U.S. Imposes Tariffs on Iran, Germany Pushes EU Sanctions Amid Protests and Rising Tensions

TL;DR

• U.S. and Germany Push for Democratic Transition in Iran as Chancellor Merz Condemns Regime Violence and Trump Enforces Sanctions
• Iranian protesters demand regime change as death toll rises to 572; U.S. military evaluates cyber and direct strike options amid diplomatic overtures
• Supreme Court signals potential expansion of presidential power over federal agencies as DOJ investigates Fed Chair Jerome Powell over renovation cost overruns

U.S. and Germany Diverge on Strategy to Pressure Iran Amid Protests and Sanctions

Mass protests erupted in Iran in late December 2025 following economic collapse, with over 10,600 arrests and 648 confirmed deaths by January 13, 2026. A nationwide internet blackout hindered verification, but reports from HRANA and diaspora sources confirmed demonstrations across 585 locations in 31 provinces.

How are Germany and the U.S. responding differently?

Germany, under Chancellor Friedrich Merz, condemned regime violence and called for a democratic transition, aligning with EU partners to prepare sanctions targeting the IRGC and trade restrictions. The U.S., under President Trump, imposed a 25% tariff on all firms conducting business with Iran, directly impacting German exports, which fell 25% year-over-year to €871 million in Q1 2026.

What are the economic consequences?

The U.S. tariff has created a feedback loop: German companies reducing Iran trade to avoid penalties, while German industry groups now question the political cost of aligning with EU human rights policy. Iranian export earnings are contracting, with further sanctions on oil-related services expected in Q2 2026.

How do diplomatic approaches conflict?

The EU emphasizes multilateral, values-based pressure through coordinated sanctions. The U.S. favors unilateral economic coercion and has threatened "very strong options," including potential military or cyber actions. This divergence allows Tehran to frame Western actions as foreign interference rather than domestic legitimacy challenges.

What risks are emerging?

Continued internet blackouts limit independent casualty reporting, reducing international response credibility. Domestic political friction in Germany may lead to parliamentary debates over balancing economic interests with human rights advocacy. If protests persist and sanctions fail to trigger regime change, the risk of a limited U.S. military or cyber operation increases, potentially escalating regional tensions.

What is the near-term outlook?

• 30 days: EU finalizes IRGC asset sanctions; U.S. expands tariff list to include Iranian oil services.
• 3–6 months: German parliamentary hearings on export losses; possible EU-U.S. joint sanctions package.
• 12 months: Risk of U.S. military or cyber escalation if Tehran retaliates against foreign assets.

The convergence of domestic unrest and external pressure has created a volatile environment. The next quarter will determine whether diplomatic coordination can overcome policy fragmentation.

Iran Protests Escalate as U.S. Weighs Cyber Strikes Amid Diplomatic Efforts

Protests ignited in late December 2025 over economic collapse, with inflation exceeding 40% and the rial depreciating to 1.4 million IRR per USD. By January 13, 2026, civilian deaths reached 572, including 490 protesters, 48 security personnel, and 34 bystanders. Arrests have surpassed 10,600, with authorities targeting organized dissent. The regime attributes unrest to foreign-backed terrorism, while opposition groups demand systemic change.

How is the Iranian government responding?

The state has imposed an 84-hour nationwide communications blackout, seizing Starlink terminals and disrupting 30–80% of satellite traffic. Security forces continue using live ammunition, pellet guns, and snipers, leading to rising casualties despite information suppression. Efforts to control narratives include labeling protesters as terrorists and rejecting external interference.

What military options is the U.S. considering?

The Pentagon has evaluated two non-kinetic pathways: cyber-disruption of command-and-control and financial infrastructure, and precision cruise-missile strikes on regime command nodes. No kinetic strike has been authorized. U.S. officials maintain a "diplomacy first" posture, but have not ruled out escalation. Cyber operations are viewed as a lower-risk tool to degrade repression capacity without direct confrontation.

Is diplomacy still viable?

