| The war in the Middle East clarifies the risk profile of the three main players present in the region: Iran, China and the USA with its military fleet. In this third part of a mini-series, I outline aspects of Iran’s risk profile – absorption of losses and recovery of resources. | In this contribution I am writing my own opinion, not that of any organization. |
Author: Manu Steens
Table of contents
A. Ability to absorb losses
FINANCIAL LOSS ABSORPTION
Iran’s financial loss absorption is twofold. On the one hand, it is high: the Islamic Republic has shown that it can continue to function under economic pressure that would be very severe for many other states. Between 2012 and 2019, sanctions resulted in an average annual income loss of approximately 3,000 dollars per person. Since 2018, the rial has lost more than 90% of its value. Iran lost an estimated 300 to 450 billion dollars in oil revenues over the past decade . Yet the regime continued to operate, continued to pay its security services, and continued to pursue its strategic goals.
On the other hand, that capacity is not unlimited. The World Bank estimates that Iran’s GDP contracted by 2.7% in 2025/26. Conflicts, strikes, and a nationwide internet blackout made the situation even more difficult. In 2025, inflation was above 40%. As a result, it is becoming harder for the government to pay public sector wages and import basic goods. Modern Diplomacy warns that if China buys less Iranian oil due to American pressure, Iran could see its export capacity collapse. This could lead to a currency spiral and potential problems financing the security apparatus. The regime’s financial loss absorption therefore really exists, but it has clear limits.
MILITARY LOSS ABSORPTION
Iran also suffered heavy military blows in 2024 and 2025. The S-300 air defense system was destroyed, ballistic missile production sites were hit, high-ranking IRGC commanders were killed, and the nuclear program was severely affected by Israeli and American attacks. According to the Congressional Research Service, these events have significantly reduced the advantages and influence that Tehran had built up over the years.
Nevertheless, Iran was also able to rebuild military capacity. JINSA stated in March 2026 that, following the 12-day war with Israel in June 2025, Iran was able to rapidly restore key parts of its missile and military infrastructure with external support. As a result, Iran was able to threaten the United States and its regional allies again within a few months. This recovery was made possible primarily by material support from Russia and China.
INSTITUTIONAL LOSS ABSORPTION
The Islamic Republic also has a political system built to withstand external pressure and internal unrest. The Chandragupta Institute points out that Iran has a unified military command, a layered internal security apparatus, and a political system specifically designed to contain external attacks and internal unrest simultaneously. The IRGC, the Basij, and the Ministry of Intelligence operate as overlapping instruments of power. During the protests of 2025-26, they continued to function cohesively, without reported defectors, while the population bore a heavy price.
But here, too, there is a limit. Iran International stated in January 2026 that the regime’s strategy depends on continued loyalty within the security apparatus, even when the economy deteriorates. If the wages and resources of the security services decline too sharply, the very apparatus that keeps the regime afloat could weaken or collapse.
B. Means to reduce or remedy adverse outcomes
ECONOMIC RECOVERY RESOURCES
Iran’s primary source of economic recovery remains oil. Oil accounts for approximately 25% of GDP and a large portion of government revenue, despite years of sanctions. According to Clingendael , Iran was able to continue exporting approximately 1.5 to 1.6 million barrels of oil per day through secret channels. Even after the reintroduction of UN snapback sanctions, Iran sold the majority of its oil to China, usually at heavily reduced prices. That is a key lifeline. Chinese political choices could halt that line, but that has not happened. The Stimson Center emphasizes that this demonstrates how difficult it is to fully implement US sanctions, particularly due to changing geopolitical conditions in energy markets.
In addition, Iran has built a so-called ‘resistance economy’. This revolves around domestic self-sufficiency and alternative shipping routes. Non-oil exports grew to more than 50 billion dollars. Iran developed domestic shipping insurance, expanded overland routes to Iraq, Pakistan, Turkey, and Central Asia, and launched a direct railway connection with China in 2025. Gasoline production has more than doubled since 2011. According to the Arab Center DC, trade under sanctions shifted from efficiency to survival. Iran has therefore adapted its economy to survive under pressure.
MEANS FOR MILITARY RECONSTRUCTION
For military reconstruction, Iran relies primarily on the axis with Russia and China. According to Special Eurasia , Moscow and Beijing have become not only diplomatic allies but also technological strongholds. They supply or support, among other things, advanced S-400 air defenses, Su-35 fighter jets, BeiDou-3 navigation systems, Chinese HQ-9B anti-aircraft missile batteries, and Russian Verba shoulder air defense systems. Russia also provided satellite imagery and intelligence on US military positions. With their external support, Iran was able to rebuild military capacity more quickly after the attacks of June 2025.
The Iranian missile program has been weakened, but remains one of the largest in the Middle East. It therefore remains an important tool for deterrence and escalation. Iran’s geographical location also plays a role. Iran lies near important shipping routes such as the Strait of Hormuz and Bab-el-Mandeb. If Iran restores its maritime or missile capabilities, it could once again put pressure on global energy supplies. This poses a threat of Iran that is greater than its classic military strength alone would suggest.
DIPLOMATIC RECOVERY AGENTS
Iran’s diplomatic means of reparation are more limited than those of major powers such as China or the United States, but they are not insignificant. Russia and China protect Iran in the UN Security Council, thereby helping to block binding resolutions. The Iranian Foreign Minister confirmed that ‘military cooperation with Russia and China still continues’. Russia also provided intelligence support during the 2026 conflict.
In addition, Iran uses international frameworks such as the SCO (Shanghai Cooperation Organization) and BRICS to deepen military cooperation. According to the US-China Economic and Security Review Commission, Iran hosted China and other countries in December 2025 for an SCO military exercise. Iran also retains influence because it can threaten regional stability. As a result, it becomes strategically expensive for other players to completely isolate Iran. This gives Tehran diplomatic influence that is greater than its formal power alone.