Water scarcity has received global attention in the last decade as it challenges food security in arid and semi-arid regions. This study employs water scarcity indices to assess water resources in the agricultural sector of Iran's Jazmourian watershed. Overall, we find that the watershed is experiencing a “very high stress” water situation. This is primarily due to intensive water usage for diverse crops, which has resulted in a negative net virtual water balance and contributed to a rise in water stress and poverty levels. The water stress index is 0.88, and the agricultural water stress is 1.25. The agricultural water footprint is 2,018.53 million cubic meters (MCM), with the share of blue, green and gray water footprints being 80.21, 6.08, and 13.72%, respectively. The region possesses 3,210 MCM of available water for crops, with 17.1% sourced from green waters and 82.9% from blue waters. Despite low annual rainfall and limited water resources, the region excessively exploits water for diverse crops. The net virtual water balance is negative, indicating high virtual water export (1,112–1,605 MCM) compared to imports (58–265 MCM). With declining water availability and increasing crop production, the region experiences rising water stress. The spatial analysis of sub-watersheds reveals diverse patterns of water stress and poverty, as detailed in the study.