BMI View: We expect Iran to reach a nuclear deal with the P5+1 powers in 2015, leading to a lifting of sanctions over coming quarters. This will facilitate a return to economic growth; however, progress will slow, and Tehran's military spending will therefore remain modest on a regional comparison in the short-term . That said, demand for defence equipment will be strong, as Iran continues to provide assistance to Shi'a groups across the region; seeks to narrow the gap to rival Saudi Arabia's more technologically advanced military; and invests in weapons systems to protect against a potential US/Israeli attack. Meanwhile, the government remains committed to achieving its goal of military self-sufficiency. Iran has a large number of domestic defence companies, capable of manufacturing products such as small arms, tanks , missiles and military electronics . The lifting of sanctions will eventually enable sector exports, creating trade opportunities for local manufacturers, and allowing these to partner with foreign firms to benefit from technology transfer.
In 2015 we expect Iran to reach a deal with the P5+1 powers over its nuclear programme. This will lead to a gradual lifting of sanctions, which in turn will bring the Iranian economy back to growth. That said, recovery will take time, as the country struggles to overcome logistical and bureaucratic issues associated with years of underinvestment and as the key oil sector is not expected to be able to spur a significant uptick in exports until 2016 at the very earliest. In 2015, therefore, we expect Iran's defence spending to remain modest on a regional comparison, reaching USD9.8bn. This represents a 21.1% year-on-year (y-o-y) increase, which may seem significant; however, it can be explained by a rise in IRR value when marked against USD. Demand for military equipment in Iran will continue to be driven by the real or perceived threat of a US/Israeli attack on its nuclear facilities; the maintenance of a large ground force to make up for a lack of advanced military equipment; the continued assistance provided to Shi'a militants operating across the Middle East as well as efforts to maintain social and political stability at home.
Iran has a large number of active local companies in its domestic defence sector, capable of manufacturing equipment such as small arms and ammunition, armoured vehicles, submarines, missiles and military electronics. Tehran remains committed to developing the local defence industry, and achieving its longstanding goal of military self-sufficiency. That said, sanctions placed against the country over its nuclear programme have prevented domestic entities from cooperating with larger foreign defence firms, resulting in a lack of advanced technical expertise relative to international standards. Additionally, weak economic conditions have constrained government investment into research & development (R&D).
With a nuclear deal in 2015 expected to result in the lifting of sanctions against Iran, the country's defence market will gradually open up to foreign players. Western defence companies are unlikely to be able to enter in the short term as the US and EU still consider Tehran a sponsor of terrorism. Meanwhile, Russia and China - both of which already have defence procurement ties with Iran - are well-placed to capture market share. Removal of sanctions will also eventually enable sector exports, creating opportunities for local manufacturers, who have developed several products that would be suitable for trade - for example in the missile and military electronics segments.
In January 2015, Russia and Iran signed a military cooperation agreement.
Iranian officials told FARS news agency in February 2015 that militants claiming to be affiliated with the IS were operating along the country's eastern border.
In March 2015, Tehran called for an immediate end to Saudi-led airstrikes against Shi'a Houthi rebels in Yemen.
On March 29, Arab League announced the establishment of a joint military force, comprising up to 40,000 elite troops to be headquartered in either Cairo or Riyadh.
Also in March, Iran's Quds Force - in coordination with Iraqi troops and Shi'a militias - launched an offensive to recapture the city of Tikrit (north of Baghdad) from IS.
In early April 2015, Iran and the P5+1 powers signed a detailed framework agreement on the future of the Iranian nuclear programme.
Later that month, Iran sent naval vessels to the Gulf of Aden. Iranian military officials claimed the fleet was dispatched to protect the country's cargo ships and oil tankers from piracy, however, some US officials expressed concerns that the force could attempt to supply Houthi rebels in Yemen with weapons.
Also in April, Azerbaijan and Iran signed an agreement for the delivery of Azerbaijani military equipment and technology exchange to Iran.
Jaish al-Adl militants killed eight Iranian security guards in Baluchistan before fleeing back into Pakistani territory in April 2015.
