Stealth austerity: Tehran seeks fuel price hike without a reckoning

Zarif argues that relations between Iran and the United States have long been trapped in a cycle of “securitization,” in which each side responds defensively to the other’s actions.

The Islamic Republic, he writes, has been “forced” to prioritize military spending over development because of attacks by Iraq, Israel, and the United States.

The argument downplays Iran’s own role in shaping that trajectory.

Contrary to Zarif’s account, the theocracy’s turn toward securitization gained pace in the aftermath of the Iran–Iraq war, particularly under the late President Ali Akbar Hashemi Rafsanjani, who helped embed the military in politics and the economy as a pillar of postwar reconstruction and state survival.

But Zarif shifts responsibility for Iran’s unbalanced development outward.

Western pressure, not decisions taken by Iran’s leadership, is blamed for a system in which missile programs expanded while welfare sectors such as housing, employment, and healthcare stagnated.

The implication is that Iran’s strategic priorities were imposed rather than chosen.

Zarif further suggests that reduced pressure from Washington would lead Tehran to de-escalate. Yet this claim sits uneasily with his own account of events following the 2015 nuclear deal.

One of the achievements Zarif frequently cited was the lifting of sanctions not only on Iran’s nuclear program but also on arms-related restrictions, including sanctions on Iran Air, allowing the airline to modernize its fleet.

By Zarif’s own account, however, the easing of sanctions did not lead to restraint.

In a 2021 interview with the economist Saeed Leylaz, Zarif acknowledged that Iran Air flights were used by the Islamic Revolutionary Guard Corps to transfer weapons to Syria, with such flights increasing sharply after the nuclear deal. When Zarif raised concerns with Qassem Soleimani, the then-commander of the Quds Force, he said Soleimani replied that “Iran Air is safer.”

Zarif later described this dynamic as the “dominance of the battlefield over diplomacy,” an admission that key decisions about militarization were made within Iran’s power structure, not imposed from abroad.

Indeed, the period following the nuclear deal saw expanded investment in missile programs and a deepening of Iran’s regional proxy network, financed in part by newly available resources.

Yet in the Foreign Affairs article, Zarif presents increased uranium enrichment and the repression of domestic protest as reactions to Western pressure—once again shifting responsibility for violent crackdowns repression away from the rule in Tehran.

“The external securitization of Iran has fed into a parallel dynamic at home,” he writes, “as the state adopted a stricter approach in dealing with domestic social challenges, responding to these challenges with tighter restrictions.”

A similar pattern appears in Zarif’s account of Iran’s role in Syria.

In the same 2021 interview, he suggested that Iran’s direct military involvement followed a visit by Soleimani to Moscow, framing the escalation as the product of Russian strategy to undermine the nuclear deal rather than a decision taken by Iran’s leadership.

The role of Supreme Leader Ali Khamenei and Iran’s own security institutions is largely absent from this narrative.

The tendency to externalize responsibility extends to other areas as well.

After the nuclear deal, the release of several dual nationals and the unfreezing of Iranian assets raised expectations of de-escalation. Instead, a new wave of arrests of dual nationals followed, a pattern widely seen as deliberate leverage rather than a response to external pressure.

Zarif’s article also describes Israeli strikes in June 2025 as “unprovoked,” without reference to decades of official Iranian rhetoric calling for Israel’s destruction or the expansion of armed proxy groups along Israel’s borders.

The broader context of the current confrontation—including Hamas’s October 7, 2023 attack on Israel, praised by Iranian officials—is notably absent.

Iran has had multiple opportunities to break the cycle Zarif describes, from the early years after the revolution to the post-nuclear-deal period. Each time, its leadership made choices that reinforced militarization and repression rather than curbing them.

The question raised by Zarif’s essay is not whether external pressure mattered—but why internal agency continues to be written out of the story.

In 1956, Soviet leader Nikita Khrushchev stunned the communist world by denouncing Joseph Stalin’s crimes in a closed-door speech at the Communist Party Congress.

The address, later leaked, raised expectations that the Soviet system might be capable of reform from within. Instead, it exposed pressures the leadership struggled to contain, contributing to unrest at home and rebellion abroad—notably in Hungary—and ultimately reinforcing the limits of permissible change.

That pattern—tactical relaxation under pressure, followed by retrenchment—offers a useful lens for understanding Iran’s current moment.

Since June’s 12-day war with Israel and the United States, the Islamic Republic has been navigating what officials privately describe as a convergence of external threat and internal fragility.

Internationally, Tehran faces deepening isolation and a US administration that has shown a willingness to use force. Domestically, the aftershocks of the 2022 Woman, Life, Freedom uprising continue to shape public behavior and elite anxiety.

