The dilemmas of an ayatollah, Is Khamenei capable of backing down?

The United States, unconditionally supported by the European Union and the entirety of Western powers, has articulated—within a context in which the Islamic Republic finds itself confronted with a global, profound, and unprecedented impasse—explicit demands as preconditions for any opening of negotiations with Iran: the abandonment of all forms of nuclear enrichment, the cessation of support for proxy groups, and the imposition of severe restrictions on the ballistic missile program.
At the same time, the consequences of the regime's refusal have been clearly spelled out: heightened international isolation, even more paralyzing sanctions, and the possibility of military strikes.

In this context, a central question arises: why, despite the evident and visible deep fragilization of the regime, does Khamenei refuse any significant retreat? This research does not address this question from the perspective of political choice, but rather from that of structural possibility or impossibility. The aim is to analyze the objective constraints weighing on the regime in adopting such a decision—not through an ideological lens or official rhetoric, but on the basis of material, institutional, and economic determinants.

Analytical Framework: Toward Structural Impossibility

Among the broad range of essential considerations and variables, this analysis does not address the significant geopolitical effects or the changes in the regional balance of power that such a retreat would entail. While important, these factors appear less decisive than the internal lock-in of the system, the disruption of power equilibrium within the ruling bloc itself, and the political and economic recomposition inside the regime—elements whose consequences would be more immediate and more severe. Likewise, at this stage, the decisive and determining role of the people will not be addressed; this fundamental and autonomous variable is deliberately set aside.

This contribution focuses on a specific internal factor that is central and structuring: the dynamics of the political economy of the Islamic Republic's military-financial oligarchy. Khamenei and the principal factions of the ruling bloc have been its architects; today, in a dialectical process, they are both its products and its prisoners. They are fully aware that any action deviating from its mechanisms and internal logic would generate, at all levels of the dominant bloc, strategic and conceptual transformations that would be difficult to absorb—transformations likely to culminate in a profound paradigm shift within the state apparatus.

Anxious Loyalists

Anti-American slogans, once dominant within the regime's inner circle of loyalists, have gradually given way to a proliferation of internal criticism. The "fallen"—those excluded from circles of power and rent—now compete in expressing remorse regarding policies they themselves helped shape. Increasingly audible voices, from within the heart of the regime itself, call on Khamenei to engage in negotiations with the United States, to abandon the nuclear bomb project—particularly affected by U.S. military strikes last June—to renounce ineffective, fragmented, and costly proxy forces, and finally to accept limitations on missile range.

On November 30, 2025, a former adviser to the regime's Environmental Protection Organization stated in an interview with the Jamaran news website that the cost of ten missiles would be sufficient to improve the quality of domestic fuel and reduce deadly air pollution in Iran's major cities—pollution largely caused by the combustion of mazut and the excessive addition of sulfur and illegal additives to gasoline.

This discursive shift is fueled by converging signs of potential collapse: on the one hand, the total erosion of legitimacy and the absence of a social base for the regime, a paralyzed economy, unprecedented and uncontrollable inflation, growing international isolation [the early signs of strategic solitude?], as well as structural corruption and inefficiency permeating the entire state apparatus; on the other hand, an explosive society ready for insurrection, supported by an organized, structured, and combative alternative, in a permanent state of readiness. Added to this is the threat of a new devastating war.

Recent history offers a particularly instructive precedent: when Khomeini was forced to accept UN Security Council Resolution 598 and the ceasefire with Iraq, he described the decision as "drinking a cup of poison." But to ask—or even hope—that Khamenei today swallow an even more toxic cup of poison raises the question: to what extent is this realistic?

The Most Obscure Segment of the Informal Economy

The mechanisms governing the principal arenas of confrontation between the Islamic Republic and the West operate under near-total secrecy and escape even the control of the regime's official institutions. Whether concerning the definition of objectives, the determination of budgets and funding sources, or the allocation of resources, a logic of systemic opacity prevails. This opacity is particularly pronounced at the expenditure stage. At no point does any oversight body—not even the regime's façade parliament and its specialized committees—possess a reliable estimate of policy orientations, budgets, or the nature and scope of the activities involved, let alone the capacity to challenge them. In other words, for decades, vast resources belonging to the Iranian people have been mobilized without any effective oversight mechanism.

