Isfahan Refinery, one of the largest refineries in Iran. – Fatemeh Bahrami/Anadolu/Getty Images
The United States is weighing whether to strike Iran as turmoil intensifies for the country’s authoritarian regime.
Iran’s government is at its weakest point in years, destabilizing yet another OPEC nation less than two weeks after the United States toppled Venezuela’s government.
Protests have erupted in the streets of Iran, and the government’s deadly crackdown on protesters has crossed the red line drawn by President Donald Trump. Trump has signaled that his administration is weighing a strike — though on Wednesday Trump said the United States would continue to “watch and see what the process is” in determining whether to take action against Iran.
Iran controls the third largest oil reserves on Earth and one of the most important oil shipping routes in the world. These factors will shape the country’s future regardless of whether the US intervenes.
Iran produces about 3.2 million barrels of oil a day on average, according to OPEC, accounting for about 4 percent of global crude production. That makes Iran the world’s sixth-largest oil producer — an impressive feat considering Iran faces burdensome global sanctions that have severely limited its potential customers. To avoid sanctions, Iran operates a shadow fleet of ships to export oil at a deep discount.
But Iran’s potential far exceeds actual production. The country sits on 209 billion barrels of oil in reserves, behind only Venezuela and Saudi Arabia. And its daily output is less than half the 6.5 million barrels a day Iran produced in the mid-1970s before revolutionaries overthrew the shah.
Like Venezuela, China is by far Iran’s biggest customer: It bought 97% of Iran’s oil in 2024, according to the US Energy Information Administration. The similarities don’t end there: Iran has also nationalized the country’s energy infrastructure after expropriating the assets of foreign oil companies in recent decades.
The 8th International Exhibition of Oil, Natural Gas, Refining and Petrochemicals organized in Tehran. – Fatemeh Bahrami/Anadolu/Getty Images
But Iran is far more important to global energy than Venezuela.
“Iran is significantly bigger than Venezuela for oil markets,” said Luisa Palacios, former Citgo president and current managing director of Columbia University’s Center for Global Energy Policy. “Developments for Iran matter much more to oil markets in the near term because of the risk of oil supply disruptions.”
The price of oil has already risen sharply due to the threat of disruption to Iranian oil. Crude oil rose above $61 a barrel on Wednesday in response to threats of an attack on Iran – just a week after oil fell to $56 a barrel as Trump promised US oil companies to increase production in Venezuela. Oil fell 4 percent, back below $60, on Thursday morning after Trump suggested an attack was not imminent.
Oil could rise significantly if the United States strikes Iran, but that likely depends on the scale of the possible attack and Iran’s response.
For example, crude oil prices rose 7% to over $74 a barrel in early June as tensions between Israel and Iran escalated. But prices actually fell sharply after the historic US attack on three Iranian nuclear facilities later that month, as the US avoided attacking the country’s oil infrastructure – and Iran’s missile attacks on US bases were intercepted and widely seen as symbolic.
Still, Iran has the power to wreak serious damage on the oil market if it wants to: The country controls the northern part of the Strait of Hormuz, a hub for other oil-producing countries through which 20 million barrels of crude — about a fifth of global daily output — pass. The strait is the only way to transport crude oil from the Persian Gulf to the rest of the world.
“Iran’s ability to wreak havoc on oil markets is significant if they choose to attack,” said Dan Pickering, founder and chief investment officer at Pickering Energy Partners.
That’s why the oil market gets choppy.
“Oil traders are effectively betting on chaos,” said Nigel Green, CEO of global financial advisory giant deVere Group. “Traders seem to be positioning themselves for a scenario where the Strait of Hormuz goes from being a shipping route to a strategic pressure point capable of suffocating global supply.”
Iran has a surprisingly diversified economy for a sanctioned nation, with oil accounting for only about 10% to 15% of the country’s global gross domestic product. But the Iranian government relies heavily on the oil industry for its finances, deriving half of its revenue from crude oil exports.
“Oil plays a critical role in the current regime and would continue to do so if the regime changes,” Pickering said.
Iran also has a leg up on Venezuela, whose authoritarian regime has allowed the country’s oil infrastructure to collapse over the past two decades. In contrast, Iran’s infrastructure is in decent shape.
“A future government would not start from scratch,” Green said. “It would be starting from a limited capacity that can, in the most likely scenarios, be unlocked.”
Of course, that’s if a new government in Iran is friendly to the West, persuading countries around the world to drop sanctions, noted Helima Croft, head of global commodities strategy at RBC Capital Markets.
“It all depends on what comes next and what regime will emerge after Khamenei,” Croft said.
In the short term, regime change could push oil prices higher as the uncertainty of a political transition — including determining who will control the state oil industry — would add risks to the global crude market. But a new government in Iran could help stabilize and lower oil prices in the long term, especially if it adds the transparency that Iran’s current authoritarian government has prevented for decades.
That could put a significant amount of oil on the global market, according to Matt McManus, a former State Department official and visiting fellow at the National Center for Energy Analysis.
Like Venezuela, however, the interest of US oil companies in moving into Iran may be limited, at least at first.
Political stability and security guarantees should precede the involvement of any major American oil company in Iran. And with crude prices still fairly low, oil companies aren’t exactly rushing into new opportunities with questionable returns.
“As far as Iran is concerned, it has significant resources,” said Mike Sommers, CEO of the American Petroleum Institute, the oil industry trade group. “But any discussion of investment would depend on political stability.”
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