Lifeline: patriotism

Against that backdrop, the state has adopted a dual strategy.

On one track, it has sought to soften flashpoints—particularly hijab enforcement—that could reignite street unrest. Police patrols have become less visible, enforcement more uneven, and officials have emphasized “cultural” rather than coercive methods.

On another track, the leadership has leaned into a form of state-sponsored nationalism that draws selectively on Iran’s pre-Islamic past.

Last month, authorities unveiled a statue in Tehran depicting the Roman Emperor Valerian kneeling before the Sassanid king Shapur I, commemorating a third-century Persian victory over Rome. The accompanying slogan—“You will kneel before Iran again”—was echoed in imagery portraying Israel’s prime minister in a similar posture.

Such symbolism would have been unthinkable for much of the theocracy’s history, when pre-Islamic iconography was treated with suspicion or outright hostility.

Supreme Leader Ali Khamenei reinforced this shift in July when, in his first public appearance after the war, he asked a religious eulogist to perform “Ey Iran,” a nationalist song associated with the pre-revolutionary era.

The gesture was widely read, both inside Iran and abroad, as an attempt to blur the line between religious authority and national identity—and by some, as a signal of potential recalibration.

‘Let a hundred flowers bloom’

History suggests caution. Authoritarian systems have often reached for controlled liberalization or symbolic inclusion during moments of acute stress, only to reverse course once the immediate danger recedes.

Mao Zedong’s 1957 “Hundred Flowers” campaign—launched in part to manage the fallout from Khrushchev’s de-Stalinization—famously invited criticism before giving way to a sweeping crackdown when dissent exceeded official expectations.

Iran’s trajectory over recent months has followed a similar arc.

Even as officials spoke of unity and restraint, legislation advanced to tighten restrictions on speech, expand capital punishment for acts of dissent, and broaden the security services’ remit online.

Arrests and executions have continued at a steady pace, and pressure on journalists, activists and minority communities has intensified.

Earlier this month, Khamenei dismissed criticism of hijab laws as part of a Western ideological campaign, warning domestic media against amplifying such views. The judiciary chief swiftly followed suit, announcing a more coordinated effort involving police and prosecutors—a signal less of retreat than of reorganization.

The episode underscores a recurring dynamic in the Islamic Republic’s history: moments of apparent opening that generate speculation about reform, followed by moves that reassert control once the boundaries of dissent become clearer.

As with Khrushchev’s speech nearly seven decades ago, the significance may lie less in the promise of change than in what the response reveals about the system’s underlying anxieties—and the limits it is ultimately prepared to enforce.

The Hamas attack, the 12-day Iran-Israel war in June and Israel’s relentless strikes on Iranian-aligned actors did not end the region’s conflicts, but they changed how states now manage them.

In place of grand diplomacy or formal pacts, a loose alignment has begun to form from overlapping security, political and economic imperatives.

Stretching informally from Baghdad to Damascus, this nascent arc of stability is emerging less as a peace project than as a constraint on Iran’s regional reach—interlocking with the logic of the Abraham Accords and pressing against the network of proxies through which Tehran has long projected power.

This shift has unfolded alongside a parallel Iranian track: diplomatic outreach, particularly towards Saudi Arabia and other Arab neighbors, aimed at preserving room for manoeuvre even as Tehran’s proxy network comes under strain.

That dual approach matters, shaping regional calculations as Iran seeks both to absorb pressure and to prevent the emergence of a more openly consolidated front against it.

Iraq: on the mend but shaky

In Iraq, the aftermath of the recent elections and the government’s brief attempt to designate Lebanese Hezbollah and the Houthis as terrorist organisations—followed by a rapid reversal—highlight a deeper struggle over sovereignty.

An emergent bloc of political, clerical and institutional actors is pushing for greater state consolidation, while Iran-backed networks seek to preserve the hybrid armed–political order entrenched since the fight against Islamic State in 2014.

Senior clerics linked to the orbit of Grand Ayatollah Ali al-Sistani have repeatedly warned that the continued power of militias is eroding national unity and hollowing out state authority.

At the same time, developments inside Iraq are complicating Tehran’s position. Efforts to expand domestic gas production, reduce reliance on Iranian imports and attract Western investment after the withdrawal of sanctioned Russian firms are slowly reshaping the economic outlook.

Improved, if fragile, coordination between Baghdad and the Kurdistan Regional Government on revenue sharing and border controls has also narrowed institutional fissures Iran has long exploited.

