Estimates of Iran’s military expenditure in Syria vary from $6 billion a year to $15-$20 billion a year. That includes $4 billion of direct costs as well as subsidies for Hezbollah and other Iranian-controlled irregulars. Assuming that lower estimates are closer to the truth, the cost of the Syrian war to the Tehran regime is roughly in the same range as the country’s total budget deficit, now running at a $9.3 billion annual rate. The explanation for Tehran’s lopsided commitment to military spending, I believe, is to be found in Russian and Chinese geopolitical ambitions and fears.
The Iranian regime is ready to sacrifice the most urgent needs of its internal economy in favor of its ambitions in Syria. Iran cut development spending to just one-third of the intended level as state income lagged forecasts during the three quarters ending last December, according to the country’s central bank. Iran sold $29 billion of crude during the period, up from $25 billion the comparable period last year. The government revenues from oil of $11 billion (655 trillion rials) were just 70% of official forecasts, and tax revenues of $17.2 billion came in 15% below expectations.
Chaos in Iran’s financial system prevents the Iranian government from carrying a larger budget deficit. The $9.3 billion deficit reported by the central bank stands at just over 2% of GDP, under normal circumstances a manageable amount. But that number does not take into account the government’s massive unpaid bills. According to a February 27 report by the International Monetary Fund, the government arrears to the country’s banking system amount to 10.2% of GDP. Iran’s delegate to the IMF Jafar Mojarrad wrote to the IMF, “Public debt-to-GDP ratio, which increased sharply from 12% to 42% in 2015-16, mainly as a result of recognition of government arrears and their securitization, is estimated to decline to 35% in 2016-17 and to 29% next year. However, it could rise again above 40% of GDP after full recognition of remaining government arrears and their securitization and issuance of securities for bank capitalization,” Iran’s banks have so many bad loans that the government will have to issue additional bonds to recapitalize them, Mojarrad added. Iranian press accounts put toxic assets at 45% of all bank loans.
Iran’s financial system is a black hole, and the government cannot refinance its arrears, recapitalize its bankrupt banks, and finance a substantial budget deficit at the same time. Its infrastructure requirements are not only urgent, but existential. The country’s much-discussed water crisis threatens to empty whole cities and displace millions of Iranians, particularly the farmers who consume more than nine-tenths of its disappearing water supplly. Despite what the Tehran Times called “a desperate call for action” by Iranian environmental scientists, the government slashed infrastructure spending by two-thirds during the last fiscal year.
The Iran Revolutionary Guards Corps evidently has first claim on the public purse. It is also willing to shed blood. Reported dead among Iranian-led forces in Syria include at least 473 Iranians, 583 Afghans, and 135 Pakistanis, as well as 1,268 Shi’a fighters from Iraq. In addition, perhaps 1,700 members of the Hezbollah militia have died. Other estimates are much higher. The IRGC’s foreign legions include volunteers from Afghanistan and Pakistan, where Shi’ites are an oppressed minority often subject to violent repression by the Sunni majority. IRGC-controlled forces include the Fatemiyoun Militia recruited mainly from Shi’ite Hazara refugees from Afghanistan, with reported manpower of perhaps 12,000 to 14,000 fighters, of whom 3,000 to 4,000 are now in Syria. Iranians also command the Zeinabiyoun militia composed of Pakistani Shi’ites, with perhaps 1,500 fighters in Syria.
This compares to an estimated 28 Russian casualties in Syria. Moscow has a very good bargain with Tehran. Despite the high casualty rate, the IRGC “has more volunteers for the Syrian War than it knows what to do with,” Kristen Dailey reported last year in Foreign Policy.