10 Things about Iran and Oil

The story of this war and the energy crisis is about supply chain and chokepoints. To some, though, including U.S. President Donald Trump, Iran’s oil is a major concern. In his address to the nation last night, he once again referenced the Strait of Hormuz.

Here are ten ways to think about Iran and oil, from production to geopolitics, from the IRGC budget to what China does if a new regime comes to power in Tehran.

Find out the facts below.

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Quote of the Week

“To be honest with you, my favorite thing is to take the oil in Iran.”

— U.S. President Donald Trump

TOP OF THE NEWS

Speaking from the White House last night, in his first address to the nation on the Iran war, President Trump laid out the case for finishing the job there — and steered clear of topics, such as taking Kharg Island or withdrawing from NATO, that had dominated headlines in recent days.

Trump declared the Iran campaign a near-total military success and would “finish it very fast,” without specifying when or under what conditions.

The president pledged to keep the pressure up. “We are going to hit them extremely hard over the next two to three weeks. We’re going to bring them back to the Stone Ages where they belong,” he said, adding that if talks failed, “we are going to hit each and every one of their electric generating plants very hard and probably simultaneously.”

And as he has in the past, President Trump talked about oil: “The United States imports almost no oil through the Hormuz Strait and won’t be taking any in the future. We don’t need it.”

The speech was perhaps most notable for not generating as much news as the president’s recent interviews have.

Iran and Oil: Ten Things to Know Now

As the missiles and drones continue to fly, it’s worth looking at some of the deeper issues in this war. Oil is the commodity that lurks behind almost every strategic calculation, and the one the U.S. president made explicit when he told the Financial Times that his preference was to “take it.”

1. Iran doesn’t produce that much of the world’s oil. Half of it comes from just five countries, and Iran isn’t one of them. Iran was the seventh-largest producer of crude oil in 2025, pumping just over four million barrels per day, equivalent to 5 percent of world production. By comparison, the U.S. produced nearly 14 million barrels per day in 2025, and Russia and Saudi Arabia nearly ten million apiece. Iran is not in their league.

Geography is where Iran punches above its weight in the world of oil. The Middle East as a whole produced 32 percent of the world’s crude oil in 2025. Not all of it travels by sea through the narrow Strait of Hormuz; some moves by pipeline, and a significant share is consumed domestically. But sitting at the entrance to the strait, Iran can control the primary export route for the region’s petroleum. Roughly 20 percent of the world’s seaborne oil trade passes through it in normal times. As we know from the headlines, Tehran can threaten that flow, not because it produces that oil, but because its neighbors do. Saudi Arabia, Iraq, Kuwait, and the UAE all depend on the strait to export. While Iran produces a mere one-twentieth of the world’s oil, it controls the exit route for a far larger share of everyone else’s.

2. Though Iran ranks seventh in production, it holds the world’s third-largest oil reserves. Iran’s proven oil reserves stand at approximately 209 billion barrels. Only Venezuela and Saudi Arabia hold more oil in the ground. Iran also holds the world’s second-largest natural gas reserves, at roughly 34 trillion cubic meters. Iran is one of the most energy-rich countries on earth. Despite its abundant reserves, Iran pumps far less than it could. Sanctions have starved the oil sector of foreign investment for decades, leaving infrastructure underbuilt and aging.

The Iranian regime runs on whatever it can extract and sell. Oil revenues have accounted for more than a quarter of Iran’s public budget in most years, and oil accounts for nearly 9 percent of GDP. Iran’s oil export revenues reached an estimated $43 billion in 2024. According to the International Monetary Fund, Iran’s fiscal break-even oil price (the price per barrel that allows them to balance their budget) stood at $121 per barrel in 2024, rising to nearly $124 per barrel in 2025. That is the highest break-even price among Middle Eastern oil exporters, and it comes before accounting for the discount Iran offers Chinese refineries on every barrel it sells. The IMF further reports that Iran’s government has run a fiscal deficit every year for decades. 