These shifts are incremental and uneven, and their durability remains uncertain. Yet together they form the first pillar of a broader regional realignment rooted less in ideology than in state capacity and economic necessity.

Iraq may also prove the weakest link: its politics remain volatile, and Iran-aligned actors retain deep organizational and financial networks. Still, even limited consolidation across security, energy and governance would tilt the strategic balance of the Levant in ways long thought unattainable.

Syria: stabilizing but weak

The fall of Bashar al-Assad a year ago, and the rise of a Salafi-leaning transitional authority have opened a period of uncertainty, marked by serious risks but also new constraints on external actors.

Syria is unlikely to join the Abraham Accords or pursue formal normalisation with Israel soon. Nevertheless, quiet contacts involving Damascus, Israel and Qatar—aimed at limiting spillover, restraining militias and establishing narrow de facto understandings—point to the emergence of a pragmatic, if tentative, security framework.

Events beyond Syria’s borders have sharpened regional sensitivities.

Israel’s attempted attack against Hamas leaders in Qatar which failed to kill their intended targets unsettled several US Arab partners and may have influenced strategic thinking even where public positions remained measured.

More significant is the regional effect of a Syria no longer fully aligned with Iran’s strategic priorities. A stabilizing Syrian state, broadly aligned with Iraq and Jordan, would sharply restrict the land and air corridors Iran has long used to supply Hezbollah in Lebanon.

Recent interceptions of Iranian weapons shipments across Syrian and Jordanian territory by Israel and Jordan underscore that Iran may still see Syria as a transit point for its weapons.

A pattern emerging

This informal Baghdad–Damascus alignment intersects with the logic of the Abraham Accords, which the Trump administration’s November 2025 National Security Strategy identifies as the US priority to build up security in the region.

The document frames Arab and Muslin normalization with Israel not as a legacy achievement but as a functional framework for missile defence, maritime security as well as intelligence and regional burden-sharing.

While Saudi Arabia, Qatar, Oman and Kuwait remain outside the Accords formally, growing patterns of de facto cooperation—through air-defence coordination, early-warning integration, maritime security arrangements and intelligence exchanges—suggest the Accords already function as an organising principle for states reluctant to make public commitments.

The spine is formal, but the supporting structures are increasingly informal, sustaining the framework without requiring every participant to commit publicly.

The restrained language of the 2025 strategy reflects a broader shift in Washington’s approach. Rather than relying primarily on American primacy, the United States now appears focused on containing Iran by reinforcing regional structures anchored in the Accords and complemented by emerging alignments in Iraq and Syria.

Across the region, a discernible pattern is taking shape.

Iraq’s uneven institutional recovery, Syria’s cautious stabilisation, Jordan’s intensified border security, the Persian Gulf states’ expanding coordination and Israel’s sustained security posture together form the outlines of the most coherent countervailing structure the region has seen in more than a decade.

The contest, however, remains unresolved. Iran retains significant capacity, adaptive networks and a proven ability to rebuild and readjust.

The Baghdad–Damascus arc nonetheless represents a challenge to Tehran’s regional strategy rooted not in declarations or grand bargains, but in overlapping state interests and practical constraints—an alignment shaped by necessity rather than design.

Across the region, governments are racing to modernize reservoir management as competition for long-term gas supply intensifies.

Azerbaijan is pressing ahead with multibillion-dollar pressure-enhancement projects to sustain output from mature fields, while Kazakhstan and Turkmenistan are expanding offshore production with foreign capital and advanced technology.

Western majors, international service firms and even Persian Gulf state companies are reshaping the Caspian’s energy map—locking in production and export capacity for decades.

Iran, by contrast, lacks both the equipment and the partners to participate. Its only seismic survey vessel in the Caspian was decommissioned nearly two decades ago, and its sole offshore drilling platform has remained inactive for years.

The result is not simply underinvestment, but effective exclusion: while neighbors upgrade offshore infrastructure and extend field life, Iran has been left on the sidelines.

Contrast: Azerbaijan

Nowhere is the contrast clearer than in Azerbaijan’s flagship Shah Deniz gas field.

Operated by a consortium led by Britain’s BP, the field has attracted more than $30 billion in investment and supplies gas to Georgia, Turkey and much of Europe.

With production from its active phases expected to decline in the coming decade, Azerbaijan has moved early, signing contracts worth nearly $3 billion for large-scale pressure-enhancement facilities designed to sustain output, cut emissions and unlock additional reserves.

“Eliminating pressure decline is now the central priority,” Elham Shaban, director of the Caspian Oil Studies Center in Azerbaijan, told Iran International, noting that further contracts with Western and domestic firms are expected to be finalized in the coming months.

