Oil, gas and Iran economic analyst
Iran plans a 200 percent increase in military spending in an upcoming budget, a spokesperson said on Tuesday, and will aim to boost revenue through higher taxes despite a big deficit and a moribund currency besetting the economy.
"The military budget has increased by almost 200 percent. We hope this meets our security needs and those of the country’s military,” President Masoud Pezeshkian's spokesperson Fatemeh Mohajerani said of the proposed budget on Tuesday.
The Iranian rial hovered near all-time lows around the time of the announcement. It had plumbed lower depths after archenemy Israel on Saturday launched its biggest ever attack on the Islamic Republic, prompting calls by officials to beef up defenses.
A new report from Iran’s Parliamentary Research Center reveals that at least 20 percent of the government’s oil revenue is lost in efforts to bypass US sanctions, confirming previous reports by Iran International on the scale of revenue losses in oil exports.
The Parliament Research Center’s report highlights that in the first four months of the current Iranian fiscal year, 23 percent of the government's planned 4-month budget went unrealized. Despite the government’s extensive, unscheduled borrowing from the National Development Fund (NDF), it is projected to still face a budget deficit of approximately 880 trillion rials (equivalent to $3 billion at this year's official exchange rate of 285,000 rials per dollar) by the end of the year.
Next year starting March 21, the proposed budget will reach $105 billion, calculated on 550,000 rials per one dollar. The deficit will be around 30%, bridged by a variety of ways, including borrowing from banks, issuing bonds and diverting oil revenues from the share of the sovereign national fund, as well as up to 40% higher taxes.
According to estimates from the Parliament Research Center, despite these measures the projected budget deficit for the upcoming year may reach approximately $5.8 billion.
Components of Next Year’s Budget Bill
In the 2025-2026 budget, 33 percent will rely on tax revenues, 18 percent on the sale of bonds and government assets, and 45 percent on oil and gas revenues as well as borrowing from the National Development Fund (NDF). Borrowing from the banks is not even mentioned in the draft bill as part of the deficit, but rather as revenue. This borrowing leads to printing money, since the banks are directly and indirectly state owned and have no money of their own to lend to the government.
The proposed 39 percent tax increase in next year’s budget bill comes at a time when the country is facing over 40 percent inflation, while the government plans to raise public employee salaries by only 20 percent, with similar increases set for labor wages.
On the other hand, the projected 85 percent increase in customs revenue will significantly raise the prices of imported goods, worsening the overall living conditions for the public.
The government also intends to increase bond issuance by 96 percent to cover 11.7 percent of the budget, or more than 10%, effectively borrowing further from the banking system, which will lead to higher liquidity and inflation.
Additionally, the government plans to obtain a substantial portion of the National Development Fund’s 48 percent share of oil export revenue in the form of loans. So far, the government has borrowed $100 billion from this fund—initially established as a nest egg for future generations—and is currently unable to repay this debt.
Oil Revenue Details
Budget revenue from domestic sales of oil and gas products in next year’s budget bill is projected to reach $16.5 billion, a 14 percent increase over this year. The government plans to raise gasoline prices next year, though the exact increase is not specified in the budget bill or in the report from the Parliament Research Center.
The last time the government imposed a significant gasoline price hike in 2019, widespread public protests erupted, followed by a severe crackdown by security and military forces, resulting in the deaths of 1,500 civilians.
The government also aims to export 16 billion cubic meters of gas next year, valued at $5.2 billion. The Parliament Research Center states that, due to a severe gas shortage, only 75 percent of this target is likely to be realized.
Additionally, for the coming year, the government forecasts total daily oil and gas condensate exports to reach 1.85 million barrels, which will be allocated among the government, the armed forces and their special projects, the National Development Fund, and the National Iranian Oil Company (NIOC).
Tanker tracking companies put the Iranian oil export volume in 9 months of 2024 at about 1.5 mb/d.
A notable figure in the distribution of oil export shares is that of the armed forces, which has quadrupled compared to the initial version of this year’s budget law. However, the report from the Parliament Research Center reveals that the government, without public announcement, has significantly increased the armed forces' share in the initial budget law of current year. Consequently, next year, the armed forces’ share of oil exports will increase by only 24 percent compared to this year.
A critical point in the Parliament Research Center's report is that the government has set the price of oil at $63 per barrel for next year's budget, but Research Center says it is unlikely to sell for more than $60. Given the current oil price of around $70 per barrel in international markets, it seems more than 20 percent of the government’s oil export revenue will be lost due to sanctions evasion and discounts to Chinese customers.
The report does not address the realization of oil revenues for the armed forces. However, Iran International recently reviewed three oil trading documents from "Thunder Sahara Company," affiliated with Iran's armed forces, showing that half of the export oil value managed by this shell company is lost in the process of circumventing sanctions.
The Parliament Research Center also states that the oil export shares allocated to the government, NDF, and NIOC amount to a total 1.25 mb/d. However, actual exports are likely to reach no more than 1.1 mb/d.
Foad Izadi, a hardline commentator often featured on Iranian state TV as an expert on the United States, stated in an interview with the conservative Nameh News website: “Attacks will not stop unless the United States realizes that strikes on Iran could be costly.”
