At the time of writing, Iran and Israel are engaged in an escalated phase of asymmetric warfare. The Israeli Air Force (IDF) has achieved air superiority and is conducting precision strikes on Iranian targets. In response, Iran has launched hundreds of attacks, including drones, ballistic and cruise missiles against Israeli territory. Although only a small fraction of these munitions has successfully penetrated Israeli air defenses, the damage inflicted on the civilian population is nonetheless significant.
While the ultimate outcome of this conflict remains uncertain, a decisive factor will be Iran’s ability to sustain and improve its production of its surface-to-surface munitions. This hinges on the resilience and adaptability of its military-industrial complex.
A niche weapons supplier
Iran’s defense industry presents a complex and opaque case study. Scholars such as Robert Czulda (2020) have highlighted the severe limitations in available data, which increases the risk of either underestimating or overestimating its actual capabilities. Nonetheless, through the analysis of open-source materials and secondary literature, certain structural insights can be drawn.
Following Richard Bitzinger’s conceptualization (2015), we can classify Iran’s military industry as a “niche supplier,” having concentrated much of its technological and financial resources on the development of surface-to-surface precision-guided munitions. This strategic focus appears to be more the result of geopolitical constraints than deliberate planning. Prior to the 1979 Islamic Revolution, Iran pursued a typical path for emerging states, acquiring weapon systems from Western companies through technology transfer agreements. This period saw the foundation of several industrial entities, such as Iran Electronic Industry (IEI), Iran Aircraft Manufacturing Industries (HESA) and Iran Aircraft Industries (SAHA), through joint ventures with western companies such as British Aerospace, Textron and Northrop (Czulda 2020).
Post-revolution, international sanctions and economic difficulties forced Iran to adopt an asymmetric deterrence strategy aimed at imposing costs on adversaries. Today, Iran’s capacity to produce major platforms such as aircraft and armored vehicles is largely limited to maintenance and minor upgrades. Naval capabilities are similarly modest; the Iranian navy focuses on low-displacement vessels and mini-submarines, with assistance from North Korea. Foreign military technology support has also come from Russia and China, though in limited and selective forms.
Given these constraints, Iran has prioritized the development of long-range, surface-launched munitions that can be deployed from its territory or via regional proxies, posing significant threats to the United States, Israeli, and their allies. Development of these weapons began in the mid-1980s with the reverse engineering of the Soviet SCUD missiles and the development of the Shahad 1 and 2 liquid fuel ballistic missiles. In the early 2000s, Iran introduced the Fateh-family of solid fuel short range ballistic missiles, while in the mid-2010s, they added land attack cruise missiles, like the Soumar family (reverse engineered from the Russian Kh-55), the Hoveizeh and the Paveh-series.
In recent years, they have also made significant advances in Unmanned Aerial Systems (UAV), with a milestone kickstart in 2011 after the capture and copy of a U.S. Central Intelligence Agency operated RQ-170, which gave birth to the Shahed-series. The highly successful loitering attack drone Shahed-129 was also a replication, modelled after the Israeli Hermes-450 (Bassiri Tabrizi & Bronk 2018, IISS 2021).
Organizational Structure of the Defense Industry
One of the most distinctive and under-examined features of Iran’s defense sector is its centralized organizational model. The supplier base is state-owned and directly overseen by the Ministry of Armed Forces Logistics (MODAFL), a part of the Cabinet led by the President of Iran. Unlike most countries, Iran consolidates acquisition, research and development (R&D), and production under MODAFL’s authority, while operational requirements are defined separately by the Armed Forces (Artesh) and the Islamic Revolutionary Guard Corps (IRGC), which report to the General Staff of the Armed Forces and the Supreme Leader.
MODAFL is structured around several large, horizontally diversified holdings, each specialized in a distinct technology domain — land, air, naval, missiles, and electronics. These holdings oversee a number of specialized subsidiaries, ensuring vertical integration within each domain (IISS 2021).
-Land Systems: The Defense Industries Organization (DIO) manufactures firearms, ammunition, armored vehicles, and artillery. It includes multiple subsidiaries, such as:
-Armaments Industries Group (AIG), which produces mortars, howitzers, rocket launchers and guns.
-Ammunition and Metallurgy Industries Group (AMIG), which produces ammunition, bombs, mines, detonators, and explosives for the oil industry.
-Rocket Industries Group (RIG), which produces artillery rockets and RPGs.
