On Nov. 8, 2024, Iran announced its proposed military budget for the year 1404 (March 2025–March 2026). In response to both internal priorities and external pressures, Iran plans to increase its military budget by 200 percent.
Iran’s decision to allocate a large portion of its revenue directly to the military sends several messages. For regional neighbors, particularly Israel, Iran’s budget signals its intent to maintain a strong defensive and offensive posture. By emphasizing its investment in missiles and drones, Iran conveys that it is prepared to respond to any regional military provocations or preemptive strikes. Iran’s increase in military spending is a declaration of its ability to prioritize defense even amidst economic hardships, reflecting resilience from Western influence. This also signals to Western countries that sanctions are not deterring its military ambitions but rather reinforcing its resolve to enhance self-reliance. Increased military spending signals to both allies and adversaries that Iran is committed to preserving and potentially expanding its influence in Iraq, Syria, Lebanon, and Yemen.
Yet Iran’s budget decisions could prove self-defeating. Military spending may prove to be a self-fulfilling prophecy, hindering the new Iranian “moderate” government in achieving its policy goals of improving regional relations and suppressing domestic dissent. Securitizing the budget may provide a short-term response to Iran’s growing sense of insecurity; however, in the long term, it could impede efforts to find effective political and diplomatic solutions to Iran’s internal and external challenges.
Budget Background
Iranian lawmakers will debate the proposed budget over the coming months, before they are expected to finalize it by March 2025. Iran’s budget for the year 1403 (March 2023–March 2024), based on an exchange rate of 28,500 tomans to the dollar, allocates an estimated $25.3 billion to the armed forces of the Islamic Republic, marking a 21 percent increase compared to the previous year. This is a mid-range estimate of Iran’s military expenditures. According to the IISS Military Balance, in 2023, these expenditures were valued at $43.8 billion when calculated using the government’s official fixed exchange rate. However, using the internationally recognized exchange rate introduced in 2018, Iran’s defense spending is valued at only $7.41 billion.
The planned budget for next year may be subject to the constraints of a renewed “maximum pressure” policy under the next Trump administration. This budget framework assumes that 33 percent of resources will come from tax revenues, 18 percent from bond sales and government assets, and 45 percent from oil and gas revenues along with borrowing from the National Development Fund.
One notable change in the allocation of oil export revenues is the increase in the share for the armed forces, which has quadrupled compared to the original version of this year’s budget. However, a report from the Parliamentary Research Center indicates that the government has quietly raised the armed forces’ share within this year’s budget without public disclosure. As a result, next year, the armed forces’ share of oil exports is projected to rise by only 24 percent compared to the current year. Allocating 47 percent of oil export revenues (next year’s state budget anticipates that the Iranian Armed Forces will receive 5.61 quadrillion rials [roughly $12.6 billion] in revenue from crude oil) to the armed forces signals an emphasis on strengthening its military capabilities, especially considering regional military tensions and ongoing economic sanctions.
Goals
The first motivation behind the 200 percent increase of next year’s military budget is Iran’s goal to consolidate its influence in the Middle East, countering perceived military threats from rivals like Israel, and the U.S. military presence in the region, especially in the context of Donald Trump’s victory in the U.S. presidential election on Nov. 5, 2024.
The Iranian official budget bill (not including the so-called hidden budget) shows that 47 percent of the oil export resources of the government’s general budget are to be directly provided to the armed forces of the Islamic Republic, while the government’s share of these resources is 43 percent. By enhancing its military budget, Iran aims to sustain its regional proxies and extend its deterrence capabilities.
Moreover, facing a rapid increase of new Western economic sanctions, particularly from the United States and European nations, Iran’s increased military spending can also be a means to project resilience and demonstrate that sanctions haven’t crippled its defense capabilities. This emphasis on the military serves as a show of defiance and independence in response to external pressure. Finally, in the context of potential domestic unrest, particularly regarding economic issues, a stronger military presence can serve to secure internal control.
Increased funding to the Islamic Revolutionary Guards Corps and Basij implies prioritizing internal security alongside regional defense. With this budget increase, Iran is expected to focus on several strategic areas, notably an improvement of its missile technology after the limited deterrence effect of the strikes against Israel in April and October 2024. Iran has long invested in its missile capabilities, and recent budgets may further support advancements in ballistic and cruise missile technology, focusing on increased range, precision, and payload capacity. This includes potential upgrades to medium- and long-range missiles to counteract regional adversaries in general and Israel in particular. Also, Iran has developed a sophisticated drone program, and increased funding may lead to expanded production and refinement of its uncrewed aerial vehicles, enhancing intelligence, surveillance, and offensive capabilities. This also includes further development of stealth drones and loitering munitions (kamikaze drones).
To counter threats from regional adversaries with advanced air capabilities, Iran will also focus on improving its air defense systems. Iran is likely to continue to develop indigenous systems (such as Bavar-373). Even though official Iranian sources claim that Iran’s Bavar-373 missile defense systems were more effective than Russian systems during the Israeli strikes on Oct. 26, 2024, these strikes destroyed most of the S-300 systems deployed on Iranian territory, making Iran even more dependent on Russia for missile defense.
Iran’s defense doctrine would likely prioritize an “economy of force” approach, focusing on areas where small, versatile investments yield high deterrence returns. The so-called forward defense approach may further emphasize cyber warfare, missile deterrence, and proxy engagement to counterbalance adversaries in the absence of a substantial conventional force. Facing the prospect of a renewed “maximum pressure” policy, the defense budget in a sanctioned economy would likely skew toward asymmetric warfare tools and the further development of Iran’s internal arms industry. This focus on cost-effective, high-impact systems aligns with broader official goals of self-reliance and geopolitical deterrence, with a clear priority on the Islamic Revolutionary Guard Corps’ diversified branches that support both regional influence and domestic security. Iran will maintain its current military strategy regardless of any shifts in Trump’s policy toward the country. However, its ability to fully achieve its strategic objectives may be impacted by the economic constraints imposed under a maximum pressure policy.
