After the devastating 12-day conflict between Iran and Israel in June 2025, Iran’s capital markets—led by the Tehran Stock Exchange (TSE)—have plunged into one of their most tumultuous periods since the bourse’s inception. The aftereffects of direct military engagement, compounded by long-standing economic fragilities, have left investors reeling and exposed the systemic vulnerabilities of Iran’s financial markets in the face of geopolitical shocks.

Panic Management: Market Shutdown Amid Chaos

As tensions between Tehran and Tel Aviv escalated into open conflict, the TSE responded by shuttering operations for nine consecutive trading days—its longest halt in decades. Citing Article 23 of Iran’s Securities Market Law, regulators justified the closure as a necessary emergency measure to curb volatility, avoid a stampede of capital flight, and buy time for reassessment. During this period, only limited trading in fixed-income funds was permitted, providing a stopgap for investors in immediate need of liquidity, but doing little to calm anxieties or address underlying causes.

This drastic step, while rational in the initial chaos, set precedents of uncertainty and hinted at deeper cracks in the market’s ability to absorb shocks. The sense of crisis, far from being resolved during the hiatus, only intensified as the broader economic and political picture continued to deteriorate.

Reopening to a Bloodbath: Sell-off Engulfs the Bourse

Once the market reopened following a makeshift ceasefire, it faced a historic sell-off. The numbers were stark:

• 99% of all listed stocks traded in the red on the first day of reopening.
• The TSE’s main index plummeted by 62,503 points (2.1%) to close at 2,922,101.
• Record sell queues topped 35 trillion toman (over $700 million), with over 750 stocks locked in heavy selling pressure.
• Trading volumes in retail shares fell to just 2.63 trillion toman, a reflection of shattered retail investor confidence and large institutional hesitancy.

Market participants described the atmosphere as “panicked,” with many comparing the TSE’s turmoil to conditions seen in war-torn or sanction-stricken nations. In addition, the sell-off reverberated beyond equities, causing significant outflows from fixed-income funds as well.

Criticism of the Regime: A Failure to Stabilize Markets

One of the most widely criticized aspects of the government’s crisis response was the lack of meaningful intervention. Unlike previous market shocks, authorities this time did not reduce the 5% daily price fluctuation cap (the “band”) nor did they inject substantial liquidity via the Market Stabilization Fund or state-backed institutional investors. Ostensibly, officials wanted to demonstrate market resilience, but the absence of concrete stabilization measures only deepened distrust among participants.

Expectations had been high for coordinated moves—such as buying support from the Central Bank of Iran or major pension funds—but these actions failed to materialize during the critical first days of renewed trading. The only significant government action, the limited activation of the Market Stabilization Fund, proved insufficient in stemming waves of panic selling.

This non-action reflects broader issues. Iran’s economy in recent years has been battered by international sanctions, rampant inflation (with official rates above 45% in 2025), and persistent currency devaluation. The TSE had previously been used by government planners as a partial remedy to monetize public assets and absorb excess household liquidity. This time, however, the regime’s toolset appears exhausted, its credibility in tatters.

Structural and Psychological Damage

The market crash has exposed both structural and psychological weaknesses in Iran’s capital markets:

• Investor confidence has plummeted, as reflected in low trading volumes and persistent outflows of capital. Surveys conducted in late June by Iran’s Chamber of Commerce suggest that nearly 70% of active retail investors expect further declines in the coming quarter.
• Liquidity and market depth have eroded. With the majority of stocks stuck in sell queues and key large-caps (i.e. Iran Khodro, Saipa) temporarily suspended to avoid index collapse, price discovery mechanisms have broken down.
• Transparency and communication remain chronic weaknesses. Official statements from both the Securities and Exchange Organization (SEO) and the Ministry of Economy have been seen as vague and unconvincing. As a result, the rumor mill and speculative panic have replaced rational risk assessment.

The market’s troubles are amplified by a declining Iranian rial, which has touched fresh record lows against the dollar in recent weeks, further undermining confidence in both financial and real assets. International observers, including the World Bank, have recently revised down growth projections for Iran in 2025, citing persistent instability and the risk of stagflation.

Wider Impact: Beyond the Exchange

The fallout from the TSE crisis is being felt across the real economy. Iran’s fragile banking sector is seeing an increase in non-performing loans as business activity contracts. Meanwhile, household savings—often funneled into the market during previous bull cycles—have suffered heavy losses, fueling social discontent and protests. Such protests have been reported in provincial cities, where small investors staged demonstrations demanding redress for vanished savings. Add to this a steadily climbing unemployment rate (now above 13% nationwide), and the risk of broader unrest rises sharply.

International investors, already wary due to deepening sanctions and compliance risks, have pulled even further back, and the regime’s ambitions for attracting foreign capital seem increasingly remote.

What Needs to Change? Steps Toward Stabilization

To restore order and prevent a deepening rout, market analysts and economic experts broadly agree on a series of urgent steps:

1. Revamp and expand the Market Stabilization Fund to actively support share prices and provide targeted liquidity.
2. Temporarily tighten price fluctuation limits on the most volatile stocks to reduce panic-driven losses.
3. Coordinate liquidity injections by the central bank, government, and institutional investors to reassure participants and reestablish orderly trading.
4. Communicate transparently with the market, detailing measures, timelines, and expected impacts.
5. Extend or target trading suspensions for sectors or companies facing exceptional volatility, with clear criteria for resumption.

Without concrete action, the risks are stark: a continued downward spiral, further loss of public faith in the capital markets, and a deepening economic slump that could accelerate political instability.

Conclusion: A Crisis of Confidence and Systemic Limits

The defeat of Iran’s capital markets following the 12-day war is a sign not just of geopolitical tension, but also of profound systemic limits. Lacking proactive crisis management, undermined by chronic inflation and a weakening currency, and deprived of trust, the Tehran Stock Exchange remains perilously exposed. The aftershocks of this market collapse are likely to persist well into the second half of 2025, shaping both economic trajectories and the political landscape ahead. For millions of Iranians, the events of June were not merely a correction, but a warning shot for the fragility of the country’s entire economic model.