Iran’s handicap

Iran faces a parallel challenge at home—without comparable tools to address it. South Pars, the giant gas field it shares with Qatar and which supplies roughly 70 percent of Iran’s domestic consumption, has begun to experience pressure decline.

While Qatar installed modern pressure-enhancement systems years ago with Western support and has since signed contracts worth nearly $30 billion to expand production and liquefaction capacity, Iran has turned to local contractors, signing agreements worth $17 billion for smaller platforms and less powerful compressors.

Funding for those projects, however, has yet to materialize. Iranian oil officials have warned that gas shortages this winter could reach a record 300 million cubic meters per day, underscoring the gap between technical need and execution.

The same pattern extends to Iran’s oil sector. Roughly 80 percent of Iran’s producing oil fields are in the second half of their lifespan, with annual decline rates estimated at 8 to 12 percent.

Limited access to advanced recovery technologies has left Iran with a recovery rate of about 24 percent—only marginally above its natural baseline.

Not even China

By comparison, Saudi Arabia has raised recovery rates above 50 percent through decades of cooperation with Western firms, while Azerbaijan extended the life of its Azeri-Chirag-Gunashli fields by signing a long-term redevelopment agreement with BP and its partners.

Elsewhere around the Caspian, foreign capital continues to flow. Kazakhstan has attracted tens of billions of dollars to develop the Kashagan field, the region’s largest, while Turkmenistan’s offshore sector is operated almost entirely by the UAE’s Dragon Oil.

Iran’s Arab neighbours Arab have also expanded into gas development and transport infrastructure, reinforcing a regional energy network from which Tehran remains largely absent, despite its close political ties with Moscow and Beijing.

China, Iran’s largest trading partner, made no direct investment in Iranian or Russian energy projects in the first half of this year, while channeling more than $20 billion into Kazakhstan and the Middle East under its Belt and Road Initiative.

For Iran, sanctions and technological isolation have turned the Caspian from a shared resource into a widening strategic divide.

This approach has been a defining feature of his 36-year rule: confronting challenges not by reassessing the past but by recasting it.

That pattern was again on display in a December 15 speech, in which Khamenei returned to the state narrative forged after the 1980s war with Iraq—known officially as the “Sacred Defense.”

The Iran–Iraq war, which ended in 1988 without a clear winner, inflicted enormous human and financial losses on both countries, leaving hundreds of thousands dead.

In its immediate aftermath, Iran’s theocratic rulers embedded their interpretation of the conflict into public space. Murals across the country depicted blood-stained bodies of “martyrs” alongside grieving children.

Khamenei delivered his latest speech in an event commemorating the martyrs of that war in Karaj, Iran’s fourth-largest city, just west of Tehran. He called for a “transfer of the values and motivations of the Sacred Defense era to the new generation through artistic effort and persistent follow-up.”

Rather than grappling with present-day realities, he looked backward, framing sacrifice and “martyrdom” as enduring virtues for a new generation.

No mistakes

In his speech, Khamenei acknowledged Iran’s dire condition but sought to project optimism.

“Despite all the hardships and difficulties, there exist numerous positive points and considerable readiness within the country to move toward Islam and the Revolution,” he said, adding that “these must be strengthened.”

Political analyst Jamshid Barzegar told Iran International TV that the remarks reflected a leadership unwilling to accept responsibility.

“Not only does Khamenei fail to alleviate the poverty and other problems he has imposed on the nation, he does not seem to have a plan to correct his mistakes,” Barzegar said.

He also questioned Khamenei’s assertion that society is moving “toward revolution and Islam,” noting that the supreme leader himself abandoned revolutionary and Islamic rhetoric after the 12-day war with Israel, shifting instead toward nationalist themes that emphasized Persian identity over religious ideology.

No course correction

Khamenei’s retreat into past narratives—coming shortly after the unveiling of a replica statue depicting a Roman emperor prostrating before a Persian king—has projected an image of uncertainty rather than authority.

That impression was reinforced by the handling of the Karaj speech itself. Its broadcast was delayed until the following day, apparently for security reasons, suggesting the establishment has not forgotten the shock—if not the humiliation—of the June assault and its personal aftermath for Khamenei.

The unusually brief version posted on his website also hinted at heavy editing, possibly to avoid missteps.

Economic analyst Mohammad Machinchian criticized Khamenei’s reference to “numerous positive points,” arguing that it bore little resemblance to everyday reality.

“Only in recent days nearly all Iranians suffered heavy financial losses due to unusual price hikes,” Machinchian said. “But Khamenei is captivated by the distant past and seeks to follow the same path that has led to the current impasse.”