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Dependency of water demands on the climate variation occurs especially in regions where agricultural demand has a significant share of the total water demands. The variability between demands that are based on annual climate conditions may be larger than the uncertainty associated with other explanatory variables in long-term operation of an irrigation dam. This paper illustrates certain benefits of using variable demands for long-term reservoir operation to help manage water resources system in Zayandeh-rud river basin in Iran. A regional optimal allocation of water among different crops and irrigation units is developed. The optimal allocation model is coupled with a reservoir operating model, which is developed based on the certain hedgings that deals with the available water and the water demands mutually. This coupled model is able to activate restrictions on allocating water to agricultural demands considering variation of inflow to the reservoir, variation of demands, and the economic value of allocating water among different crops and irrigation units. Using this model, long-term operation of Zayandeh-rud dam is evaluated considering different scenarios of inflow to the reservoir as well as agricultural demands. The results indicate that the use of operating rules which consider variable demands could significantly improve the efficiency of a water resources system in long-term operation, as it improves the benefit of Zayandeh-rud reservoir operation in comparison with conventional water supply approaches. DOI: 10.1061/(ASCE)IR.1943-4774.0000128 CE Database subject headings: Irrigation; Water demand; Reservoirs; Iran; Case studies. Author keywords: Irrigation demands; Reservoir operation; Demand management; Water demand variability.