Russian Support: Prospects and Limits
Tehran is also seeking acquisitions from Moscow, particularly upgrades to systems like the S-300 that were destroyed during Israel’s Oct. 26 military operation, or possible access to the S-400. Iran may also pursue shorter-range systems like the Tor-M2 and Pantsir-S1 to provide layered air defense. These systems can intercept incoming missiles and low-flying aircraft, strengthening Iran’s overall defense network. The urgent need to strengthen its air defense will likely increase Tehran’s push for a 20-year partnership with Moscow that includes enhanced military cooperation before the end of 2024.
Beyond this, Iran has demonstrated its interest in purchasing Su-35 fighter jets, which would mark a major upgrade to its aging fleet. The Su-35 is a highly maneuverable, multirole fighter with advanced avionics, air-to-air combat, and ground-attack capabilities, giving Iran an edge in regional air power. Other options could include MiG-35 or Su-30 jets, which would bring similar capabilities at a potentially lower cost, allowing Iran to modernize its fleet further. Moreover, Iran might pursue attack helicopters like the Mi-28 or Ka-52 to enhance its close air support and anti-tank capabilities. These helicopters could be valuable assets in Iran’s mountainous terrain and would support its ground forces against potential threats.
While Iran has made strides in indigenous tank production, it’s still likely to seek T-90 main battle tanks from Russia. The T-90’s mobility, firepower, and defensive capabilities could offer substantial upgrades to Iran’s ground forces, which still rely on older, less advanced models. Though not confirmed, there is speculation that Iran may be interested in Iskander missiles, which could provide high-precision strike capability at ranges that reach regional adversaries.
Overall, Russia has been providing Iran with technological know-how, especially in advanced radar systems, electronic warfare, and aerospace technology. This cooperation allows Iran to improve its self-reliance in defense manufacturing and might enable it to reverse-engineer or adapt Russian technologies to its needs.
The Trump Factor
If, however, the new Trump administration renews its maximum pressure policies, Iran would face difficult decisions in trying to maintain revenue streams, support its defense capabilities, and meet its broader military goals. A return to strict sanctions could significantly reduce Iran’s oil export volumes and revenue. Iran’s strategic response would likely involve intensifying “shadow fleet” operations and clandestine trading through intermediaries, allowing for some exports, though at discounted prices. If Iran finds itself selling reduced volumes at lower prices due to sanctions evasion costs, oil revenue could shrink as a percentage of gross domestic product, despite any marginal price increase. This could drive a shift toward other revenue sources, intensifying efforts to boost non-oil exports. A further pivot to self-sufficiency (khod-kafai) for domestic needs, especially in agriculture, essential goods, and for the Iranian military-industrial complex, could be part of a broader economic strategy to reduce the need for foreign currency, though it may strain resources.
Austerity under maximum pressure would necessitate prioritizing defense spending to match specific threats. Iran’s budget allocation between branches of the Islamic Revolutionary Guard Corps and the regular army (Artesh) would likely focus on asymmetrical capabilities. The Islamic Revolutionary Guard Corps Aerospace Force would likely receive significant resources for missile development, given missiles’ strategic value as a deterrent and strike tool. The Islamic Revolutionary Guard Corps Navy, which operates fast-attack craft and relies on swarming tactics, would likely see sustained investment to protect vital areas like the Strait of Hormuz. Expanding its capabilities for coastal and offshore defense remains a priority, as Iran’s navy acts as a first line of deterrence. For the Basij, the budget may reflect a focus on domestic stability, funding paramilitary forces to address internal unrest and maintain control amid economic hardships.
Moreover, the Artesh, Iran’s regular army, has often been a lower funding priority compared to the Islamic Revolutionary Guard Corps. However, specific upgrades to air defense and territorial defense systems may receive increased attention, particularly if airspace vulnerabilities are considered critical. There is also a need for Iranian authorities to leverage the Artesh to address the broader legitimacy crisis facing the political system (nezam) and the Islamic Revolutionary Guard Corps. This could explain why Iranian officials highlighted the martyrdom of regular army personnel following the Israeli military operation on Oct. 26. Additionally, the pursuit of self-sufficiency will likely continue to prioritize domestic production of high-cost equipment, such as drones, missiles, and armored vehicles, in next year’s budget priorities.
Conclusion
For the Islamic Republic, military expenditures are crucial to the regime’s survival, which is why decisions in this area fall under the authority of the supreme leader. Iran’s deep state, particularly influential factions within its security apparatus, are the strongest advocates for increased military spending, while the visible government (the so-called moderate administration led by President Massoud Pezeshkian) seeks a more balanced approach between security and economic priorities.
Improving living conditions in Iran ultimately requires a détente with the West. However, given the possibility of a reinstated maximum pressure policy and Israel’s Oct. 26 strikes, it is unlikely that the moderates will succeed in shifting the Islamic Republic’s focus away from military expenditures.
Iran’s growing sense of insecurity is likely to push its decision-makers toward increased investment in military infrastructure, especially if they conclude that the new Trump administration’s policies will prioritize Israeli interests. This strengthened U.S.-Israeli alignment may therefore drive Tehran toward greater military spending and closer military cooperation with Russia. The only way to avoid this scenario would be if a shared need for regional stability prevails, preventing further escalation between Iran and its networks on one side, and the Washington–Tel Aviv alliance on the other.
Source » warontherocks