By: Kashif Anwar, Research Analyst, GSDN
Iran’s military transformation following the Islamic Revolution of February 11, 1979, represents one of the most significant strategic shifts in modern Middle Eastern geopolitics. Despite facing comprehensive economic sanctions and arms embargoes imposed by the United States and its Western allies, Iran has managed to develop considerable military capabilities through domestic production, strategic partnerships, and innovative procurement methods. The country’s defence spending has evolved from US$ 5.6 billion in 2004 to an estimated US$ 20.5 billion in 2020, demonstrating sustained commitment to military modernisation even amidst severe economic constraints.
Historical Context and Pre-Revolution Military Foundation
Prior to the Islamic Revolution, Iran under Shah Mohammad Reza Pahlavi maintained one of the most advanced military arsenals in the Middle East. Between 1925 and 1979, Iran was equipped with cutting-edge Western hardware, often receiving advanced systems before they became standard in their countries of origin. Notable examples include the United States F-14 Tomcat aircraft and British Chieftain tanks, which formed the backbone of Iran’s pre-revolutionary military capabilities.
Following the revolution’s success on February 11, 1979, Iran’s relationship with Western suppliers deteriorated rapidly. Israel severed diplomatic relations with Iran on February 18, 1979, when the new Islamic government adopted an anti-Zionist stance. Subsequently, the United States terminated its economic and diplomatic ties with Iran, banned Iranian oil imports, and froze approximately US$ 11 billion worth of Iranian assets in 1980 dollars.
Economic Sanctions and Their Impact
International sanctions against Iran began immediately after the revolution, intensifying significantly following the Iran hostage crisis of November 4, 1979. Between 2008 and 2013, billions of dollars of Iranian assets abroad were seized or frozen, creating severe constraints on the country’s ability to purchase military equipment from traditional suppliers. Economic sanctions targeted Iran’s banking system, energy sector, and specifically its military procurement capabilities.
Despite these restrictions, Iran’s defence budget allocation demonstrated remarkable resilience. Government economic policies after the revolution shifted from urban-biased and elite-centred approaches to rural-biased and populist strategies, reflecting the new regime’s ideological priorities. Following the nationalisations in 1979 and the outbreak of the Iran-Iraq War on September 22, 1980, over 80% of Iran’s economy came under government control, enabling centralised resource allocation for military purposes.
Development of Domestic Arms Production
Confronted with international isolation and arms embargoes, Iran initiated systematic development of its domestic defence industry. In 1979, the country took its first step into manufacturing by reverse engineering Soviet RPG-7, BM-21, and SA-7 missiles. International sanctions and arms embargoes led by the United States, coupled with high demand during the Iran-Iraq War, accelerated Iran’s transition towards self-reliance in military production.
Since 1993, Iran has manufactured its own tanks, armoured personnel carriers, missiles, radars, boats, submarines, unmanned aerial vehicles, and fighter planes. Iran established an arms development programme during the Iran-Iraq War specifically to counter the weapons embargo imposed by the United States and its Western allies. Because of economic sanctions and weapons embargoes, Iran was forced to rely on its domestic arms industry for weapons and spare parts, since very few countries remained willing to conduct business with Iran.
Strategic Military Investments and Spending Patterns
Iran’s military expenditure patterns reveal strategic prioritisation despite economic constraints. Between 1989 and 1992, Iran spent US$ 10 billion on arms, some of which were designed to prevent other states’ naval vessels from accessing regional waters, including marines and long-range Soviet planes capable of attacking aircraft carriers. Iran’s defence budget for 2006 was estimated at US$ 6.6 billion, representing a significant increase from the 2004 level of US$ 5.6 billion.
Research demonstrates that oil revenue has been a major economic factor influencing Iran’s military spending patterns, with the 1970s leading to “petrodollar recycling” that continued to benefit military modernisation efforts. Studies investigating the impact of sanctions on Iran’s military spending, examining historical records from 1960 to 2017 using auto-regressive distributed lag model (ARDL), found that unilateral sanctions by the United States would paradoxically stimulate increased domestic military investment.
