Iran's modern defense industrial base was developed during the period of the Shah by an import substitution strategy, in which Iran would learn to produce, assemble, repair and maintain military equipment. The United States and the UK were principal suppliers of aircraft, armor, and small arms. Beginning in the mid-1970's, Iran signed co-production agreements for licensed manufacture of aircraft, helicopters, surface-to-air missiles, and computer and electro-optic equipment.
Four state-owned organizations constituted the main elements of the defense industrial base. The Military Industries Organization (MIO) was the main control center, and also produced small arms, rockets, mortars, and artillery. The Iran Aircraft Industries (IAI) focused on fighters, the Iran Helicopter Industries (IHI) on helicopters, and the Iran Electronics Industry (IEI) on defense electronics.
In 1963 Iran placed all military factories under the Military Industries Organization (MIO) of the Ministry of War. Over the next fifteen years, military plants produced small arms ammunition, batteries, tires, copper products, explosives, and mortar rounds and fuses. They also produced rifles and machine guns under West German license. In addition, helicopters, jeeps, trucks, and trailers were assembled from imported kits.
Iran was on its way to manufacturing rocket launchers, rockets, gun barrels, and grenades, when the Revolution halted all military activities. The MIO, plagued by the upheavals of the time, was unable to operate without foreign specialists and technicians. By 1981 it had lost much of its management ability and control over its industrial facilities. By 1990, there were over 240 factories and some 12,000 privately owned smaller concerns producing armaments, employing about 45,000 people.
Although the Rafsanjani government, upon election in 1989, took steps to begin military modernization, it was the Gulf War that made it clear that a major modernization of both the armed forces and the defense industrial base was needed. It became apparent that during the period of time in which Iran was rebuilding her own defense industrial base to produce weaponry needed for the Iran-Iraq war, her neighbors were arming with much more advanced technology systems, mostly purchased from the West. Iran's air and naval forces were obsolete by comparison. Iran became committed to a strategy of defense self-sufficiency as an urgent national requirement. The objective of total self-sufficiency remains today. The benefits of self-sufficiency also include significant savings in hard currency, which is badly needed to retire Iran's very large foreign debt in order to help overall economic development.
When Rafsanjani was elected as president in 1989, efforts were initiated to consolidate the defense industries and management structure so as to provide a more workable capability than the two-track (Ministry of Defense, Ministry of IRGC) structure that had developed over the previous ten years. The IRGC ministry was dissolved. At the same time, expansion of the overall defense industrial base was initiated, using the technology transfer from imports as a main facilitator.
Another source of transformation was the end of the Iran-Iraq war. Since that time, many defense industries have been significantly underutilized, with some firms operating at only 10-15 percent of their production capacity. By the late 1990s the Iran defense industrial base comprised about 15-10 percent of the country's industry.
Defense conversion was one solution that was being tried, as well as the privatization of some of the state-owned companies to facilitate conversion. The Iran Electronics Industries, which is Iran's largest defense company, had 80 percent of its production capacity focused on commercial electronics products by the late 1990s. Commercial sales of radios, televisions, and cell phones have resulted in the tripling of the IEI sales volume over the three years from 1994 to 1997. Iran Aircraft Manufacturing Company, another leading defense industry, was still heavily focused on defense work, but is also looking for commercial opportunities. AMC started cooperative licensed production of a Ukrainian Antonov 140 dual-use transport aircraft.
Iran is one of a few nations that is trying to achieve a totally self-sufficient armaments capability. Iran has declared self-sufficiency in several critical areas. Besides small arms and artillery, these include armor, and selected naval systems. In May 1998, an official announced that Iran was self-sufficient in the production of armored equipment, achieved by "acquiring sophisticated technology in related fields." In late 1997, Iran's navy chief declared that the country was "full self-proficient" in "sea-warfare technology." The Iranian Navy is "manufacturing its own equipment and other essential items through the work of domestic experts and the naval research center."
Iran has also worked to become self-sufficient in the production of spare parts for weapon systems. In early 1999, the acting commander of the ground forces announced that Iran is now producing 14,000 various kinds of aircraft parts. The domestic manufacture of spare military parts has saved the equivalent of 30 billion rials in hard currency. Iran is also producing the clear majority of parts needed by its armed forces, an Iranian armed forces official announced in early 1997. The following year, the army's aviation wing produced 90 percent of its spare parts requirements. In 1999, Iran's Minister of Defense stated that Iran's defense industrial base is now capable of producing the "fundamental hardware" needed by Iran.
In 1991 Iran announced the first domestic production of ballistic missiles. Although Iran claims a significant degree of self-sufficiency in missile technology, there nevertheless appears to be heavy involvement of Russian, Chinese and North Korean technology.
Overall, Iran's defense industrial base includes industries providing aircraft servicing and manufacture, and the production of mini-submarines, missiles, vehicles, mortars, artillery, small arms, mines, multiple rocket launchers, and ammunition. Iran lacks strong technical expertise, and the absence of a well-developed industrial and research infrastructure has inhibited Iran from indigenously developing and manufacturing advanced armaments. This weakness has given impetus to the strengthening of Iran's electronics industry as a main pillar of the future defense industrial base.
Iran's economy deteriorated in the aftermath of revolution, collapsing oil prices, and war, that dictated greater state control over resources, means of production, and responsibility for domestic services. The situation has been aggravated by the population explosion. Internal deadlock in Iran between protectionist advocates vs. free trade proponents has made it difficult to move forward and to create funds for investment in technology and infrastructure. Arms imports have received significant expenditures to date. How long Iran will be able to continue its import-dependent armament strategy is an issue.
Iran fears economic and technological isolation from a world in which other distinct economic poles have developed that, with the exception of oil revenues, have resulted in little benefit to the Middle East. This has been a principal driving force in Iran's push toward self-sufficiency, and also to move to establish regional efforts to overcome the effects of isolationism.
Iran's armament strategy, coupled with its actual infrastructure capabilities, have created an armament situation with several internal contradictions. Indigenous capacity to produce lower technology weaponry has advanced. Iran is still import-dependent for advanced technology systems and their maintenance and may have a long-way to go before actually obtaining an indigenous capability for these systems. Ballistic missiles are a main focus, but still with help from abroad.
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