Iran's diplomatic feints come up short as economy flashes red

Some outlets, including IRGC-affiliated Tasnim, had cited Khatibzadeh as making the remark during a visit to Baghdad. He told ISNA he did not use that phrasing in his interview.

Khatibzadeh said Israel “has violated all norms and international laws for two years” and that Iran’s response to recent attacks had been “painful.”

He added that the fighting “changed realities on the ground, particularly on the nuclear issue, and the International Atomic Energy Agency was unable to protect Iranian facilities.”

The June conflict began with a surprise Israeli strike on Iranian military and nuclear sites on June 13. Tehran said 1,062 people were killed, including 786 military personnel and 276 civilians. Israel said it killed more than 30 senior Iranian security officials and 11 nuclear scientists. Iran retaliated with missile strikes that killed 31 civilians and one off-duty Israeli soldier.

Khatibzadeh said Iran could target “any location” in Israel during the war and accused Tel Aviv of relying on “terror and media manipulation.”

Iran vows escalation if war returns

Parliament Speaker Mohammad Bagher Ghalibaf said last month that Iran would abandon restraint if another war erupts. “In the next possible war, our restraint will end. New geographic areas and targets will be added to our response,” he told lawmakers. He warned that the conflict could also expand “into economic and political arenas.”

Ghalibaf said Iran’s armed forces had addressed weaknesses exposed in June and pointed to naval missile drills as a signal meant to prevent “enemy miscalculation.”

Israeli voices call for striking Iran’s leadership

In Israel, former defense minister Yoav Gallant said the country must prepare for another round and ensure that Supreme Leader Ali Khamenei is killed if fighting resumes. “Although Khamenei was not eliminated in this round, his elimination must be part of any plan of the State of Israel if a campaign against us is launched,” Gallant told Channel 12.

Gallant said Iran will rebuild some of its strength, particularly its missile arsenal, and warned Israel must be ready for a different war.

Israeli Prime Minister Benjamin Netanyahu and US President Donald Trump also mooted killing Khamenei at the height of the June conflict, and Trump hinted at favoring regime change in Tehran.

An unnamed senior Iraqi official told the paper he “did not respond to the Iranian message because of political and security complications.” The report said Iranian networks of smugglers in Syria and Lebanon have recently stepped up attempts to deliver funds despite tighter monitoring.

Asharq Al-Awsat, citing political sources, said US Senator Lindsey Graham told Lebanese lawmakers last month that Washington had intelligence of millions of dollars reaching Hezbollah and wanted to know how the funds were smuggled.

In 2020, the US State Department estimated that Iran gave Hezbollah $700 million a year.

Pressure to disarm Hezbollah

The report comes as Lebanon faces internal and external pressure over Hezbollah’s arsenal. Last month, President Joseph Aoun told visiting Iranian security chief Ali Larijani that no group should bear arms or rely on foreign backing. He warned against interference while affirming openness to cooperation based on sovereignty and mutual respect, according to Al Arabiya.

Larijani responded by saying Iran did not interfere in Lebanon’s affairs and that “any decision taken by the Lebanese government in consultation with the resistance is respected by us.” He urged Beirut to “always appreciate the value of resistance,” describing Israel as Lebanon’s real enemy.

Hezbollah rejects disarmament

Days later, Hezbollah leader Naim Qassem warned that efforts to strip the group of weapons could lead to war. “The resistance will not hand over its weapons,” he said at a rally in Baalbek, vowing a “Karbala-like battle” if necessary.

Qassem described Hezbollah’s arsenal as central to Lebanon’s sovereignty and credited Iran for its financial, military and political support. He also warned the Lebanese government against confronting the group, saying such action would leave “no life” in the country.

Lebanon’s cabinet had ordered the army last month to collect Hezbollah’s weapons, the most detailed disarmament push yet, with US backing. Tehran strongly criticized the move, calling it a Western-imposed plan.

In Iran, the term “guaranteed purchase of wheat” refers to a government program whereby the Government Trading Corporation (GTC) commits to buying wheat from domestic farmers at a pre-established, fixed price.

