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Iran: Defense Economics
Country Study > Chapter 5 > National Security > Defense Economics


Under the Islamic Republic, the armed forces budget has been prepared by the Ministry of Defense and Armed Forces Logistics in consultation with the Supreme Defense Council (SDC). The president, who also is a member of the SDC, submits the completed package to the Majlis for debate, approval, and appropriation. The ability of the Islamic Republic to commit resources to military modernization and enhancement is contingent on the success of the overall Iranian economy. The intrinsic problems of Iran’s economy, however, are extremely difficult to rectify and were not ameliorated in the early 2000s by increased income from Iran’s most valuable export, oil (see The Economy after the Islamic Revolution, 1979–, ch. 3). Iran’s defense budget for 2006 was estimated at US$6.6 billion, up significantly from the 2004 level of US$5.6 billion.

During the reign of the last shah, high military expenditures caused severe popular discontent. Income from the oil boom of 1973–74 was disproportionately invested in military procurement at the expense of industry, agriculture, and education. Particularly in the rural areas, the civilian population disapproved of the privileged status granted to the military establishment. Despite constructive civilian activities by the armed forces (especially in education), Iranian society in general never shared the shah's commitment to a buildup that drained the treasury.

The Revolution failed to change this pattern, except for cancellation of arms procurement commitments in the first year of the new regime. At that time, the government abandoned many military projects because they involved contracts with U.S. corporations and because the Khomeini regime identified the government’s first priority as satisfying the needs of the masses.

This trend was rapidly reversed, however, with the revolutionary government's first war budget in 1981. By 1987 all defense expenditures for the year, including those of the IRGC and Basij and payments to the families of war casualties, totaled as much as US$100 billion. Expenditures dropped sharply to US$6.8 billion the year after the cease-fire. However, beginning in 1989 Iran again increased procurement of arms, largely from the former Soviet Union, as well as domestic production of strategic missiles. Within the context of new external pressures in the Persian Gulf region, this policy reflects a realignment of priorities from addressing fundamental economic ills to responding to security pressures related to the Persian Gulf region. Beginning in 2003, the presence of U.S. forces both to the west in Iraq and to the east in Afghanistan has magnified the importance of military funding decisions. Because of changes in how military spending is categorized, statistics for the early 2000s are speculative. For instance, it is likely that any significant expenditures on Iran’s nuclear arms program would have been concealed under energy production expenses.

Data as of 2008

Last Updated: January 2008

Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Iran was first published in 1987. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on

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