The Latin princess Maria of Antioch, has acted as regent to her infant son Alexios II Komnenos since the death of Manuel I in 1180.
Her regency is notorious for the favoritism shown to Latin merchants and the big aristocratic landowners.
Since the late eleventh century, Western merchants, primarily from the Italian city-states of Venice, Genoa and Pisa, had started appearing in the East.
The first had been the Venetians, who had secured large-scale trading concessions from Emperor Alexios I Komnenos.
Subsequent extensions of these privileges and Constantinople’s own naval impotence at the time resulted in a virtual maritime monopoly and stranglehold over the Empire by the Venetians.
Alexios' grandson, Manuel I Komnenos, wishing to reduce their influence, had begun to reduce the privileges of Venice while concluding agreements with her rivals: Pisa, Genoa and Amalfi.
Gradually, all four Italian cities had also been allowed to establish their own quarters in the northern part of Constantinople itself, towards the Golden Horn.
The predominance of the Italian merchants has caused economic and social upheaval in Constantinople: it has accelerated the decline of the independent native merchants in favor of big exporters, who have become tied with the landed aristocracy, who in turn have increasingly amassed large estates.
Together with the perceived arrogance of the Italians, it fuels popular resentment among the middle and lower classes both in the countryside and in the cities.
The religious differences between the two sides, who view each other as schismatics, further exacerbates the problem.
The Italians have proved uncontrollable by imperial authority: in 1162, for instance, the Pisans, together with a few Venetians, had raided the Genoese quarter in Constantinople, causing much damage.
Emperor Manuel had subsequently expelled most of the Genoese and Pisans from the city, thus giving the Venetians a free hand for several years.
In early 1171, however, when the Venetians attacked and largely destroyed the Genoese quarter in Constantinople, the Emperor had retaliated by ordering the mass arrest of all Venetians throughout the Empire and the confiscation of their property.
A subsequent Venetian expedition in the Aegean had failed: a direct assault was impossible due to the strength of the imperial forces, and the Venetians had agreed to negotiations, which the Emperor had stalled intentionally.
As talks dragged on through the winter, the Venetian fleet waited at Chios, until an outbreak of the plague forced them to withdraw.
The Venetians and the Empire had remained at war, with the Venetians prudently avoiding direct confrontation but sponsoring Serb uprisings, besieging Ancona, Byzantium's last stronghold in Italy, and signing a treaty with the Norman Kingdom of Sicily.
Relations have only gradually been normalized: there is evidence of a treaty in 1179, although a full restoration of relations will only be reached in the mid-1180s.
Meanwhile, the Genoese and Pisans have profited from the dispute with Venice, and by 1180, it is estimated that up to 60,000 Latins live in Constantinople.
During the brief reign of Alexios II, the Empire is invaded by King Béla III, losing Syrmia and Bosnia to the Kingdom of Hungary in 1181; later, even Dalmatia will be lost to the Venetians.