-Chemical Industries and Development of Materials Group (CIDMG), which is responsible for explosives and propellants and is supported by Iran’s extensive petrochemical sector.
- Vehicle and Equipment Industries Group (VEIG), which designs and manufactures armored vehicles.
-Naval Systems: The Marine Industries Organization (MIO), which is under the DIO, focuses on civilian and military vessels and submarines. In addition, major civilian shipbuilders like ISOICO (under the Ministry of Industry, Trade and Mine) and SADRA (controlled by the IRGC-owned Khatam al-Anbiya construction conglomerate, the largest in Iran) play key roles in maritime industrial capacity.
-Aerospace Systems: The Iran Aviation Industries Organization (IAIO) oversees UAV programs and aircraft maintenance. Key subsidiaries include:
-Iran Aircraft Manufacturing Industries (HESA), which manufactures the Ababil and Shahed-series of UCAVs.
-Qods Aeronautics Industries, which produces the Mohajer-series of ISR UAVs.
-Iran Aircraft Industries (SAHA), which provides aircraft maintenance and services.
-Iran Helicopter Support and Renewal Industries (PANHA), which provides laboratory services.
-Missiles: The Aerospace Industries Organization (AIO) leads missile R&D and production, with divisions including:
-Shahid Hemmat Industrial Group (SHIG), which produces liquid-fuel ballistic missiles.
-Shahid Bakeri Industrial Group (SBIG), which builds solid-fuel missiles.
-Samen Alaeme Industrial Group (SAIG), which builds cruise and anti-ship missiles manufacturing.
-Ya Mahdi Group, which oversees anti-tank and MANPADS.
-Shahid Ahmad Kazemi Industrial Group, which builds air-launched missiles.
-Naval Defense Missile Industry Group, which oversees naval missile development.
-Electronics: Iran Electronics Industry (IEI) develops gyroscopes, avionics, and space systems.
Institutions devoted to R&D, technical education, export promotion, and military cartography also support MODAFL.
The IRGC’s parallel capabilities
The IRGC maintains its own military-industrial capacity through its economic arm Khatam al-Anbiya, which controls major infrastructure and shipbuilding projects, including SADRA. According to Matthew McInnis’s (2017) analysis, these dual-use activities provide significant off-budget funding for military activities.
Militarily, the IRGC reportedly oversees the Shahed Aviation Industries Research Center (SAIRC) in Isfahan, which designs and exports the Shahed-series UAVs, including the widely used loitering munitions Shahed-131 and 136. These drones have been deployed by Iran, but they were also used in foreign conflicts, notably the Russia-Ukraine war. According to a RUSI report (Rubin 2023), SAIRC handles design while HESA handles serial production, suggesting cooperation rather than duplication.
Control over the Shahed drone program grants the IRGC the following strategic advantages: (1) it strengthens its internal political and economic power; (2) it monopolizes the export and deployment of one of Iran’s most effective deterrents; and (3) it gains access to operational feedback, enhancing its innovation cycle.
The global supply chain challenge
One of the most pressing questions for analysts is how self-sufficient Iran’s military-industrial base is. As one of the world’s largest oil producers, Iran has a significant petrochemical sector. This gives them an advantage as many commonly used industrial chemicals such as ammonium nitrate, sulfuric acid, nitrocellulose, nitroglycerine and toluene constitute the elementary inputs of powder and explosives, which allows them to build their own conventional systems, such as rocket, ammunition, and warhead manufacturing.
While they are entirely self-reliant in the final assembly and production of end systems like missiles, rockets and UAVs, the supply chain model for these systems is heavily dependent on foreign supplies of components, materials, and equipment. Iran lacks a modern electronics and avionics industrial base, modern aerostructures, components such as engines and propellers, and materials like resins and coatings. They also rely on overseas suppliers of specialized machining and chemical equipment for explosives, ammunition, and missile manufacturing.
Despite sanctions, Iran has managed to acquire dual-use technologies through a global network of intermediaries and front companies, sourcing from commercial vendors through multiple transactions via distributors and resellers. According to a 2022 United Kingdom-based Conflict Armament Research (CAR) report, over 500 components from Iranian drones were traced to over 70 manufacturers across 13 countries, with 82% sourced from U.S.-based firms (CAR 2022). Reports point to drone component acquisitions from allies in China, North Korea, and Russia, but also from companies in the U.S., Germany, Switzerland, Taiwan, Turkiyë, Japan, and South Korea as well as intermediary companies in Hong Kong, Indonesia, Malaysia, France and Canada (Insikt Group 2024).
