Iran plans to significantly increase its defense budget for the upcoming fiscal year, following a recent exchange of missile fire with Israel that has raised the potential for wider conflict in the Middle East.
Government spokesperson Fatemeh Mohajerani announced on Tuesday that the administration has proposed a 200% increase in next year’s defense budget to the parliament, without providing additional specifics.
For the current fiscal year, Iran’s total defense expenditure stands at approximately $8 billion in current dollar terms. The 2024 defense budget for military institutions, including the elite Islamic Revolutionary Guard Corps, the conventional army, and the national police, has been set at 2,530 trillion rials, equivalent to about $4 billion as per the open market rates this week. The Iranian rial has depreciated by 17% against the dollar since January, when the 2024 budget was initially proposed.
Approximately $2.1 billion in current dollar terms is allocated “to strengthen military might,” indicating spending on the acquisition and development of weaponry. An additional €1.8 billion, or $1.94 billion, is designated for the “promotion of sustainable security” sourced from oil revenues.
It remains unclear whether Mohajerani’s statement pertains to the entire defense budget or specifically the portion allocated for “military might.”
Parliament has preliminarily approved a total proposed budget of 64,000 trillion rials, amounting to roughly $100 billion at open market rates, for the fiscal year commencing in March.
Iran’s defense strategy relies heavily on domestic arms manufacturing with limited transparency about overall military expenditures. Support for regional proxies is excluded from public accounts, as Tehran consistently emphasizes these alliances within its strategy for regional influence and defense against perceived threats from the US and Israel.
In recent years, Iran has enhanced its ballistic missile capabilities and maintained support for militant groups in Lebanon, Iraq, Syria, and Yemen. The country’s leadership considers these efforts crucial for national security, believing any withdrawal could embolden foreign conspiracies aimed at regime change.
Despite intentions for a substantial budget increase, Iran’s military spending remains relatively modest compared with other regional powers. According to the Stockholm International Peace Research Institute, Iran’s 2023 military expenditure was only the fourth-highest in the Middle East, less than half of Israel’s and far below that of Saudi Arabia, the region’s largest spender.
Iran’s financial health is closely tied to its oil and gas exports. Combined revenues from these sectors are projected at 21,000 trillion rials, or $32 billion at current market rates, with crude oil production expected to reach 3.75 million barrels per day, priced at an estimated €57.5 per barrel according to the government’s calculations.
Iran’s economy is also challenged by high inflation, with current rates near 35%. The budget projects inflation will decrease to 28% next year.
President Masoud Pezeshkian, in office since July, has frequently expressed concerns over the financial challenges facing his administration, primarily due to US sanctions restricting Iran’s oil revenues. The recent depreciation of the currency, following Iran’s missile attack on Israel earlier this month, further highlights the economic strain. Exchange rates remain volatile as tensions with Israel persist.