Oman has initiated mediation, with its foreign minister meeting Iranian officials on January 12. Iran’s Deputy Foreign Minister Abbas Araghchi signaled willingness for "controlled" talks. The EU is preparing sanctions against the IRGC, while the UN calls for an immediate ceasefire. A potential confidence-building measure—such as limited detainee releases—could emerge within 48 hours.

What are the economic and informational dynamics?

A U.S.-imposed 25% tariff on third-party goods bound for Iran coincided with accelerated rial depreciation, deepening public anger. Despite internet blackouts, crowdsourced reports and satellite data from Starlink users sustain international awareness of casualty figures. Iranian efforts to jam satellite signals are intensifying, but usage is expected to rise among activists.

What is the near-term outlook?

• Casualties: Likely to increase by 50–80 in the next 7–14 days if current tactics persist.
• Arrests: May exceed 12,000 as targeting of organizers expands.
• U.S. action: Cyber-prepositioning likely; kinetic strike unlikely without Iranian provocation.
• Diplomacy: Oman-led talks may yield a limited cease-fire or detainee exchange.
• Economy: Inflation projected to breach 45%; rial to continue depreciating.
• Information flow: Starlink reliance will grow; jamming attempts will intensify.

The window for de-escalation remains narrow. Cyber operations and diplomatic engagement offer the most viable paths to reduce violence without triggering regional conflict.

Can President Direct Federal Reserve? Court Case and DOJ Probe Test Agency Independence

The Supreme Court is set to rule on whether the president may remove heads of independent agencies, including the Federal Reserve, without demonstrating cause. Current law, established by Humphrey’s Executor (1935), requires removal only for inefficiency, neglect of duty, or malfeasance. Two petitions filed January 12–13, 2026, challenge this precedent, seeking to expand executive authority.

Is the DOJ probe targeting policy or finances?

The Department of Justice issued grand-jury subpoenas to Fed Chair Jerome Powell on January 9–11, 2026, demanding testimony and documents related to a $600 million cost overrun in the Fed’s Washington, D.C., headquarters renovation. The original 2019 budget was $1.9 billion; the revised estimate is $2.5 billion. Overruns stem from design upgrades, inflation, and site contamination—factors documented in public records. The probe marks the first criminal investigation into a sitting Fed chair.

What are the institutional stakes?

The Federal Reserve operates under statutory independence to insulate monetary policy from political pressure. A Supreme Court ruling expanding presidential removal power would undermine this structure. The Court’s upcoming oral arguments on January 21, 2026, will confront Humphrey’s Executor and the 2025 Trump v. Slaughter decision, which limited at-will removal.

How do political actors differ?

Republicans, including Senators Thom Tillis and John Thune, and Attorney General Pam Bondi, argue the Fed must be fiscally accountable and that judicial independence has eroded democratic oversight. Democrats, including Elizabeth Warren and Chuck Schumer, along with former Fed chairs Janet Yellen and Ben Bernanke, contend the probe is politically motivated and threatens the Fed’s credibility.

What economic risks emerge?

On January 12, 2026, the S&P 500 fell 0.4% and Treasury yields rose 5 basis points as markets priced in policy uncertainty. If the Court expands presidential authority, long-term Treasury yields could rise 15–20 basis points, and the dollar’s safe-haven status may weaken due to perceived politicization of monetary policy.

What outcomes are likely?

A ruling that expands presidential power would permit direct executive direction of the Fed, enabling removal without cause and potentially aligning rate decisions with electoral cycles. A ruling upholding current limits would preserve statutory independence, though political pressure would persist. A narrow expansion—allowing policy-aligned directives but retaining “for-cause” removal—is estimated at 55% probability.

What follows after the ruling?

If presidential authority expands, Congress may introduce a clarifying amendment to the Federal Reserve Act by March–June 2026. Bipartisan support is likely only if the amendment restricts removal to gross misconduct. Market volatility may subside if the ruling is predictable, but any perception of politicized monetary policy will sustain elevated risk premiums.