For years, Iran’s policy and academic circles have widely embraced the belief that the country’s economic crises stem primarily from foreign policy tensions and the burden of sanctions. The logic is straightforward: without a shift toward diplomatic normalization and the easing of economic restrictions, Iran’s economy will remain trapped in volatility, unable to secure sustained growth or restore social and political stability.
Experience and reason largely affirm this view. External pressures have undeniably magnified fiscal imbalances, weakened resilience, and constrained the state’s capacity to manage long-term development.
Yet this reality cannot serve as an alibi for inaction at home. External constraints may be beyond Iran’s immediate control, but domestic policy choices are not. Economic governance must respond to crisis conditions, not mirror the inertia of normal times.
The country’s most pressing internal challenge—its deepening budget deficit—cannot be addressed through monetary expansion that fuels inflation and erodes living standards.
A crisis environment demands a fundamentally different framework for budgeting, one centered on discipline, prioritization and the removal of entrenched inefficiencies.
A decade of sanctions on oil exports has sharply reduced fiscal space, while vast and expanding public-sector commitments continue to drain limited resources. Many of these expenditures generate no economic return and contribute to rising political and social costs.
Meanwhile, the oil sector—still the backbone of national revenue—has faced chronic underinvestment. Sanctions have constrained the government’s ability to finance even essential maintenance and rehabilitation projects, let alone strategic expansion.
The consequences are becoming more immediate. More than nine months have passed since the signing of $17 billion in contracts for pressure-boosting projects at South Pars, the field that supplies over 70 percent of Iran’s gas needs. Yet implementation remains stalled for lack of financing, signaling a near-term risk of supply shortages.
Structural Flaw
Beyond these high-profile challenges lies another structural flaw: the state’s tolerance for small but cumulatively costly budget lines that deliver little economic or social value.
Each year, politically driven additions inflate expenditures without scrutiny, creating obligations that the budget cannot sustain. While each line item may appear modest, their aggregate weight significantly contributes to the persistent deficit. To cover them, the government often resorts to creating high-powered money—an approach that directly accelerates inflation.
Reform must extend not just to wasteful spending but also to poorly designed support schemes for low-income households. These programs, while intended to cushion vulnerable groups, rarely improve purchasing power in real terms. Instead, by feeding into inflationary pressures, they ultimately undermine the very populations they aim to protect.
This concern has recently been underscored by a group of 180 economists and social activists, who urged the administration to demonstrate the courage to eliminate ineffective budget items, rationalize energy prices, and enhance transparency in the allocation of public funds.
Their message arrives at a pivotal moment, just ahead of the submission of the 1405 (2026–27) national budget bill.
The 1405 (2026–27) budget represents a crucial test for Iran’s governance system—a measure of its commitment to realism, pragmatism and economic rationality amid crisis.
Success depends not only on the administration, which has pledged principles of justice, transparency and rule-based policymaking, but also on the willingness of Parliament and other governing bodies to support difficult but necessary choices.
Iran cannot control the global environment, but it can decide whether its domestic fiscal strategy mitigates risk—or magnifies it.