Moreover, due to UN sanctions and, above all, thousands of U.S. sanctions targeting individuals, companies, Iranian institutions, and foreign entities suspected of cooperating with these projects, any transparent activity or legal procurement is impossible. All such activities are therefore embedded in a constantly expanding underground informal economy. These clandestine circuits constitute the vital artery of the material reproduction of the main factions of the ruling bloc. To grasp their nature, it is necessary to briefly examine the functioning of this hidden economy.

Nuclear Program

The direct costs of the Islamic Republic's nuclear program include the construction, equipment, development, and maintenance of nuclear facilities and associated technologies; research and development; the purchase, assembly, and improvement of centrifuges; development of the fuel cycle; and the recruitment of specialized scientists and engineers, among others. The exact volume of direct investment remains opaque. However, on December 11, 2025, Mohammad Javad Zarif—former Minister of Foreign Affairs (2013–2021) and former strategic vice president to Massoud Pezeshkian (August 2024–March 2025)—confirmed in an interview with Al Jazeera English that $500 billion had been invested in this project.

From an economic standpoint, this program ranks among the most inefficient strategic initiatives in Iran's contemporary history. Its ongoing activities have no significant industrial value, and its contribution to national electricity production is estimated at approximately 1 percent. Nevertheless, according to experts, the quantity of uranium enriched to 60 percent produced within this framework—at least prior to the U.S. and Israeli strikes of June 2025 on Iran's main nuclear facilities—would have sufficed to manufacture several nuclear weapons.

This large-scale project, spread across several sites declared to the International Atomic Energy Agency and numerous undeclared sites and installations, is classified and placed under the control of the Islamic Revolutionary Guard Corps (IRGC). Given that any cooperation with this program is subject to sanctions and severe international penalties, all of the complex and multidimensional needs of this industry—from construction machinery to knowledge and materials required for the design and manufacture of components, particularly centrifuges, as well as advanced laboratory equipment, software, and IT systems—are acquired through illegal means and black-market channels. A clandestine, multilayered system composed of thousands of Iranian and foreign factories, workshops, and shell companies sustains this colossal industry.

Missiles

Iran's ballistic missile program, monopolized by the IRGC Aerospace Force, constitutes a central pillar of the regime's military strategy. It encompasses the design, production, and testing of missile weapons on which the regime relies for both offensive and deterrent capabilities. Program officials thus enjoy wide latitude in development, financing, and the fulfillment of strictly confidential needs. According to some estimates, Iran spends approximately $3 billion annually on the development and production of ballistic missiles, cruise missiles, and other systems. By way of example, the development of the Shahab-3 missile alone is said to have cost nearly $1 billion. According to military experts, research and development related to the hypersonic missiles claimed by the regime have entailed costs significantly higher than those of previous projects.

The cost of manufacturing a missile—excluding infrastructure, underground silos, materials, research equipment, and technological investments—is estimated at between $250,000 for the most rudimentary models and more than $2 million for the most advanced.

At the same time, the regime continues to pursue even more ambitious military projects. The official military budget for the current Iranian year (March 21, 2025–March 20, 2026) increased by 200 percent compared to the previous year and is estimated at $23 billion. The budget law further allocates a substantial share of oil and gas revenues to the armed forces: 51 percent of oil and gas export revenues in the general budget are earmarked for the military sector—primarily the IRGC—compared to only 37.5 percent for the state. The general orientations of the Seventh Development Plan (2024–2029) provide for the annual allocation of at least 5 percent of the public budget to ballistic and nuclear programs under the heading "strengthening defensive capabilities."

Subject for decades to severe arms embargoes—including bans on exporting dual-use civilian and military goods to Iran—the country has also seen the emergence, in this domain, of an extensive and complex network analogous to that supplying the nuclear sector.

