Iran’s growing shopping list of military hardware could face a budget crunch after Donald Trump restored his policy of “maximum pressure”, a tough sanctions regime started by the President in his first term.
Similar to the first round of Mr Trump's sanctions between 2018 and 2020, he aims to “bring Iran’s oil exports to zero”, but hinted on Wednesday at wanting a “deal” to make Iran a “successful country” without a nuclear weapon.
How much of a setback for the regime this represents is uncertain. It could rattle hardliners intent on deterring another Israeli attack, potentially on the country’s advanced nuclear programme.
The Islamic Revolutionary Guard Corps, an elite hardline force, and Iran’s regular army, the Artesh, have been re-equipping as quickly as possible after two successful Israeli air attacks on the country. They have released images of new hardware including drones and missiles that can hit Israel. Iran’s defence budget was increased by 200 per cent last year, but depends heavily on oil revenue for at least half its funding. Last month, Tehran said it had boosted its drone force by 1,000 unmanned aircraft.
“The implementation of maximum pressure will have significant economic consequences. Iran will struggle to balance its military modernisation efforts with economic survival. The regime's defence spending priorities – particularly for the IRGC and its ballistic missile, drone, and naval programmes – could face funding shortfalls, forcing difficult trade-offs,” says Clement Therme, non-Resident Fellow at the International Institute for Iranian Studies (Rasanah).
“This will make it harder to fund military acquisitions, especially from Russia and China.”
Trump's nuclear deal
Mr Trump’s previous campaign slashed Iran’s oil exports from nearly three million barrels per day in 2017 to about 400,000 in 2019, and followed his cancellation of the Obama-era nuclear deal, which eased sanctions on Iran in exchange for UN inspections to curb the nuclear programme.
Mr Trump says Iran is “too close” to being able to develop a bomb, roughly matching the assessment of Rafael Grossi, the head of the UN’s International Atomic Energy Agency. Mr Grossi said in December that Iran’s medium and highly enriched uranium stockpiles were the same as those of “nuclear armed states”.
Former US president Joe Biden’s multilateral efforts to revive the nuclear deal stumbled, with Iran accusing the IAEA of helping a foreign power sabotage its nuclear sites. Mr Biden kept most sanctions in place, but Iran adapted to covertly increase oil exports and critics say Mr Biden did not keep pace.
The IRGC could limp on in a new “maximum pressure” campaign by squeezing more revenue from black-market economic activity as well as control of state companies, but this would come amid growing public anger over a deep recession and rising protests, acknowledged by Iranian President Masoud Pezeshkian.
It leaves the regime with a tough choice as it tackles a large budget deficit and an energy crisis due to a lack of investment in power infrastructure. High subsidies, including cash handouts to low-income Iranians, will complicate decisions about how to adjust a military budget that was increased by 200 per cent at the end of last year. Mr Pezeshkian said last week that some government workers' salaries were three months behind.
Military build-up
Iran is not shy about advertising how defence funds are spent, regularly showing new missiles, drones and air defence systems at military drills. On Thursday, Iran displayed what it said was a new maritime drone taking off from a new naval vessel, the Shahid Bahman Bagheri.
Iran also regularly announces the production of new ballistic and cruise missiles that can hit Israel.
Hundreds of these weapons were expended in April and October when Iran launched two massive rounds of strikes on Israel – the largest of their kind in history – which were mostly intercepted at considerable cost to a coalition of US, British, French and Israeli forces, perhaps nearly $2 billion.
Israel’s retaliatory strikes hit Iran’s most advanced air defences, including long-range radars with coverage across Iraq, and elements of their Russia-purchased S-300 PMU2 air defence system, wiping out equipment worth hundreds of millions of dollars. Iran’s S-300 PMU2 and associated systems were part of a delayed deal with Russia, which, after being stalled by sanctions, led Tehran to request $4 billion in compensation – a possible indicator of how much was spent.
Iran is working on replacing this lost equipment, recently showing upgraded variants of its Bavar 373 air defence system, which it claims is similar in capability to the S-300.
On January 27, Iran's military said it was going ahead with the purchase of several dozen Russian SU-35 fighter jets, which would be a significant boost to its fleet of decades-old aircraft, some of them purchased from the US in the Shah era.
Delayed several times, Iran's SU-35s could cost up to $85 million each, but the deals for the jets include pilot training and logistical support, significantly increasing costs.
Iran has a space programme too, which many experts say could double as cover for launching a nuclear-armed missile.
“Trump is clearly open to talking to Iran, but he will use the threat of massive economic pressure, especially on the oil sector, to try to achieve what he wants at the negotiating table. That doesn’t mean that military action is off the table, but makes it less likely in the near term,” says Norman Ricklefs, head of the NAMEA risk consultancy.
“Importantly, while we know that Trump does not want Iran to obtain nuclear weapons, we still don’t know exactly what concessions he wants to see from Tehran, which places Iran in a difficult negotiating position.”
Mr Therme says the “conundrum” that a new maximum pressure campaign could present Iran may create splits within the regime.
“Tehran might resort to more barter-based trade or financial workarounds to acquire military tech, slowing modernisation. It could lead to competition within the armed forces – the Artesh could see further neglect in favour of the IRGC, which plays a central role in sanctions evasion and regional influence.”
These divisions are playing out in parliament, where prominent reformists including Ali Shakuri-Rad have pressed for negotiations with Mr Trump. Hardliners support a “Look East” geopolitical approach and believe Iran can achieve adequate economic growth by strengthening alliances with China – which signed a high-profile strategic agreement with Iran in 2021 and buys most Iranian oil – and Russia, which signed a 20-year defence and economic co-operation pact in January.
“Iran's economic trajectory depends on its relations with Washington, while the regime's security survival is tied to its military co-operation with Moscow. This dilemma presents a strategic conundrum: prioritise economic survival or shift entirely toward an all-security strategy,” Mr Therme says.
“In the first scenario, Tehran accepts direct diplomatic negotiations with Trump. In contrast, the second scenario would likely lead to a renewed emphasis on Tehran's ‘Look East’ policy.”
