Looks can be deceiving. A child of the Cold War, I grew up with duck-and-cover drills at school, cub scout field trips to the city fallout shelter, and the values of parents shaped by the privations of the Great Depression and the “lessons of Munich” about responding early to the rising power of ambitious dictators. I don’t remember that time as being particularly frightening—as some Boomers do—but one of the “facts” of late 20th Century life was that there was this powerful, malevolent Soviet Union just poised at the first sign of Western weakness to send thousands of tanks through the Fulda Gap into the democracies of Western Europe. We all were part of a “long twilight struggle” against this looming Soviet threat.
Then, roughly thirty years ago, I had the opportunity to travel to a number of the former Soviet republics of Central Asia and the Caucasus just a few years after they had achieved independence. That was an eye opener. Despite the large military machine the Soviets had developed, and their scientific advances in space and elsewhere, it was clear that vast swaths of the old Soviet Union were underdeveloped and living in economic conditions a generation or more behind those prevalent in the West. One had to travel about the region with wads of cash, because not only were credit cards unknown, but even old-fashioned travelers’ checks were not accepted. My accommodations might not have hot water even though I was not staying in hostels or other primitive digs, and the reliability of elevators was spotty. I remember returning from that trip wondering “what were we afraid of?” To be sure, the Soviets had plenty of nukes, and lots of tanks, and for that they deserved a sort of respect—but they weren’t the juggernaut we had imagined. The Soviets had feet of clay.
We may be making a similar mistake regarding Iran. As reported in the PersuMedia Daily Summary this past weekend, Iran’s official news agency announced the imminent delivery of the first of 24 Su-35 fighters purchased from Russia, confidently predicting that the “4++ generation” advanced fighter would shift the balance of air power in the region in Iran’s favor. Of course, the Iranian media has previously reported that the jets would arrive in March, and then April, so perhaps we should check our anxiety until an Su-35 actually touches down in Iran. Still, the “Super-Flanker” is nothing to sneeze at, and it reveals the increasingly close military cooperation Iran enjoys with Russia. Add to that the network of armed Shia Muslim militias Iran has cultivated in the region, and its burgeoning arsenal of drones and ballistic missiles, and one can feel a certain nagging disquiet creep in regarding Iran’s ambitions and intentions.
As I said, looks can be deceiving—especially if we focus too much on only one aspect of the object of our gaze. Iran has devoted considerable resources to developing its hard power, although perhaps not quite as much as we had thought: the Stockholm International Peace Research Institute—SIPRI—has revised downward its estimate of Iran’s military spending in 2022, finding that it had spent only $6.8 billion on its military, and not the $24.6 billion it had previously estimated. But we risk being overawed by Iran—which is, by the way, what the Nezam aims to do—if we focus on its over-developed Popeye forearms and ignore the scrawny underdeveloped body that struggles to hold them up.
A series of articles in the PersuMedia Daily Summary during the past two weeks illustrates how one-dimensional Iranian power is. Like the old Soviet Union, Iran has focused on building up formidable instruments of hard power, but must rely on a dysfunctional, corrupt, and underperforming economy to sustain those instruments. Inflation has been running hot in Iran, so hot in fact that the Statistical Center of Iran (SCI) failed to report the inflation rate for two months, and when it finally coughed up an inflation report, it was widely criticized as incomplete and skewed by manipulated numbers. The government’s economic skullduggery prompted some economists to warn that Iran risked “hyperinflation” if it did not take serious measures to rein the rate of inflation.
The state of Iran’s sovereign wealth fund, the National Development Fund (NDF), illustrates the degree to which the Nezam has squandered Iran’s national wealth. If one googles Iran National Development Fund, one can find reputable sources that report its assets at $139 billion. This past week, however, NDF executive board chief Mahdi Ghazanfari announced that the NDF had dwindled from $150 billion to a mere $10 billion. He blamed the evisceration of the NDF on repeated withdrawals from the fund by successive presidential administrations trying to cover their growing budget deficits, and on the directed allocation of monies to finance mandated programs. Ghazanfari subsequently walked back his announcement a little, clarifying that some $40 billion in withdrawals were technically loans to be paid back to the NDF, which would give it a value of $50 billion—if one is naïve enough to think those loans will ever be paid back. By way of comparison, as of January 2023 the Kuwait Investment Authority—its NDF equivalent—reports assets of $769 billion; the Abu Dhabi Investment Authority reports assets valued at $993 billion, either of which dwarfs the NDF, even if we accept the doubtful value of $139 billion listed by some sources.
Iran’s social security fund is running at a such a deficit that it has not been able to pay pensions to some six million retirees and a senior Labor Ministry official has suggested selling some Persian Gulf islands to make up the shortfall. The nominal independence of the Central Bank of Iran (CBI) is regularly violated, hamstringing its control of the money supply and its ability to fight inflation or regulate Iran’s rickety banking sector, in which many banks suffer from low capital adequacy ratios. This past week, the Tehran Stock Exchange crashed for the second time in eight years, its main index losing 5 percent of its value, prompting accusations that the chairman of the Stock Exchange Organization had extensively interfered in the market, refusing to halt trading as the sell-off gained velocity. It is little wonder, then, that many of Iran’s grandiose plans to develop infrastructure to facilitate trade and economic growth remain just that: grand aspirations that cannot raise the capital necessary to realize the plans.
To be sure, US and allied sanctions have helped to aggravate such conditions. But fears that the lifting of sanctions would somehow unshackle a rabid behemoth are overblown—even with a “homogenized” principlist government installed in Tehran. Before the United States and EU slapped comprehensive sanctions on Iran in 2011 and 2012, the hardline government of Mahmoud Ahmadinejad enjoyed windfall oil revenues because of prevailing high oil prices. Iranian sources report that during Ahmadinejad’s presidency (2005-2013) Iran earned $800 billion in oil revenues; US economist Djavad Salehi-Isfahani notes, however, that the CBI reports “only” $639 billion in oil revenues for 2005-2012.) No doubt some of that windfall—whether $600 or $800 billion—went to Iran’s nuclear and missile programs and to paying the salaries of various Iraqi militias contesting the US occupation of Iraq. But not most of it. Some was siphoned off in breathtaking acts of corruption, such as the $2.6 billion swindled from Iranian banks by the managing director of state-owned Bank Melli, and that probably is only the tip of the iceberg. Most in fact was devoted to paying for imports—Iranian Diplomacy claims Iran imported $700 billion in goods during Ahmadinejad’s presidency, essentially the entire windfall. Salehi-Isfahani puts it this way: “instead of helping the rising number of youth get jobs the oil boom helped them get cell phones.”
Iranian aggression did not suddenly jump after the JCPOA was implemented in 2016 and sanctions were partially lifted. Tehran was too focused on attracting foreign investment to jump-start its economy. Iran actually intervened militarily in Syria after comprehensive sanctions were imposed in 2012, much as Iran’s covert attacks on tankers in the Gulf and drone strike on Saudi oil facilities were launched after the Trump administration reimposed sanctions in 2018. Iranian aggression does not seem to be especially dependent on how much money the Nezam has on hand.
The point of all these musings is not “Don’t worry, be happy!” Iran clearly poses a threat, as the crews of two IRGC-seized tankers now languishing in Bandar Abbas will no doubt attest. But we shouldn’t let the apparent dazzle of the Nezam’s hard power distract us from Iran’s intractable, debilitating weaknesses. It is ironic that Supreme Leader Ali Khamenei, who publicly and assiduously has warned against repeating the Soviet “mistake” of instituting reforms and trusting the United States, has instead copied the Soviet mistake of building a large military establishment while letting the economy wither.