In February 2015, Iran was reported to have successfully launched the Fajr satellite - designed by Iran Electronics Industries - into orbit.
In March, Aerospace Industries Organization (AIO) unveiled its Soumar ground-launched cruise missile. Iranian sources indicated that the missile had a range of 2,500km; however, experts remain highly sceptical of this claim.
Also in March, the Damavand (Jamaran II) destroyer was delivered to the IRIN Bandar Anzali base on the Caspian Sea, having been equipped with modern radar systems, a helipad and upgraded cruise missiles.
Testing of the first-of-class Fateh submarine constructed at the Iran Shipbuilding & Offshore Industries Complex (ISOICO) was completed in April 2015.
Air force commander Brigadier General Farzad Esmaili said in April that the Bavar-373 long-range air defence system is expected to become operational within one year.
The Saeghe-2 combat aircraft, constructed by Iran Aircraft Manufacturing Industries (HESA), was unveiled in Q115.The unit appears to be a redesigned twin-seated version of the original Saeghe.
Brigadier General Farzad Esmaili said that the Iranian military's deployment plan for its indigenously produced Sepehr early warning radar system is 40% complete. The radar, expected to become partly operational by March 2016, is claimed to have a range of up to 3,000km.
On April 13, the Russian government lifted a self-imposed ban on the sale of its S-300 surface-to-air missile system to Iran.
Key BMI Forecast
Defence expenditure will amount to USD9.8bn in 2015, and USD13.1bn by the end of our forecast period in 2019.
The Iran Defence & Security Report features BMI Research's independent forecasts for national and international security, the defence industry, military expenditure, employment in arms production, and arms imports and exports, as well as examining industry trends and prospects, national and multinational arms producers and the regulatory environment.
BMI's Iran Defence & Security Report provides professionals, consultancies, government departments, regulatory bodies and researchers with independent forecasts and regional competitive intelligence on the Iranian defence and security industry.
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Global and Regional Political Outlooks
A strategic overview of the world’s major political risks, identifying countries facing leadership successions and nations at risk of upheaval, inter-state conflict, or separatism and insurgencies, plus a summary of the world’s ‘wild card’ low-probability high-impact risks.
Snapshot evaluation of the major issues affecting the defence and security sectors, economy and politics, with issues subdivided into strengths, weaknesses, opportunities and threats.
BMI Industry Forecast Scenario
Historic data series and forecasts to end-2019 for key industry indicators supported by explicit assumptions, plus analysis of key downside risks to the main forecast.
- Defence Expenditure: Defence expenditure (local currency and USDbn); defence expenditure (% of total budget); defence expenditure per capita (USD); defence budget (local currency and USDbn).
- Armed Forces (to 2012): Manpower available for military service, manpower fit for militaryservice, army personnel, navy personnel,air force personnel, total armed forces, (‘000) (% population).
- Arms Trade: Arms and ammunition exports and imports (USDmn); bombs, grenades and missiles exports and imports (USDmn); revolver and pistol exports and imports (USDmn); weapons excluding guns and swords exports and imports (USDmn).
Political Risk Assessment
Drawing on BMI’s heritage of more than 25 years of Country Risk analysis, this comprehensively evaluates the key risks to domestic politics and foreign relations, focusing on issues most likely to affect either domestic security or the defence sector.
Security Risk Analysis
BMI’s proprietary Security Risk Indices provide investors with a reliable and country-comparable guide to conflict, terrorism and criminal risk, backed up by our analyst’s latest assessment of each component. Furthermore, drawing on our Country Risk expertise, we assess the state’s vulnerability to a serious, or prolonged, terrorist campaign.
Armed Forces Spending/ Expenditure
The reports contain a detailed breakdown of areas of expenditure by the armed forces, these include spending on international deployments, WMDs and missile defence systems as well as individual breakdowns of the cost-per-soldier.
The domestic security overview lists the various potential internal security threats facing a country, ranging from internal security issues such as terrorism, cyber terrorism, crime and drugs, to external security issues including general defence procedures and potential threats from specific countries. The reports also provide a regional overview which details specific issues and flashpoints affecting the Americas, along with potential risks in the coming year.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
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