Proxy Groups

Proxy forces constitute one of the most costly and strategic instruments of Iran's foreign policy. Placed under the control of the Qods Force, these groups—active from the Middle East to North Africa, from the Red Sea to East Asia—represent one of the most expensive and sensitive aspects of the confrontation between the regime and the West and regional states. They are the central instrument of destabilization and of the export of terrorism and fundamentalism by the Islamic Republic. The Qods Force—the IRGC's external branch—initially formed at the scale of a brigade during the Iran–Iraq War, was elevated to the status of an autonomous force in 1989 as interventionism and crisis export became pillars of the regime's survival doctrine.

Beyond hundreds of assassination operations targeting opposition figures abroad, the Qods Force has devoted vast resources over the decades to developing the military capabilities of groups forming what the regime calls the "axis of resistance." This includes Lebanese Hezbollah, Hamas, Palestinian Islamic Jihad, the Houthi movement in Yemen (Ansar Allah), Shiite groups in Iraq (Hashd al-Shaabi, Asaib Ahl al-Haq, etc.), al-Shabaab in Somalia, certain Afghan groups, and organizations active in other African and Arab countries. Their weapons, training, and financial resources are directly supplied by the Qods Force, and their level of submission and strategic importance are naturally proportional to their dependence on this support.

Thus, the intervention of these forces in Syria to suppress the popular uprising following the Arab Spring imposed a massive financial burden on the Iranian people, estimated by official figures at tens of billions of dollars. In April 2025, Heshmatollah Falahatpisheh, former head of the parliamentary National Security Committee, estimated the Syrian regime's debt to Iran at $30 billion—a figure to be compared with Iran's average annual oil export revenues over the past five years, which likely did not exceed $40 billion.

Among these groups, Lebanese Hezbollah—the regime's principal proxy—has received the largest and most consistent share of funding. In November 2025, John Hurley, U.S. Treasury Under Secretary for Terrorism and Financial Intelligence, told Reuters that "despite all Western sanctions weighing on its economy, Iran managed this year to transfer approximately one billion dollars to Hezbollah." In a context where, according to the authorities themselves, the state lacks even the foreign currency needed to import medicine, this figure illustrates the centrality of this group in Iran's power priorities.

Over the past fifteen years, Yemen's Houthis have also been among the primary beneficiaries of funding, equipment, and training provided by the IRGC. All the missiles and drones they use—particularly to disrupt international commercial shipping—are either smuggled from Iran or assembled locally from components sent by the regime under the direct supervision of IRGC experts.

The financing of these groups, arms procurement and transit, the purchase of individual loyalties, bribery, money laundering, and related activities have given rise to vast underground networks extending from Iran to the rest of the world. These networks involve certain states, corrupt political officials, large and small companies—domestic and foreign—and international criminal organizations with their own hierarchical structures and internal competitive logics.

Operating Mechanisms

The Office of the Supreme Leader ( Beit-e Rahbari), the senior commanders of the IRGC and security institutions, and the regime's religious dignitaries occupy the summit of this sprawling structure, within which functions and benefits are distributed according to the position of individuals and networks within the ruling bloc. Over decades and amid changing conditions, this system has demonstrated remarkable resilience and adaptability to shifts in the international environment.

In practical terms, thousands of Iranian and foreign shell companies, intermediaries, financial institutions, smugglers, mafia networks, corrupt political officials, relay bank accounts, fictitious trade exchanges, falsified invoices, factories, and illegal transit networks participate in these activities. Purchases are financed through off-system transfers, via networks of legal and illegal currency exchange offices, certain financial institutions and diplomatic channels, or through cash transported in suitcases, gold bars, or cryptocurrency wallets.

Goods are typically transported through customs terminals, airports, and entry points under the direct control of the IRGC, or through hundreds of clandestine and illegal ports under its authority. Some cargoes are also delivered to neighboring countries before being brought into Iran by land or sea.

To erase any trace of the origin of goods—whether equipment, components, or raw materials—each item deemed sensitive is exchanged multiple times among different entities and shipped to various destinations, with its price artificially multiplied at each stage.

