Israel vows harsher attack as Iran hints at measured response

"The military budget has increased by almost 200 percent. We hope this meets our security needs and those of the country’s military,” President Masoud Pezeshkian's spokesperson Fatemeh Mohajerani said of the proposed budget on Tuesday.

The Iranian rial hovered near all-time lows around the time of the announcement. It had plumbed lower depths after archenemy Israel on Saturday launched its biggest ever attack on the Islamic Republic, prompting calls by officials to beef up defenses.

A new report from Iran’s Parliamentary Research Center reveals that at least 20 percent of the government’s oil revenue is lost in efforts to bypass US sanctions, confirming previous reports by Iran International on the scale of revenue losses in oil exports.

The Parliament Research Center’s report highlights that in the first four months of the current Iranian fiscal year, 23 percent of the government's planned 4-month budget went unrealized. Despite the government’s extensive, unscheduled borrowing from the National Development Fund (NDF), it is projected to still face a budget deficit of approximately 880 trillion rials (equivalent to $3 billion at this year's official exchange rate of 285,000 rials per dollar) by the end of the year.

Next year starting March 21, the proposed budget will reach $105 billion, calculated on 550,000 rials per one dollar. The deficit will be around 30%, bridged by a variety of ways, including borrowing from banks, issuing bonds and diverting oil revenues from the share of the sovereign national fund, as well as up to 40% higher taxes.

According to estimates from the Parliament Research Center, despite these measures the projected budget deficit for the upcoming year may reach approximately $5.8 billion.

Components of Next Year’s Budget Bill

In the 2025-2026 budget, 33 percent will rely on tax revenues, 18 percent on the sale of bonds and government assets, and 45 percent on oil and gas revenues as well as borrowing from the National Development Fund (NDF). Borrowing from the banks is not even mentioned in the draft bill as part of the deficit, but rather as revenue. This borrowing leads to printing money, since the banks are directly and indirectly state owned and have no money of their own to lend to the government.

The proposed 39 percent tax increase in next year’s budget bill comes at a time when the country is facing over 40 percent inflation, while the government plans to raise public employee salaries by only 20 percent, with similar increases set for labor wages.

On the other hand, the projected 85 percent increase in customs revenue will significantly raise the prices of imported goods, worsening the overall living conditions for the public.

The government also intends to increase bond issuance by 96 percent to cover 11.7 percent of the budget, or more than 10%, effectively borrowing further from the banking system, which will lead to higher liquidity and inflation.

Additionally, the government plans to obtain a substantial portion of the National Development Fund’s 48 percent share of oil export revenue in the form of loans. So far, the government has borrowed $100 billion from this fund—initially established as a nest egg for future generations—and is currently unable to repay this debt.

Oil Revenue Details

Budget revenue from domestic sales of oil and gas products in next year’s budget bill is projected to reach $16.5 billion, a 14 percent increase over this year. The government plans to raise gasoline prices next year, though the exact increase is not specified in the budget bill or in the report from the Parliament Research Center.

The last time the government imposed a significant gasoline price hike in 2019, widespread public protests erupted, followed by a severe crackdown by security and military forces, resulting in the deaths of 1,500 civilians.

The government also aims to export 16 billion cubic meters of gas next year, valued at $5.2 billion. The Parliament Research Center states that, due to a severe gas shortage, only 75 percent of this target is likely to be realized.

Additionally, for the coming year, the government forecasts total daily oil and gas condensate exports to reach 1.85 million barrels, which will be allocated among the government, the armed forces and their special projects, the National Development Fund, and the National Iranian Oil Company (NIOC).

Tanker tracking companies put the Iranian oil export volume in 9 months of 2024 at about 1.5 mb/d.

A notable figure in the distribution of oil export shares is that of the armed forces, which has quadrupled compared to the initial version of this year’s budget law. However, the report from the Parliament Research Center reveals that the government, without public announcement, has significantly increased the armed forces' share in the initial budget law of current year. Consequently, next year, the armed forces’ share of oil exports will increase by only 24 percent compared to this year.

A critical point in the Parliament Research Center's report is that the government has set the price of oil at $63 per barrel for next year's budget, but Research Center says it is unlikely to sell for more than $60. Given the current oil price of around $70 per barrel in international markets, it seems more than 20 percent of the government’s oil export revenue will be lost due to sanctions evasion and discounts to Chinese customers.

