, and will it succeed?
Mr. Bessent’s admission that the U.S. government intentionally created a “dollar shortage” suggests that the U.S. is moving toward a narrative of all-out economic war.
“This is economic policy, we are not firing shots,” Bessent said at the WEF in Davos last month.
“This admission could complicate America’s diplomatic position, as it confirms that humanitarian routes for food and medicine are often rendered ineffective if the entire banking system is targeted for collapse,” Farzanegan said.
Bruce Fein, a former U.S. deputy assistant attorney general who specializes in constitutional law and international law, told Al Jazeera that this type of economic coercion is “as common as the sun rising in the east and setting in the west,” pointing to economic sanctions against Russia, Cuba, North Korea, China and Myanmar.
But unlike other cases in which the United States has applied economic pressure, Farzanegan said the Iran case is “a unique experiment in terms of the duration and intensity of the pressure.”
Unlike Russia, which has a more diversified export base and larger reserves, Iran has faced various forms of sanctions for decades since the supreme leader took power in 1979.
“Iran has sophisticated internal mechanisms to circumvent sanctions, making the ‘dollar shortage’ a cat-and-mouse game rather than a one-off shock,” the economist said.
The US Armada is currently stationed in the Arabian Sea, and the US and Iran are in talks to ease tensions. The United States is asking Iran to do three important things: stop enriching uranium as part of its nuclear program, remove its ballistic missiles, and stop supplying weapons to non-state actors in the region.
Ultimately, observers say, the United States wants regime change in Iran.
But Fein said experience shows that economic sanctions alone “rarely, if ever, bring down a regime…regime change can only come from the outside through the use of military force.”
Referring to Iran’s current administrative structure, he said, “Iran’s lack of dollars will not oust the mullahs or the Revolutionary Guards.”
Fain told Al Jazeera that poverty among Iranians would be reduced “as day-to-day survival takes precedence, rather than promoting the chances of a successful revolution.”
