Tehran is entering 2026 carrying hard strategic lessons after an auspicious year, from the shock of a direct war with Israel to the erosion of its regional militia network, experts say.

At home, the collapse of nuclear diplomacy and the return of sanctions sent the rial to historic lows, compounding economic pressure and leading to protests. The vast country of more than 90 million is also beset by drought and power cuts.

President Masoud Pezeshkian has recently sought to explain the myriad obstacles Iran is now facing, saying the country is effectively in a full-scale war with the US, Europe and Israel, while warning of internal divisions.

Yet within Iran’s official discourse, 2025 was by no means a year of defeat but one of resilience and rebuilding. While it has shown keenness in talks with Washington, it has also been flexing its muscles, confidently declaring it is prepared for a renewed confrontation with Israel.

In central Tehran, a newly unveiled mural reads “We are ready, are you ready?” in Farsi and Hebrew, a stark warning as tension with Israel escalates. Behind the bravado, however, Iran faces a long and uncertain recovery after the loss of senior commanders and nuclear scientists.

This year began with glimmers of diplomacy. After years of stalemate following the US withdrawal from the nuclear deal in 2018, indirect talks resumed through Omani mediation. But hopeful headlines quickly gave way to war coverage in June, as diplomacy was interrupted by the first direct clash between Iran and Israel.

For many in Iran, the wider Middle East and beyond, the scale of the breach was shocking. Years of Mossad infiltration enabled internal sabotage during the brief war, with smuggled drones used to strike air-defence radars, missile systems and launchers from inside Iran.

“The biggest weakness was in the intelligence and security field,” Ali Mousavi Khalkhali, a Middle East commentator, told The National.

First bullet

Since then, Iran has announced the arrest and execution of hundreds of alleged Mossad collaborators and has moved to rebuild its defences, shifting its focus towards protecting its own territory after decades of relying on proxies and forward defence lines. Over the past six months, Tehran has moved to replace damaged launchers, replenish missile stockpiles, strengthen air defences and expand intelligence operations against Israel. It has also reshuffled its military leadership.

In a series of military exercises last week, Iran was reportedly testing advanced ballistic missiles, moves that Israeli officials viewed as a signal of renewed readiness. The drills raised alarms, prompting a warning from Israeli Prime Minister Benjamin Netanyahu that Tehran might strike first.

Iranian experts, however, dismiss the idea of Iran shooting the first bullet. “The expectation of a pre-emptive strike by Iran is out of the question,” said defence analyst Mahdi Bakhtiari. “Iran has never thrown the first punch. Israel amplifies this narrative to justify potential attacks of its own.”

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Mr Netanyahu’s meeting with US President Donald Trump on Monday in Florida reportedly touched on Iran’s revived missile threat and the fate of the country’s nuclear programme.

In June, Iran’s deeply buried nuclear bases offered limited protection once American B-2 bombers entered the conflict. US President Donald Trump repeatedly claimed the sites were “completely and totally obliterated” but assessments vary, with some US intelligence suggesting setbacks of months to years, rather than destruction.

Iran has kept the extent of the damage under wraps, as observers interpret this as part of a strategy of ambiguity. Before the strikes, the International Atomic Energy Agency reported Iran possessed more than 400 kilograms of uranium enriched to 60 per cent, which the agency says is enough for several weapons if further processed.

“The knowledge produced over more than 20 years certainly won’t be obliterated by bombing a few sites and assassinating dozens of scientists,” Iran affairs commentator Hadi Mohammadi told The National.

Peacetime leverage

The June battle sparked debate within Iran over the role of China and Russia as strategic partners. While anger focused on Moscow’s perceived neutrality, many analysts say the conflict delivered a blunt lesson: Iran largely stood alone.

Unconfirmed reports have since suggested possible Russian Su-35 fighter jets and Chinese arms transfers as Iran seeks to close gaps in its air defences. Still, experts caution against overstating foreign support. “Russian imports have not been particularly advanced,” said Mr Khalkhali. “Russia gave Iran the S-300 in 2016, while supplying its rivals with more capable systems like the S-400 and now the S-500.”

For him, Iran’s real leverage remains domestic: missiles and drones. “Reports speak of thousands of missiles produced monthly after the war,” he said. “Even the announcement of Iran rapidly expanding its missile stockpile creates deterrence in itself, regardless of exact figures, which remain classified.”

Another debate concerned the so-called Axis of Resistance, once Iran’s forward shield, which proved unable to provide decisive wartime support.

Conservative commentator Ashkan Mombeini rejects claims of collapse, insisting resistance forces remain influential. “If the Resistance was weakened, why all this pressure and effort from America and its allies to disarm it?”

Mr Khalkhali offered a more measured view: “Hamas, Hezbollah, the Houthis and Iraqi militias remain powers that can still serve Iran’s interests in the region despite the blows but I’m not sure about their impact in a direct Iran–Israel war.”

Analysts suggest these groups retain value for peacetime leverage but were demonstrably unable to mount significant wartime aid when Iran faced direct assault. This reality, coupled with limited backing from major allied powers in June, appears to reinforce Tehran’s shift towards self-reliant deterrence while keeping diplomacy on the table for longer-term security.

Who’s who in Yemen conflict

Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government

Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council

Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south

Habrish ‘rebels’: Tribal-backed forces feuding with STC over control of oil in government territory

Related

Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE’s implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

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