Izadi added, “It is up to us to decide how we want to confront [Israel and the United States].” He continued, “The Americans, as Iran’s staunch adversaries, operate without ethical limitations. But if they sense that Israel’s attacks on Iran will come at a high cost to the US, these strikes will cease.”
Speaking a day after Israel’s strikes on military targets across Iran—from the capital Tehran to Shiraz in the south, Ahvaz, Mahshahr, and Ilam in the southwest, and Shahroud in the northeast, among other locations—Izadi remarked, “Whatever was done, Israel and the United States did it together, though the United States has declined to take responsibility for the attacks.”
He argued that if the United States did not want an escalation, it could refrain from sending weapons and equipment to Israel. He said, "no one should believe Washington's claims about trying to stop the war in the region."
Meanwhile, Hossein Shariatmadari, editor of the hardline *Kayhan* daily, closely linked to Supreme Leader Ali Khamenei’s office, wrote a pointed commentary after the Israeli strikes, warning, "We saw how you rained [missiles] on us. Now prepare for our flood."
Shariatmadari underscored what he called “undeniable evidence” proving that it is, in fact, the United States standing as Iran’s true adversary. He issued a stark warning to "Israel and its American, European, and regional supporters," promising that Iran’s response would be “far heavier and more severe than they can imagine."
In his commentary, Shariatmadari labeled Israel as “a mere front for the United States” and described it as "the U.S. garrison in the region." Further implicating Washington, he speculated, "Do you really think the fighter jets that launched missile attacks on Iran Saturday morning weren’t American-made? Or that their pilots weren’t American?"
Shariatmadari concluded by asserting that in any response to Israel, Iran would treat U.S. interests, assets, and military personnel as legitimate targets.
In a separate development, Majles Speaker Mohammad Bagher Ghalibaf vowed that "Iran will certainly respond to the Zionist regime’s aggression." Meanwhile, Khamenei’s senior political adviser, Ali Akbar Velayati, dismissed Israel’s attack as “much ado about nothing,” asserting that Iran has never initiated a war, is a recognized international power, and that Israel is too insignificant to challenge it.
However, Iranian journalist Amir Soltanzadeh countered Velayati's claims, noting that it was Iran who first initiated hostilities with Israel and that Iran’s isolation prevents it from claiming true international power status.
However, long-time establishment insider Mohammad Javad Larijani acknowledged, "This is not a small matter. Our country has been invaded. Although it was a cowardly attack, it remains an act of aggression against Iran."
Although military commanders seem to have been restricted from commenting on the incident, the IRGC-affiliated daily Javan downplayed the strikes’ significance, claiming that Iran’s anti-aircraft defenses largely thwarted the attack. Like most other Iranian media, Javan characterized the strike as “weak and limited,” adding that “Iran reserves the right to respond”—a measure that would likely be welcomed by those on both sides seeking to test Israel’s new THAAD air defense system.
In one of the rare comments from Iranian military experts, Amir Mousavi claimed that Iran had foreknowledge of the attack by hacking Israeli military documents, disputing reports that other countries had informed Iran. This contrasts with international media reports and statements from the Dutch Foreign Ministry and Russian officials, who reportedly notified Iran about the attack approximately four hours before it occurred.
The government-owned Iranian Students News Agency (ISNA) labeled the attack as "The big folly of a small regime," warning that Israel and its allies would face repercussions for this "limited" strike.
The security council meeting, called upon by Iran, was held after Israel’s weekend retaliatory strikes on Iranian soil, which targeted several missile and drone factories as well as Iran’s air defense systems, according to American and Israeli officials.
“Should it [Iran] choose to undertake further aggressive acts towards Israel or US personnel in the region, there will be severe consequences,” said ambassador Linda Thomas-Greenfield.
She said the Iranian envoy called the security council meeting to gaslight and act like the victim.
The US Ambassador told the Security Council meeting on the Middle East situation that the US will not allow the future of the region to be dictated by Iran and its proxies.
“Stop pouring gasoline on the fire of the regional conflict,” the American envoy said, addressing the Islamic Republic.
The US stood by Israel and said the nation was acting in self-defense, whereas the British representative asked Iran not to respond and said both sides need to show restraint.
Amir Saeed Iravani, Iran’s UN envoy, accused the US of being complicit in Israel’s airstrikes and said it would bear the consequences. The US envoy, however, denied any involvement in Israel’s strike against Iran.
"The US government is complicit in Israeli aggression and will bear its consequences,” Iravani said.
He added that Israel breached international law and took aim at the US, noting that Washington had double standards when it came to Israel.
Israel’s UN envoy, Danny Danon, said he was giving Iran a last warning.
"Israel has shown restraint, but from now on you will only see strength. Any further aggression will be met with powerful and swift action."
Ambassador Danon demanded from the Security Council accountability and action.
"We demand immediate and paralyzing sanctions against Iran's military and economic infrastructure, designate the Islamic Revolutionary Guard Corps as the terrorist organization it is and take all necessary measures to prevent Iran from becoming a nuclear state."
Danon referred to Iran’s government as the puppet master behind attacks against Israel and promised that any response by Iran would be met with strength.