Photo: Reuters

3. Iran was once a global oil giant and has never fully recovered. By the late 1970s, Iran was producing over six million barrels per day, ranking fourth in the world and second among OPEC exporters behind Saudi Arabia. The 1979 revolution dismantled foreign partnerships overnight. The Iran-Iraq War prolonged sanctions, and limited foreign investment have since limited the country’s production potential. The four million barrels a day Iran now produces are well below its pre-revolutionary ceiling.

4. Sanctions have forced Iran to sell its oil cheap, to almost nobody. Iran sells its oil at a discount of $3 to $9 below the international market price. This is the price it pays to maintain access to any buyers at all. Before the tightening of U.S. and EU sanctions in 2011 and 2012, Iranian oil landed in the ports of more than 20 countries, including Japan, India, South Korea, and several European nations. Today, Iran relies on a shadow fleet of re-flagged tankers and ship-to-ship transfers to obscure cargo origins and bypass restrictions.

5. China is Iran’s only significant customer. China is the dominant destination for Iranian oil exports. Beijing imports most of Iran’s crude on shadow ships, tankers that conceal their activities to avoid sanctions. China’s willingness to keep buying Iranian crude at scale is the primary reason the Islamic Republic has been able to sustain itself financially through years of maximum pressure. In March 2021, China and Iran formalized this dependent relationship through a 25-year cooperation agreement under which China committed to invest $400 billion in Iran’s economy in exchange for a guaranteed, heavily discounted supply of Iranian oil. Beijing has serious structural leverage over Tehran.

Oil Terminal, Kharg Island. Photo: Reuters

6. Almost all of Iran’s oil leaves the country through one place. Terminals at Kharg, Lavan, and Sirri islands handle almost all of Iran’s crude oil exports. Kharg is by far the most critical, accounting for more than 84 percent of Iran’s crude export volume. (Fun fact: the island is made of coral.)

On March 14, U.S. forces bombed more than 90 military targets on Kharg island, but left the oil infrastructure intact. 

Destroying Kharg’s energy infrastructure would take the vast majority of Iran’s crude exports offline. Iran has threatened to strike U.S. allies’ oil facilities if its own energy infrastructure is attacked, a threat it has already begun to make good on, having targeted refineries and energy installations across Bahrain, Kuwait, Qatar, and Saudi Arabia since the war began.

7. Iran’s oil doesn’t fund the government. It funds the IRGC. Iran’s oil revenues do not flow cleanly into a public treasury. By late 2024, the IRGC had come to dominate Iran’s oil export trade, having steadily displaced the state oil company over the preceding three years. The civilian government has no meaningful oversight over this share of the country’s primary revenue source. As one observer put it, “With the IRGC now controlling up to around 50 percent of Iran’s oil export revenues, [oil revenue from China] is effectively funding its military operations and regional proxies.” When Western governments debate sanctioning Iranian oil, they are not squeezing the Iranian state in the abstract. They are targeting the IRGC’s operating budget.

Cargo ships near the Strait of Hormuz. Photo: Reuters

8. Hormuz is about much more than oil. The crisis is routinely discussed as an oil shock. It is also considerably more. Food security, for one. Twenty to 30 percent of global fertilizer exports pass through the strait. The disruption has struck at the worst possible moment. India’s planting season begins in June, and fertilizer demand peaks in the preceding months. Miss that window and harvests fall. Fertilizer prices have surged by roughly half since the war began. Unlike the Russia-Ukraine shock, which disrupted one major exporter, this crisis has simultaneously shut Saudi Arabia, Qatar, Kuwait, Iran, and the UAE out of export markets. The countries least able to absorb the consequences are the ones most dependent on Gulf supply. And any food price increases from this war will surely outlast any ceasefire.

9. If the Islamic Republic survives this war, its oil position will get worse, not better. A ceasefire that leaves the current regime intact is not likely to unlock Iran’s oil sector. Sanctions relief will require verified nuclear concessions that this regime cannot credibly offer. And even if some sanctions are eased, investment would likely not follow quickly. Any meaningful expansion beyond current production levels would require investment in infrastructure, technology, and field rehabilitation, none of which can be achieved quickly, and none of which has been achieved in the decades since 1979 despite periodic openings. The war has accelerated the deterioration of an oil sector that has never recovered its pre-revolutionary capacity and was falling further behind before the war began.