The Shahed loitering munition is an interesting example of how the Iranian military industry has leaned into its constraints. Lacking access to modern technologies, Iran has managed to establish a global supply chain that spans from western commercial components to assembly lines in Russia, such as the JSC Alabuga facility (Albright, et al. 2024). This reflects a capacity for planning and managing a complex logistical and assembly operation, one that begins with foreign suppliers and, in some cases, concludes with foreign-based production.
According to the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which oversees sanctions targeting Iran’s smuggling networks, many of these component purchases are simultaneously destined for multiple production lines operated by different entities, such as AIO, IAIO and SAIRC, under the control of both MODAFL and the IRGC (Insikt Group 2024). This suggests that, despite the fragmented landscape of companies and internal rivalries, there exists a certain degree of high-level coordination in managing some logistical activities. The IRGC is frequently identified as the primary actor behind smuggling networks, which they operate via shell companies, but the strategic planning and supply-chain management functions are likely overseen by MODAFL.
Structural features and persistent weaknesses
Three core features define Iran’s military-industrial complex:
- Centralized ownership: While having both supplier and buyer under state control simplifies some processes, it also introduces inefficiencies. There is a strong institutional incentive to preserve outdated programs, maintaining production lines even without operational demand.
- Functional specialization: Despite centralization, Iran has developed a relatively complementary network of specialized industries. Foreign smuggling networks often supply multiple entities simultaneously, suggesting coordinated logistics and production planning, most likely under MODAFL.
- Adaptive innovation through proxy deployment: The combat deployment of Iran’s systems by proxy forces offers critical feedback and validation, which the defense industry can incorporate into design iterations. The Shahed production deal with Russia may serve as a model for an alternative innovation cycle, combining external demand signals with IRGC oversight.
However, Iran’s strategic posture suffers from two critical weaknesses:
- Overreliance on asymmetric capabilities: The destruction of key missile production sites by Israel underscores Iran’s lack of air power and air denial capabilities. Without the ability to defend its production infrastructure or secure its supply chains, Iran’s cost-imposition strategy becomes unsustainable. At the beginning with the war with Israel in June 2025, Iran reportedly held a missile stockpile between 2,000 and 3,000 units (Hinz 2025), however, these resources are finite if replenishment is disrupted. In October 2024 and again in June 2025, the IDF also attacked missile production sites like the Khojir complex, reportedly destroying solid fuel mixers that Iran doesn’t manufacture and has to import from China (ISW 2024, Ravid 2024, Al Jazeera 2025). This raises the question as to what extent Iran will be able to resume their missile production at the previous rate, at least for many months. This makes the country over reliant on existing stockpiles.
- Macroeconomic fragility: Since 2019, Iran has faced declining foreign reserves, currency volatility, high inflation, and reduced investment. A recent unification of exchange rates led to a significant devaluation (Intellinews 2024), worsening living standards and increasing the fiscal burden of staples subsidies (Khatinoglu 2024). These macroeconomic pressures also strain the defense budget, especially given the high share allocated to armed forces salaries and pensions (Arab News 2023).
Iran’s defense industry is defined by a mixture of centralized control, specialized production, and covert global procurement. Its ability to sustain and adapt under pressure has enabled it to become a formidable asymmetric actor. Yet this resilience is not unlimited. The combination of macroeconomic instability and vulnerability to targeted attacks poses a growing threat to the continuity of Iran’s strategic deterrence posture. Whether Iran can maintain its industrial capacity and innovation under the strain of war and sanctions remains one of the defining questions of Middle Eastern security in the years ahead.
Disclaimer:
The views and opinions expressed in the INSIGHTS publication series are those of the individual contributors and do not necessarily reflect the official policy or position of Rabdan Security & Defense Institute, its affiliated organizations, or any government entity. The content published is intended for informational purposes and reflects the personal perspectives of the authors on various security and defence-related topics.
Author
Martin Novella is Director of Anticompetitive Concerted Practices at the National Competition Commission in Argentina. He was previously the National Director of Defence Industrial Policy and worked in the state-owned defence industry in Argentina. His research focuses on defence economics, acquisition systems, industrial policy and global military industries.
References
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