A large share of these operations is controlled by the children or close relatives of senior regime officials, often holding the nationality of one or more Western countries, who have built luxurious and lavish lifestyles on the resources of the Iranian people. For example, on July 30, 2025, the U.S. Treasury Department sanctioned more than 50 vessels belonging to Mohammad-Hossein Shamkhani, son of Ali Shamkhani—Khamenei's senior political adviser and former secretary of the Supreme National Security Council (2013–2023). Living abroad after changing his first name to Hector, he ran a vast maritime transport network. He had previously been sanctioned by the European Union for oil-for-arms exchanges and for supplying weapons and drones to Russia.

Vital Dynamism

A substantial share of Iran's economic power—characteristic of a rentier state based on crude oil exports [and certain derivative products]—emanates directly from political power. In other words, the degree of access to power—understood as proximity to or distance from the apex of the politico-institutional pyramid—rapidly translates into economic power. This mechanism fosters the emergence of a class endowed with considerable influence and colossal revenues, structurally loyal to the regime, closely tied to its fate, and sharing its institutional interests. This class strengthens as the regime consolidates its grip and, conversely, sees its profit margins and political weight threatened as the regime weakens.

It is therefore inevitable that within this social stratum an irreducible antagonism develops over the appropriation of these highly lucrative activities—an antagonism whose effects sometimes spill over into the political sphere proper. Due to its organic ties to the apparatus of power, this stratum also functions as the principal engine and central dynamic of repression.

Against a backdrop marked over at least the past two decades by the erosion of Khamenei's hegemony and the corresponding intensification of internal power struggles, the integration of "influential factions with divergent interests" into these three opaque sectors of the informal economy has also served as a strategy of internal cohesion and a pragmatic response to the crisis of hegemony. This configuration grants Khamenei's faction—which largely controls rent distribution and the internal division of labor—a qualitative superiority over its rivals.

This dominance, unlike classical hegemony, rests on strictly material and tangible foundations and is therefore unstable and subject to fluctuations. The cohesion of the ruling bloc and the loyalty it generates are thus conditioned on the sustainability of this joint mechanism of power and wealth production. Any disruption of this system weakens that cohesion. Should the material benefits accruing to factions within the dominant bloc be affected—benefits that also constitute a crucial source of their real power—constructing an alternative project capable of performing an equivalent function would represent a major challenge.

From this perspective, a significant retreat by Khamenei would amount to severing some of the vital arteries of the factions composing the ruling bloc and thus to a direct blow to the internal cohesion of his regime—a cohesion on which Khamenei deeply depends and whose imperative necessity he continually emphasizes.

Moreover, these factions, as central actors in the opaque sectors of the informal economy, cannot be reduced to mere executors of policies formulated elsewhere. On the contrary, they comprise key groups and figures who directly participate in policy formulation or exert decisive influence over its orientation—policies deeply intertwined with their own interests.

It is therefore impossible to ignore their role in decisions of such strategic magnitude. One can reasonably assume that they would not accept, without resistance, transformations threatening their institutional interests. These factions constitute the hard core of the Islamic Republic and, with only slight exaggeration, embody its very essence: they represent it, defend it, and their elimination would leave little of Khamenei's regime intact.

Playing both roles

Within the analytical framework of political economy, the specific functions of the three strategic domains at stake—nuclear, ballistic, and proxy forces—exert a direct influence on the arena of strategic policy formulation and adoption. They act as structuring factors shaping the regime's fundamental orientations. It is therefore appropriate to speak of a relationship of reciprocal interaction. Any modification in the activity of these sectors amounts to a redefinition of the dynamics of political decision-making and triggers a series of transformations, both microeconomic and macroeconomic, in resource allocation processes.

The formation of proxy groups offers an illuminating illustration. Since the rise to power of the clerical regime, these groups—alongside internal repression—have played the role of a second pillar of regime survival, namely the export of crisis and terrorism, following a trajectory of continuous quantitative and qualitative growth. On the one hand, this process expanded the economic network that sustains them and enriched the factions linked to them within the regime; on the other, proximity to these networks became an indicator of superiority within the ruling bloc.