The report does not address the realization of oil revenues for the armed forces. However, Iran International recently reviewed three oil trading documents from "Thunder Sahara Company," affiliated with Iran's armed forces, showing that half of the export oil value managed by this shell company is lost in the process of circumventing sanctions.

The Parliament Research Center also states that the oil export shares allocated to the government, NDF, and NIOC amount to a total 1.25 mb/d. However, actual exports are likely to reach no more than 1.1 mb/d.

On Sunday night, members of parliament raised the idea of a further attack, saying that the weekend’s retaliation for this month’s ballistic missile barrage by Tehran failed to avenge the drone attack that targeted long-time Prime Minister Benjamin Netanyahu’s home in Caesarea earlier this month.

A government source told Iran International, “There is a feeling that the attacks this weekend weren’t enough to also avenge the attack on the Prime Minister’s home.”

While the parliament does not have the power to decide on military strategy, reserved for the war cabinet, it has become a political opportunity for Netanyahu’s rivals such as former Prime Minister Yair Lapid, to portray him as weak while the country battles Iran’s proxies across the country’s borders.

“It’s a political, not a strategic discussion,” the source added, stressing that it was not necessarily reflective of the military leaders’ policy.

Israel's Channel 13 said the security cabinet discussed the topic for "long hours," reporting that the weekend's strikes were not intended to avenge the attack on the PM's home, launched by Iran's largest militia, Hezbollah, in Lebanon. It said "another response is expected".

Since the Iran-backed Hamas attack on Israel last year, the country’s opposition parties have called for Netanyahu to resign, with protests across the country blaming him for the war and the failure to find a resolution to release the 101 hostages still held in Gaza.

On Sunday, following the hours-long attacks on Iran, centrist Lapid, the head of the Yesh Atid party, congratulated the Air Force but said it was not hard enough, with the targets tempered by intervention by the US, which has played a critical role in preventing an all-out war between the two nations.

In spite of the damage the strikes have done to Iran’s air defenses, Lapid wrote on X: “The decision not to attack strategic and economic targets in Iran was wrong. We could and should charge Iran a much heavier price.”

The head of centre-right party Yisrael Beitenu, Avigdor Lieberman, said the Jewish state must expect a harsh response for the weekend's operation, and in turn, act with strength to deter Israel’s archenemy.

“They [Iran] will continue their efforts to obtain nuclear weapons and they will continue to transfer the funds from the sale of oil and gas to Hezbollah, the Houthis, the Shiite militias and various proxies,” he wrote on X.

“Unfortunately, it seems that instead of collecting a real price, the Israeli government is once again content with showmanship and public relations. Buying silence instead of a clear decision. The time has come to act in a way that will reflect our strength and not just talk about it.”

German Foreign Minister Annalena Baerbock recalled the ambassador after he formally voiced Germany's condemnation to the Iranian foreign minister, the German foreign office said in a post on X.

Iran executed the 68-year-old dissident who was a software developer and California resident on Monday. He was abducted by Iranian agents during a visit to the United Arab Emirates in 2020 and forcibly taken to Iran. In February 2023, the Iranian judiciary sentenced him to death on charges of endangering national security.

Germany's ambassador in Tehran issued a démarche to Iran's foreign minister, strongly protesting the execution of Jamshid Sharmahd, according to an X post. The message added that Foreign Minister Baerbock has since recalled the ambassador to Berlin for consultations.

Sharmahd was convicted of heading a pro-monarchist group named Tondar accused of a deadly bombing incident that occurred in 2008 at a religious center in Shiraz, killing 14 and injuring 215 more. The accusation, repeatedly denied by Sharmahd, was never substantiated by documented evidence. He was denied a fair trial and due process, as most other political prisoners, especially dual nationals.

The execution has ignited a global wave of condemnation from a broad spectrum of people, including Iranian dissidents, foreign officials, and the victim's family.

Along with a video of herself looking at the camera in silence, his daughter Gazelle Sharmahd, criticized the US and German governments for their inaction during the past four years. “Are you seriously still going to ignore our family and leave even my father’s presumed corpse defenseless in terrorist hands?”

European Union Foreign Policy Chief Josep Borrell condemned his killing in the strongest possible terms, saying that the EU is considering measures in response.

Abram Paley, the US deputy special envoy for Iran, called the execution abhorrent and condemned the country's rising rate of executions.

"Sharmahd should never have been imprisoned in the first place," Paley wrote on X. "His kidnapping and rendition, as well as sham trial and reports of torture, were reprehensible. We...stand with the international community in holding the regime accountable for its horrific abuses."