Iran was already running the highest fiscal break-even price among regional exporters before the first strike. That break-even price is now even harder to meet. The war has driven up Iran’s costs while cutting its export volumes and widening the discount it must offer buyers.

The political conditions compound the economic ones. The normalization between Iran and Saudi Arabia brokered by China in 2023 was already fragile before the first strike. Saudi Arabia lobbied Washington to launch the attack and has since been struck by Iranian drones and missiles. Riyadh has pushed Washington to continue fighting until the regime falls, saying oil price spikes are only temporary. Saudi Foreign Minister Prince Faisal bin Farhan has said that the “little trust” rebuilt with Tehran after the 2023 restoration of diplomatic ties “has been completely shattered,” adding that further attacks could leave “almost nothing” to salvage in the relationship. The UAE and Qatar, neither of which was a party to the conflict, had their energy infrastructure struck regardless. For Abu Dhabi and Doha, whatever diplomatic accommodation they had reached with Tehran offered no protection when the shooting started. A surviving Islamic Republic faces a Gulf neighborhood that is suspicious and very likely hostile. Any pre-war regional opening will be a memory.

Damage to a Kuwait-flagged crude oil tanker following a reported strike on Tuesday. Photo: Reuters

10. If the current regime in Tehran falls, Iran’s re-entry into the oil market will unsettle every other producer in the region. A successor government will inherit the world’s third-largest oil reserves and the capacity, with investment, to produce well above six million barrels per day. Getting there will take years. But the credible prospect of Iranian re-entry will itself push prices down, directly threatening the revenues of Saudi Arabia, the UAE, Kuwait, and Iraq, all of whom are currently benefiting from wartime prices. Regime changes in major oil producers have historically driven an average 76 percent price spike from onset to peak. The longer term can look different: When Iran last returned to market after the nuclear deal in 2016, production rose by nearly one million barrels per day within a year, contributing to a prolonged period of falling prices. A post-war return at full capacity would be a major event.

China will face a different calculation. Beijing built its relationship with the Islamic Republic on preferential access and steep discounts that only exist because of sanctions. A commercially normalized Iran will sell at market rates, to multiple buyers. That would not be the relationship Beijing signed up for.

A successor government in Tehran will emerge from a war started by the United States, fought partly via Saudi lobbying, and watched from the sidelines by China. It will inherit a bombed country whose oil sector needs foreign capital and whose population has lived under sanctions for decades. Washington and Beijing will both be watching. Which of them moves first to define the terms of Iran’s return to the oil market, to regional diplomacy, and to the international system will be the big question.

Photo: Reuters

ESSENTIAL READING: IRAN, OIL, THE WAR

Global Economy Takes Gut Punch from War in Iran — Fortune/AP, March 29. The broadest overview of the supply shock and its downstream consequences: oil prices, food, fertilizer, stagflation risk, and developing world exposure.

“Why the Iran War Energy Shock Is Different” — Atlantic Council, March 19. Expert roundup arguing that the confluence of Hormuz and Ukraine disruptions means a greater share of global energy production is caught in active conflict than at any point since World War II, and that the damage to Saudi Arabia’s Ras Laffan oil refinery might turn a temporary shock into a structural one.

“What Does the Iran War Mean for Global Energy Markets?” — CSIS, March 6. Covers oil market dynamics, LNG, and the Qatar dimension in depth, including the threat to Qatar’s North Field expansion and the question of whether insurance and naval escorts can restore transit through the strait.

“The Iran War and the End of the U.S.-Gulf ‘Oil for Security’ Deal” — Arab Center Washington DC, March 27. How the Hormuz closure has shattered the post-1945 U.S.-Gulf security bargain and what post-war Gulf security might look like.

“Oil supply crunch will worsen in April, IEA warns as it weighs releasing more strategic reserves” — CNBC, April 1. “April will be much worse than March,” according to the director of the International Energy Agency, explaining that ships that departed before the war began were still delivering their cargoes in March.