In this respect, the Qods Force constitutes a paradigmatic example of a policy that, from being a product of strategic decision-making, elevated itself into a governing authority. The apparatus led by Qassem Soleimani—commander of the force from 1998 to 2020, killed in a U.S. strike in Baghdad—developed gradually alongside the intensification of the regime's regional interventions, particularly following the U.S. occupation of Iraq. It reached its apex during the Arab Spring and the regime's decisive engagement in repressing the Syrian population. In Syria, this system organized, armed, financed, supplied, and commanded tens of thousands of multinational mercenaries.

Simultaneously, the political weight of the commanders and supporters of this force increased within the inner circle of power and in bodies defining macro-strategic policies. To the point that, according to some U.S. assessments, Qassem Soleimani was perceived as the regime's "number one-and-a-half," immediately after Khamenei. Many foreign officials thus preferred direct negotiations with him on major Iran- or region-related issues rather than with the president or foreign minister.

Subsequent revelations showed that during internal disputes over Tehran's budget deficit, even the then-mayor—Mohammad-Bagher Ghalibaf, now Speaker of Parliament—contributed, in order to satisfy Soleimani, to financing his regional ambitions at the expense of Tehran's citizens and without their knowledge, to the tune of "several hundred million dollars in non-recoverable funds." The interventions of the Qods Force had thus placed the regime in a position where its highest leaders, including Khamenei, openly spoke of exercising simultaneous dominance over four capitals: Beirut, Damascus, Baghdad, and Sanaa.

However, the expansion and investment in proxy forces also produced other inevitable consequences. Khamenei's "long-arm strategy"—namely the creation of auxiliary groups entirely subordinate to his authority beyond Iran's borders—led to a situation in which the interests of a large portion of internal power networks are now defined abroad. The factors influencing the prosperity of their economic activities thus weigh decisively on the regime's macro-strategic foreign policy orientations. The entanglement of the interests of some of these influential actors and networks with proxy groups sometimes goes so far that they themselves act within the regime as defenders and promoters of the policies of those groups, translating their demands into state priorities.

The architects of the Islamic Republic's interventionist policies welcome the emergence of any new crisis and actively contribute to its escalation, each crisis being perceived as an opportunity for intervention and the creation of new profit circuits. All these dynamics culminate in the strengthening of militarism in the regime's orientations and in its structural inclination toward external interference. This is a key element for understanding the intrinsically crisis-generating nature of the Islamic Republic—a regime that feeds on war and terrorism.

Within a political system cloaked in a rigid religious façade, the divine and ideological justifications required for these practices—however inhumane, illegal, or immoral—are readily mobilized. More than four decades of clerical rule in Iran have demonstrated the regime's ability to transform religion into an economic and political instrument.

Finally, this analytical approach makes it possible to correct a recurring error in interpretations of the regime's nature at a moment when it appears to be hesitating between two equally fatal options—"the plague or cholera."

Some Western experts attribute Khamenei's refusal of any meaningful opening toward the West, or of any substantial retreat, to fear of defections among the regime's ideological forces. Yet religious fascism in power in Iran long ago passed this stage: that of political legitimacy loss and ideological reproduction incapacity. The scale of nationwide uprisings in recent years and the obvious nature of the people's demands has definitively invalidated the myth of a popular base for the regime. During the debates of the 2024 presidential election, one candidate even estimated this social base at around four percent—a fraction of the population whose majority benefits directly or indirectly from the plundering of national resources or derives its livelihood from participation in repression.

Khamenei thus embodies a regime that he drags along behind him while being dragged by it himself. Within this dialectic, accepting Western conditions and undertaking a strategic retreat could indeed, by easing political and economic pressures, delay the prospect of immediate collapse. But such a shift would amount to cutting off the supply of a system whose functioning rests precisely on these mechanisms. Khamenei knows that decisive collapse would occur not through abandoning worn-out ideological slogans—whose own propagators recognize their emptiness—but through the paralysis of the regime's vital dynamism, that is, through the closure of predatory circuits and the cessation of the systematic plundering of the Iranian people's resources.