German lawmaker Friedrich Merz called his trial a mockery of international standards of legal proceedings, saying, “The Iranian regime has once again shown its inhumane character.”

"Jamshid Sharmahd was executed because there are still people in Iran and around the world who believe that an establishment responsible for 'crimes against humanity' can be transformed by simply changing a president or parliament," Nobel Peace Prize laureate Shirin Ebadi said.

Iran’s exiled prince Reza Pahlavi condemned the Islamic Republic for the execution and criticized the US and German governments for their lack of support to free Sharmahd..

“The oppressive Islamic Republic regime, led by the despicable Ali Khamenei, has further stained its hands with the blood of Jamshid Sharmahd...[who] was denied basic human rights and a fair trial. Despite holding dual citizenship with Germany and permanent residency in the US, he received inadequate support from these governments. Their failure to leverage their influence to secure his release or at least his life is a stain on their conscience.”

Renowned activist Masih Alinejad, who was herself the subject of alleged foiled abduction and assassination attempts, shared a cartoon published by a state-run newspaper that depicts Sharmahd and late dissident journalist Ruhollah Zam in fishing nets accompanied by a threatening caption, “Next: Masih Alinejad.” Zam, who had left Iran and was living in France was kidnapped by Iran’s secret services in Iraq and taken to Iran. After interrogations and possibly torture he was hanged in December 2020.

“The Islamic Republic understands no language of peace or diplomacy. Their language is that of hostage-taking, execution, assassination, and murder,” Alinejad wrote.

Canada-based Iranian activist Hamed Esmaeilion described the execution, which came shortly after an Israeli attack inside Iran, as an attempt to deflect attention from its domestic and international failures, a sentiment that was echoed by a large number of Iranians around the world.

“Jamshid Sharmahd was yet another hostage executed at the hands of the Islamic Republic. This regime of murder and manslaughter compensates for its failures and inability to address major domestic and international challenges by suppressing the Iranian people. The regime takes revenge on the people for its defeats.”

Iran conducted the most executions of any country in the world after China last year, Amnesty said in a report in May, adding that nearly 75% of all executions worldwide in 2023 outside China were in Iran. The recent wave of executions brings the total number of hangings in Iran this year to more than 567, including 20 women, according to rights groups.

“Some publications with a pro-Western history use ambiguous statements in an attempt to undermine [the importance of] the Zionist regime’s aggression and they call for restraint, that is, inaction and passivity,” the hardline Kayhan newspaper wrote Monday.

Kayhan, whose chief editor Hossein Shariatmadari is an appointee of Supreme Leader Ali Khamenei, is one of the top media arms of ultra-hardliners.

Kayhan singled out the reformist Sazandegi as a key offender in calling for "inaction," criticizing it for an article suggesting that Iran could refrain from a military response to Israel’s attack to avoid entangling the country in a cycle of retribution.

The same Sazandegi article had, nevertheless, suggested that the country should at the same time keep its military in a state of preparedness, help the establishment of a ceasefire in Lebanon and Gaza, and withdrawal of Israeli forces from these areas.

Another newspaper accused by Kayhan of fostering “inaction and passivity” was the reformist Shargh Daily for quoting former diplomat Hossein Mousavian as saying that based on what he called the “limited scope of Israel’s attack” and for the sake of security and stability in the region, the Islamic Republic should accept a ceasefire with Israel.

Mousavian had also said Tel Aviv, too, should stop its attacks on Lebanon and accept a ceasefire in Gaza, that Israel and Hamas should exchange prisoners, and that all sides involved in the conflict should work toward the two-state solution.

The IRGC-linked Javan newspaper and the ultra-hardline Vatan-e Emrouz echoed similar criticisms, accusing reformist outlets of failing to support calls for an immediate, forceful counterattack on Israel. While these reformist papers strongly condemned the Israeli attack on Iranian territory, they stopped short of endorsing aggressive retaliation and even advised caution against rash decisions.

These publications emphasized Supreme Leader Ali Khamenei’s Sunday remarks, cautioning against exaggerating or downplaying Israel’s attacks. In his speech, Khamenei delegated the decision on “how best to convey Iran's strength and resolve to the Zionist regime” to the “relevant authorities.”

In the same speech, Khamenei used a Quranic term (morjefun) to warn against “intentionally erroneous analyses” on social media and those who spread rumors that “harm the society’s psychological security” and called on authorities to take action against such moves. This was aimed both critics of the Islamic Republic, who argue that its military is useless, and possibly those calling for retaliation.

