In arid countries worldwide, social conflicts between irrigation-based human development and the conservation of aquatic ecosystems are widespread and attract many public debates. This research focuses on the analysis of water and agricultural policies aimed to conserve groundwater resources and to maintain rural livelihoods in a basin in Spain’s central arid region. Intensive groundwater mining has caused overexploitation of the basin’s large aquifer and the degradation of internationally reputed wetlands. This has caused notable social conflicts over the years but the policies implemented have not been able to solve them so far. The methodology consists in the integration of a farm-based economic model and a basin-based hydrology model to analyze the dynamics of different water and agricultural policies under changing climate conditions. Results show that the region’s current quota-based water policies may contribute to reduce water consumption in the farms but will not be able to recover the aquifer and will inflict economic losses to the rural communities. This situation would worsen in case of drought. The long-term sustainability of the aquifer and rural livelihoods will be attained only if additional measures are put in place such as the control of illegal abstractions and the establishing of a water bank