The government says the policy shields farmers from volatile market prices and ensures a stable income by offering a predictable price while also enabling the government to manage reserves of the staple crop and guarantee supply.

However, state-guaranteed purchases had dropped to 700,000 tons, Attaollah Hashemi, head of the National Wheat Farmers Foundation, told ISNA news agency on Thursday.

'Risks ahead'

“This year’s guaranteed purchases have decreased by 35 percent compared to last year, a decline that is a direct result of reduced production caused by drought and insufficient rainfall,” he said.

The government still owes some farmers payments for wheat deliveries but promised settlement soon, Hashemi added. He warned that “reliance on wheat imports could bring serious risks for the country.”

According to US Department of Agriculture data, the country's wheat production for the 2024/25 season is projected at around 16 million metric tons.

Despite these figures, Iran’s import needs can vary: the FAO projects wheat import requirements for the 2024/25 marketing year (April–March) at 1.3 million tons.

However, due to drought-induced production shortfalls, imports are expected to rise in the current calendar year to about 4.5 million tons, according to state media.

Water crisis

Agriculture Minister Gholamreza Nouri Ghezaljeh recently described the situation as unprecedented. “From the perspective of food security, we are in the most difficult circumstances,” he said, citing poor economic conditions and what he called the worst droughts in memory.

Production had fallen by 35 to 40 percent due to energy shortages and irrigation problems, Ghadamali Bourbour, deputy head of the Wheat Farmers Foundation, said in late August.

“This decline is rare in Iran’s agricultural history,” he said, adding that the trend would also push up dairy and meat prices.

Despite repeated water cuts across cities, official data show that 80 to 90 percent of Iran’s consumption still goes to agriculture, much of it under traditional methods.

With procurement falling and drought intensifying, the government faces rising pressure to reform or risk deeper food insecurity.

“The policy of Moscow and Beijing, which consisted of fairly mild condemnations of the Israeli and US strikes in Iran, sparked criticism and disappointment in Tehran," a research paper from the Institute of National Security Studies (INSS) said.

“It also reinforced the Iranian assessment that its reliance on Russia and China remains limited, particularly in the event of a military confrontation with Israel and the United States," the report by Danny Citrinowicz and Raz Zimmt added.

The 12-day war, initiated by a surprise campaign of Israeli strikes and assassinations on June 13 which killed senior military figures and nuclear experts, saw Iran fighting both Israel and the US, while China and Russia resisted involvement.

The US struck Iran's three biggest nuclear facilities while Israel took control of Iran's aerial defense systems and destroyed swathes of military and nuclear infrastructure, along with civilian sites such as Evin Prison, leaving its foe much weakened.

Israel too suffered major blows with Iranian missile barrages which struck military and civilian infrastructure.

“It is clear that for now, Iran has no viable alternative to continuing its political, economic, and security partnership, as limited as it may be, with Russia and China, especially given the escalating tensions between Tehran and Europe,” the paper said, referring to the imminent threat of a snapback of UN sanctions due by the end of the month from Britain, France and Germany.

"Likewise, Russia and China, who view Iran as a junior partner in a coalition against the West and the United States, have no real alternative to Tehran, and they are expected to continue the partnership as long as it serves their interests,” the authors said.

Iran relies on China as its number one buyer of oil, and has deep ties with Russia militarily as a supplier of a kamikaze drone which has been key to Moscow's war effort in Ukraine.

A diplomatic tightrope

Iranian President Masoud Pezeshkian attended a major military parade in Beijing on Wednesday marking the 80th anniversary of Japan's surrender in World War II.

President Xi Jinping, flanked by Russian President Vladimir Putin and North Korean leader Kim Jong Un, used the parade to project China's military strength, and Pezeshkian appeared to be nearer the back of assembled heads of state.

“(China and Russia) would not hesitate to sacrifice Iran to advance important strategic goals, such as improving relations with Washington," the Israeli researchers added.