Referring to Khamenei’s remarks, Vatan-e Emrouz argued on Monday that authorities must set new rules for media activity “in accordance with the current circumstances". Such calls seem to have sparked serious concerns among other media who already have to be wary of the many “red lines” set for them.

“Some conservative media label any analysis they disagree with as evidence of acquiescence or normalization of the Zionist regime’s actions, and they call on the judiciary to take action against those responsible,” argued Rouydad24 in an article titled “Gray-Zone War and the Sensitive Circumstances of the Media” on Monday.

“One should hope that the media will not be the first victims of the gray zone war [between Iran and Israel] in the current circumstances with radicals labeling any realistic views as proof of rumor-mongering and frightening people. One should also hope that judicial and supervisory bodies do not come under the influence of radicals' propaganda and act according to laws and regulations,” Rouydad24 wrote.

Foad Izadi, a hardline commentator often featured on Iranian state TV as an expert on the United States, stated in an interview with the conservative Nameh News website: “Attacks will not stop unless the United States realizes that strikes on Iran could be costly.”

Izadi added, “It is up to us to decide how we want to confront [Israel and the United States].” He continued, “The Americans, as Iran’s staunch adversaries, operate without ethical limitations. But if they sense that Israel’s attacks on Iran will come at a high cost to the US, these strikes will cease.”

Speaking a day after Israel’s strikes on military targets across Iran—from the capital Tehran to Shiraz in the south, Ahvaz, Mahshahr, and Ilam in the southwest, and Shahroud in the northeast, among other locations—Izadi remarked, “Whatever was done, Israel and the United States did it together, though the United States has declined to take responsibility for the attacks.”

He argued that if the United States did not want an escalation, it could refrain from sending weapons and equipment to Israel. He said, "no one should believe Washington's claims about trying to stop the war in the region."

Meanwhile, Hossein Shariatmadari, editor of the hardline *Kayhan* daily, closely linked to Supreme Leader Ali Khamenei’s office, wrote a pointed commentary after the Israeli strikes, warning, "We saw how you rained [missiles] on us. Now prepare for our flood."

Shariatmadari underscored what he called “undeniable evidence” proving that it is, in fact, the United States standing as Iran’s true adversary. He issued a stark warning to "Israel and its American, European, and regional supporters," promising that Iran’s response would be “far heavier and more severe than they can imagine."

In his commentary, Shariatmadari labeled Israel as “a mere front for the United States” and described it as "the U.S. garrison in the region." Further implicating Washington, he speculated, "Do you really think the fighter jets that launched missile attacks on Iran Saturday morning weren’t American-made? Or that their pilots weren’t American?"

Shariatmadari concluded by asserting that in any response to Israel, Iran would treat U.S. interests, assets, and military personnel as legitimate targets.

In a separate development, Majles Speaker Mohammad Bagher Ghalibaf vowed that "Iran will certainly respond to the Zionist regime’s aggression." Meanwhile, Khamenei’s senior political adviser, Ali Akbar Velayati, dismissed Israel’s attack as “much ado about nothing,” asserting that Iran has never initiated a war, is a recognized international power, and that Israel is too insignificant to challenge it.

However, Iranian journalist Amir Soltanzadeh countered Velayati's claims, noting that it was Iran who first initiated hostilities with Israel and that Iran’s isolation prevents it from claiming true international power status.

However, long-time establishment insider Mohammad Javad Larijani acknowledged, "This is not a small matter. Our country has been invaded. Although it was a cowardly attack, it remains an act of aggression against Iran."

Although military commanders seem to have been restricted from commenting on the incident, the IRGC-affiliated daily Javan downplayed the strikes’ significance, claiming that Iran’s anti-aircraft defenses largely thwarted the attack. Like most other Iranian media, Javan characterized the strike as “weak and limited,” adding that “Iran reserves the right to respond”—a measure that would likely be welcomed by those on both sides seeking to test Israel’s new THAAD air defense system.

In one of the rare comments from Iranian military experts, Amir Mousavi claimed that Iran had foreknowledge of the attack by hacking Israeli military documents, disputing reports that other countries had informed Iran. This contrasts with international media reports and statements from the Dutch Foreign Ministry and Russian officials, who reportedly notified Iran about the attack approximately four hours before it occurred.

The government-owned Iranian Students News Agency (ISNA) labeled the attack as "The big folly of a small regime," warning that Israel and its allies would face repercussions for this "limited" strike.