Institutional Reforms and Military Organisation
Iran’s post-revolutionary military structure underwent fundamental reorganisation to support enhanced domestic capabilities. Iran established the Islamic Revolutionary Guard Corps (IRGC) as a parallel military force alongside the regular armed forces, creating dual command structures that enhanced operational flexibility and domestic production oversight. Iranian Revolutionary Guards were placed in charge of overseeing domestic arms production and procurement activities.
Following the Iran-Iraq War’s conclusion in 1988, the government attempted to develop the country’s communication, transportation, manufacturing, and health sectors whilst maintaining military production capabilities. Iran’s military spending in 2019 represented 3.8% of GDP, demonstrating sustained commitment to defence modernisation despite economic pressures.
Innovation in Military Technology
Iran’s arms industry has demonstrated remarkable innovation in developing cost-effective ballistic missiles and unmanned aerial vehicles (UAVs) despite facing heavy sanctions. Iran has managed to build a burgeoning arms industry over the last decade, becoming proficient in producing sophisticated military systems that serve both domestic security needs and regional power projection capabilities.
Iran’s defence industry has proven quite unique, having been shaped by a history of ostracisation from the international community, wide-ranging sanctions on the import and export of weapons, and strategic need to counter military powers such as the United States, Israel, and Arab states. These factors have led to the formation of a defence industry that, whilst obsolete in many respects, remains capable of executing many of Iran’s strategic objectives.
Strategic Partnerships and Procurement Networks
Following the tightening of United States sanctions and the collapse of the Soviet Union, the Russian Federation and People’s Republic of China became Iran’s principal military allies. Relations between Iran and Russia improved significantly after Vladimir Putin took office in 2000, with increasingly warmer cooperation in recent years. Iran was able to obtain commercial dual-use items despite international sanctions through sophisticated procurement networks and strategic partnerships.
Iran’s government has maintained relationships with various suppliers willing to provide military technology and components, despite Western sanctions. Strategic partnerships with China and Russia have provided access to advanced military systems and technologies that supplement domestic production capabilities.
Current Military Capabilities and Future Projections
Iran’s military expenditure increased to US$ 7.89 billion in 2024 from US$ 7.39 billion in 2023, according to recent data. On November 8, 2024, Iran announced its proposed military budget for the Iranian year 1404 (March 2025–March 2026), indicating plans to increase military spending by 200 percent. Iran’s military spending in 2023 was approximately US$ 10.3 billion, according to the Stockholm International Peace Research Institute (SIPRI).
Iran’s defence spending in the 2020 budget was estimated at US$ 20.5 billion, representing a substantial increase amid the pandemic and economic crisis that illustrated the government’s enduring commitment to funding institutions used for domestic suppression and international intervention. Plans to raise the military budget by 200% essentially triple Iran’s defence spending, raising concerns about potential regional arms races.
Regional Implications and Strategic Outcomes
Iran’s military development has significant implications for Middle Eastern security dynamics. Iran has allied with and funded several anti-Israeli Islamist militant groups since the revolution, utilising its enhanced military capabilities to support regional proxies. Iran’s military capabilities enable power projection throughout the Persian Gulf region and support for allied forces in Syria, Lebanon, Iraq, and Yemen.
Iran’s enhanced military capabilities have enabled it to challenge traditional regional power balances, despite economic sanctions and international isolation. Iran’s ability to develop sophisticated military systems domestically has reduced its dependence on foreign suppliers and enhanced its strategic autonomy in regional conflicts.
Conclusion
Iran’s military modernisation following the 1979 Islamic Revolution demonstrates how economic sanctions and international isolation can paradoxically stimulate domestic military industrial development. Through strategic investments in domestic production capabilities, innovative procurement methods, and sustained government commitment to military spending, Iran has transformed from a Western-dependent military power to a largely self-sufficient defence producer.
Iran’s experience illustrates how determined nations can overcome international sanctions through domestic innovation, strategic partnerships, and sustained resource allocation. Despite facing comprehensive economic restrictions, Iran has successfully developed significant military capabilities that enable regional power projection and strategic deterrence. Iran’s military transformation represents one of the most significant strategic developments in modern Middle Eastern geopolitics, with implications extending far beyond the region’s boundaries.