The paper noted that there was some caution in Iran's often raucous political discourse about directly criticizing the Eurasian allies.

“Circles identified with the conservative and hardliner wing of Iran’s leadership refrained from voicing similar criticism and instead expressed understanding of Russia and China’s conduct,” the paper said.

“For example, Yadollah Javani, the head of the political bureau of the Islamic Revolutionary Guards Corps, declared that Iran had not requested assistance from Russia or China during the war, emphasizing that the military cooperation agreement between Tehran and Moscow does not obligate Russia to support Iran in wartime.”

Condemnation from Beijing and Moscow

China's foreign ministry "strongly condemned" the Israeli and US strikes, urging de-escalation while Russia slammed them as "unprovoked and unacceptable" in a statement through the Russian state news agency RIA Novosti.

In March, the three nations carried out a joint naval drill in the Gulf of Oman, an annual drill the three allies performed in recent years as ties deepened.

“At the conclusion of Operation Rising Lion, pragmatic circles in Iran voiced criticism mainly at Russia and, to a lesser extent, China for refraining from providing assistance to Iran during the war and limiting themselves to condemning the Israeli and American strikes, especially given Iran’s significant military support for Russia since its invasion of Ukraine in February 2022,” the researchers said, echoing the fears in Iran itself of too much dependence on the two allies.

None of Tehran’s counterparts, including Russia, has agreed to settle transactions in national currencies, leaving Iran isolated despite years of lobbying.

At the Shanghai Cooperation Organization (SCO) summit on September 1, President Masoud Pezeshkian repeated the call.

A day earlier in Tianjin, China, he unveiled a new initiative under the title “SCO Special Accounts and Settlements,”describing it as a three-pronged plan to “reduce the effects of illegal sanctions on SCO members.”

What’s the proposal?

According to Pezeshkian, the initiative has three components:

• Expanding the use of national currencies and reducing dependence on the dollar.
• Establishing shared digital infrastructure and adopting central bank digital currencies (CBDCs) for faster, more secure payments.
• Creating a multilateral currency-swap fund to support sanctioned members or those facing liquidity crises.

Pezeshkian argued that the plan could boost the “economic resilience” of SCO countries and turn the bloc into “a successful model for building a multipolar, fair financial order resistant to external pressure.”

Is it realistic?

The hurdles are steep.

SCO members’ national currencies lack international credibility and many are volatile. The Iranian rial has lost 99 percent of its value in the past two decades, while the Russian ruble has sharply fluctuated since the Ukraine war.

Over the past five years, all SCO currencies—except Tajikistan’s—have depreciated.

Trade imbalances add to the problem.

Chinese customs data show China’s exports to India, Pakistan, and Uzbekistan are seven times larger than its imports from them. With Tajikistan, the imbalance reaches tenfold.

China, with a $150 billion annual trade surplus with those countries, is unlikely to accept settlement in their weak currencies—and even if it did, they would be of little use in trade with third parties.

Energy trade underscores the limits further.

Of China’s $512 billion in total trade with SCO members last year, $90 billion was fossil fuel imports. About 80 percent of global energy transactions—especially oil—are conducted in US dollars. Even the euro and pound play only marginal roles.

Beyond energy, the dominance of the dollar and euro in global commerce is overwhelming: the dollar accounts for more than 65 percent of trade transactions, the euro about 20 percent.

China’s yuan makes up just 3–4 percent, mostly in neighboring countries.

The core problem

Above all, Iran remains on FATF’s blacklist, which restricts transactions regardless of currency. Whether in dollars, euros, yuan, or local money, doing business with Iran carries legal and financial risks.

For these reasons, Tehran’s latest de-dollarization push is less a practical plan than an aspirational talking point.

Currency weakness, trade imbalances, dollar dominance in energy, and Iran’s isolation from the global financial system make the proposal unworkable.

Adding to the difficulty, Washington has taken a firm line against such initiatives, warning the BRICS bloc over de-dollarization efforts and threatening more sanctions and tariffs if they advance.