Costly Afghan immigration tests Iran’s neighborly hospitality

Afghan migration has fundamentally reshaped Iran’s demographics, labor market and public finances.

While the Iranian economy gains from lower labor costs and higher productivity, the fiscal burden of untargeted subsidies, currency outflows and hidden social costs has turned migration into a national economic challenge. Without targeted reforms, the costs will keep rising.

For more than four decades, Afghan migration to Iran has created a complex and evolving social fabric. The community is deeply heterogeneous: A large majority are Sunni Muslims – mainly Pashtuns and some Tajiks – whose customs and social norms diverge from Iran’s Shia-majority society. In many respects, their traditional, tribal, and rural lifestyles do not align with the rules and rhythms of urban Iran.

Shia minorities, mainly Hazaras, are linguistically and culturally closer to Iranians, easing their social integration. Other groups such as Uzbeks, Turkmens, Baloch and Ismailis add further complexity.

Waves of Afghan migration to Iran (1979–2025)

Family-centric culture, tribal traditions and practices such as polygamy, together with a significant gap between many migrants’ social codes and those of mainstream Iran, have complicated coexistence and sometimes caused friction over education, health and civic participation. Still, second- and third-generation Afghans – especially in major cities – have become Persian-speaking and bicultural. They often experience dual Iranian-Afghan identity.

Afghan migration has been driven by Afghanistan’s political turmoil, Iran’s labor needs and changing Iranian state policies. Today, this population – split between documented and undocumented migrants – shapes Iran’s social and economic scene while posing a mounting challenge for fiscal policy. The consequences go far beyond population statistics, as detailed in the financial analysis below.

The fiscal reality: subsidies and social costs

Iran’s economy is built on a vast, inefficient and non-targeted subsidy system – one of the world’s costliest. For a large, low-income migrant population like the Afghans, this has turned a social issue into a fiscal dilemma. The analysis below examines each major line item using official Iranian sources and independent research.

Energy subsidies: Fuel and energy subsidies are the largest component. State price controls and below-market energy costs lead to enormous hidden expenditures for gasoline, gas, diesel and electricity. The Parliament Research Center and the World Bank estimate Iran’s annual hidden energy subsidy at up to 1,200 trillion tomans ($286 billion).

While Afghan migrants – mostly from low-income deciles and generally without private cars – consume less than the average Iranian, everyone benefits via subsidized public transit and heating. The per capita annual fuel subsidy for Afghans is about 10-13 million tomans, well below the 30 million for Iranians. The undocumented sector, operating more in the grey market, creates additional fiscal pressure.

Education subsidies: Iranian law requires that all Afghan children, regardless of documentation, be enrolled in public schools (Cabinet Resolution 2015; UNHCR 2024). The Ministry of Education and the Parliament Research Center estimate the average annual cost per Afghan student at about 4.5 million tomans. With an estimated 300,000 Afghan children in schools, this is a significant and growing burden, the same for both legal and undocumented residents.

Healthcare subsidies: Healthcare access depends on insurance and residency status. About one million Afghans have public health insurance (UNHCR 2024); others use public services sporadically. Average annual health spending per Afghan is estimated at about 2-3 million tomans – comparable to the lowest-income Iranian deciles.

Bread subsidies: Bread is a staple for both Iranians and Afghans, and the state’s bread subsidy is among its largest fiscal commitments. Per capita, Afghans receive about 4-5 million tomans per year in bread subsidies, based on average consumption (160-180 kg) and the price gap between subsidized and market bread.

Afghan households, typically larger, often consume up to 25% more than Iranian families. Even undocumented migrants have virtually unrestricted access to subsidized bread. Overall, bread subsidies remain a central – and expensive – pillar of food security for both communities.

Water and electricity subsidies: In migrant-concentrated areas, water and power use per household is lower due to simpler lifestyles, but the total population puts chronic strain on infrastructure. Per capita subsidy is about 3-4 million tomans annually.

Municipal services: Public transport, waste collection, green spaces, and urban services add another 500,000 tomans per person per year – low in isolation, but substantial in the aggregate in urban centers.

Annual cost of Afghan migrants (2025 estimates, in millions of USD)

Economic gains vs. fiscal losses

Despite these costs, Afghan migration generates tangible economic gains. Afghan workers, with lower wages and roughly 15-20% higher productivity than Iranian peers, create an annual private sector saving of about $852 million (75,000 bn tomans). These savings stabilize key industries – especially construction and agriculture – that face chronic domestic labor shortages.

But the fiscal and social costs outweigh the gains. Afghans remit $1-1.5 billion annually, draining foreign currency. The state’s annual outlay for subsidies and public services exceeds $819 million. Pressure on housing markets, especially in low-income areas, adds at least $34 million in annual costs for Iranian renters. Security and law enforcement related to migration adds another $57 million.

Annual gains & losses (2025, in millions of USD)

Beyond the numbers

Despite all positive economic effects, Afghan migration’s bottom line for Iran’s public finances is negative. The net annual loss – over $1 billion – could build two 500-megawatt power plants or 200 modern schools in disadvantaged regions. Each year, the government could otherwise expand national infrastructure or offer full health insurance to every uninsured Iranian.

The true challenge is not just migration, but Iran’s untargeted and inefficient subsidy system and lack of migration management. Without reform, these fiscal burdens will keep rising. Clear policy, targeted subsidies and robust data are essential for Iran to balance economic needs, social cohesion and national stability.

A senior economic analyst and construction project manager based in Tehran, Amirreza Etasi (Amir.etasi@gmail.com) has worked for more than a decade at the intersection of public finance, energy and development policy, both in executive roles and as a contributor to major media outlets in Iran and abroad.