Decoding Iran’s defence spending: pitfalls and new pointers

3th November 2018

By Jennifer Chandler

Source: The Institute for International Strategic Studies (IISS)


Our careful analysis of Iran’s 2018–19 budget bill suggests an upward trajectory for defence spending and key changes to how resources are being allocated.

Decoding Iranian military expenditure has three complications ready to confound the unwary. Having said that, the IISS has conducted a careful analysis of the latest available information on the country’s defence outlays, which suggests some striking (and in some ways contradictory) trends and some significant clues as to the shifting balances within Iranian military structures.

The Pitfalls

First in terms of the pitfalls, the budget that is put together and published is often only a small snapshot of the money Iran ‘officially’ spends. Many institutions, especially those in defence, can access funds from sources outside the official budget and are able to leverage finances from extra-budgetary funds, such as revenue from domestic oil sales. In addition, the Islamic Revolutionary Guard Corps (IRGC) engages in aggressive revenue-raising activities by establishing private companies, as well as using its powerful political influence to secure infrastructure contracts and private tenders worth more than US$2.5 million in diverse sectors, including housing development, energy, road construction, food and transportation.

Secondly, to encompass all budgetary items that may contribute to Iran’s military expenditure, an analysis of the Iranian budget should go beyond examining outlays for Iran’s regular forces (Artesh), the IRGC and the Basij militia. Any calculation of Iran’s defence spending should also take into account Iran’s police force (the Law Enforcement Force, or LEF), armed-forces welfare, and the numerous ideological training and defence-research facilities and universities focused on cultivating suitably ‘islamicised’ personnel to serve both of Iran’s military forces and developing strategy. Taking these items into account also brings any assessment into line with the methodology used when comparing budgets in different countries, such as the NATO definition, that among its categories includes ‘other forces’ that may operate as a military force.

Thirdly, the budget process in Iran is deliberately obscure, since with greater transparency comes greater accountability. Iranian budget planning is really the result of factional power brokering and horse-trading rather than a response to the constituents it purports to represent. The ability to commandeer a share of the defence budget should be seen as a barometer for the level of influence or lack thereof of different bodies and institutions. It is therefore an illuminating measure of Iran’s informal patronage networks and the struggle for institutional authority within the Iranian political system.

Five key takeaways from Iran’s new budget bill

Despite these challenges, the IISS’s in-depth study of Iran’s 2018–19 budget bill and approved law reveals five key takeaways. The first of these is that defence’s share of official spending is higher even than the more hawkish lobby in Iran has demanded. IRGC-affiliated media and senior military and defence figures, such as Chief of the General Staff of Armed Forces Major General Mohammad Baqeri and former chair of the Majles Foreign Policy and Security Committee Alaeddin Borujerdi, in addition to a variety of hawks within the Iranian parliament, such as Principlist MP Seyyed Amir Hosein Qazizadeh-Hahemi, have repeatedly called for Iran to dedicate 5% of its entire budget to defence spending. Parliament implemented a bill ensuring this in 2016. Yet when combining all aspects of defence spending as mentioned above, Iran’s total military expenditure is estimated at IR921 trillion (US$19.6 billion). As Iran forecasts an entire budget in 2018–19 of over IR12 quadrillion (US$260bn), this would place Iranian defence spending at 7.5% of Iran’s total budget.

But, secondlythe devaluation of the Rial against the US dollar from April 2018 to October 2018 meant that defence spending in dollar terms decreased from US$21.4bn to US$19.6bn in just six months. This underscores the fact that large increases in local currency, impressive as they might seem, do not necessarily reflect an over-prioritisation of the regime on defence spending. Even so, when measured in real-terms, Iran’s military expenditure is still 53% higher in 2018 than it was five years ago (see graph).

Thirdly, and intriguingly, new budgetary expenditure in 2018–19 allocated to Khatam al-Anbiya Central Headquarters (CHQ) is the latest sign of a rising profile for IRGC Major General Gholam Ali Rashid and a sign of the increasing influence of this body. Khatam al-Anbiya CHQ (not to be confused with Khatam al-Anbia Construction Base or Khatam al-Anbia Air Defense) was the coordinating body for the IRGC and the Artesh during the Iran–Iraq War, though the Armed Forces General Staff (AFGS) was established to make up for its failings, and it purportedly has not had a dedicated command structure since the 1980s. However, following its resurgence in 2016 it was announced that in the event that Iran is put on a war footing, Khatam al-Anbiya CHQ will be responsible for military operations and coordination efforts, not the AFGS. Iranian media has also hinted that Khatam al-Anbia CHQ is responsible for ’important and sensitive coordination in the Middle East’. Notably, Rashid is a key figure in the IRGC, with close ties to Qasem Soleimani, the commander of the Quds Force, the unit of the IRGC responsible for extra-territorial operations.

FourthlyIran’s 2018–19 defence budget sees an 84% rise in allocations for the LEF from the previous year – the highest growth rate for all organisations included in Iran’s military expenditure. This sees LEF funding overtaking the budget for the Artesh, commanding just shy of 16% of the entire defence budget while the Artesh commands just 12.1%. Since the LEF is responsible for Iran’s internal security, this steep rise in LEF funding most likely comes in response to several incidences of internal dissent that have taken place in Iran – the most significant of which took place from 28 December 2017 to 7 January 2018. The 2018–19 budget also sees the IRGC account for 33% of the entire defence budget (excluding its various ideological and educational facilities, whose budget is allocated under separate codes). As such, the official IRGC budget is approximately IR303trn (US$6.4bn).

Finally, in July 2017, a parliamentary bill set out funding for the Quds Force and the missile programme, amounting to IR10trn (US$213m) each. However, these amounts were then not included in the 2018–19 defence-budget bill. This would confirm that there is extra-budgetary funding available to military institutions outside the official defence budget – in particular for defence purposes and organisations that are deemed a priority for the Iranian authorities.

These initial findings support the contention that important changes are under way in the level of resources Iran is devoting to the military, how those resources are being allocated, and therefore how Tehran is delivering on its defence and security ambitions.


Jennifer Chandler is a Research Associate for Middle East Security and the Defence and Military Analysis Programme

This analysis originally featured on the IISS Military Balance+, the online database that provides indispensable information and analysis for users in government, the armed forces, the private sector, academia, the media and more. Customise, view, compare and download data instantly, anywhere, anytime.