Iran’s growing political unrest exposing cracks in regime’s oil revenue model

Nationwide protests in Iran are threatening to disrupt the country’s upstream sector and underscoring a deeper economic crisis that has fueled domestic turmoil. Iran has restored output and exports despite sanctions, but at a rising cost: deeper discounts to China, expensive ‘shadow’ logistics and shrinking fiscal buffers, including the near depletion of its National Development Fund (NDF).

Rystad Energy’s analysis shows Iranian crude production is expected to remain stable at around 3.2 million barrels per day (bpd) this year, with limited short-term disruption to upstream operations, despite the sector facing significant financing and redevelopment hurdles. The greater risk, for now, is not physical supply loss but the geopolitical risk premium as tensions rise and uncertainty persists. With the US administration of President Donald Trump exerting maximum economic pressure on Iran’s trading partners and threatening military intervention, the Middle Eastern oil giant will likely entrench itself even further.

Iran’s familiar tactics, such as closing the Strait of Hormuz, banking on its trade with China and threatening nuclear escalation, are still on the table, yet must be weighed by their own potential for backfiring on the regime. Economically, Iran has been cornered by heavy sanctions, yet the country has managed to protect what limited revenue remains. Although the US has announced that it will impose a 25% tariff on countries that trade with Iran, China’s crude buying patterns are expected to remain stable. China has an established practice of sourcing discounted barrels from sanctioned producers, and Iran has a proven ability to sustain exports through sanctions‑evading trade networks. For the status quo to be truly disrupted, external intervention would have to take place.

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Three primary scenarios emerge for the future of Iran’s oil flows: sustain the status quo; make progress in negotiations with the US; or prepare for regime change sparked by US intervention. Increased oil trade would likely take place following bilateral talks, yet this scenario is the least likely to materialize, leaving the status quo relatively intact as protests take place away from upstream infrastructure. Amid the backdrop of international pressure, Iran’s economy has faced enormous constraints, with inflation standing at 40% as the government’s total budget only nominally increased from $98 billion to $111 billion in the past year. Government-owned National Iranian Oil Company (NIOC), which is responsible for developing Iran’s oil and gas fields, is officially entitled to 14.5% of total oil and gas exports, which stood at 1.85 million bpd in the current budget. Yet, one-third of oil exports were handed over to the Islamic Revolutionary Guard Corps (IRGC), reducing NIOC’s effective share to around 10%, which was insufficient to cover its costs. While NIOC’s percentage allocation has not changed explicitly, expected oil exports have now been brought down to 1 million bpd, while the benchmark oil price has been lowered to $57 per barrel from $63 per barrel, reducing NIOC’s total receivables.

In addition, many of Iran’s core producing assets are in late life and experiencing steep natural declines. Underinvestment in maintenance, workovers and pressure support will accelerate the decline rates of these legacy fields. Many gas fields have complex structures and low recovery rates that pose challenges for local contractors that lack the financial and technical resources to tackle them. As assets struggle to produce at previous levels, Iran’s NDF, which was designed to preserve a share of oil and gas revenues for future generations, continues to be treated as a source of near-term financing. Although the fund is legally entitled to 48% of oil and gas revenues, 28% of NDF resources are currently being lent back to the government. Parliamentary reporting suggests no oil revenue share has been deposited into the NDF since early 2023, while 82% of the fund was reported to have been spent by 2024.

From the regime’s point of view, the only redeeming factor in this situation is China’s role as the key driver of export revenues. As it stands, China accounts for 90% of Iran’s oil exports, with even a portion of cargoes booked for ‘unknown’ destinations ending up in China. Although the current export model looks feasible in the near term, its sustainability is becoming more conditional.

The recovery of Iran’s exports has been driven mainly by discounting. As sanctions narrowed the pool of willing buyers, Iran increasingly used price concessions to maintain its offtake. Yet revenue erosion extends far beyond headline discounts offered to Chinese buyers. The layered costs embedded in sanctions-evading trade infrastructure impose equally significant drains on realized revenues. Operating a shadow fleet requires substantial premiums for insurance, maintenance and crew willing to handle the sanctioned cargo. Ship-to-ship transfers in international waters add logistical complexity and expense, while obscuring cargo origins through blending operations and fraudulent documentation that incurs additional intermediary fees.

Amid a lack of access to conventional banking channels, Iran relies on yuan-denominated accounts, barter arrangements or circuitous money-laundering pathways that extract substantial commissions. Cumulatively, these structural inefficiencies mean Iran captures only two-thirds of benchmark oil prices – a revenue haircut that persists regardless of global price movements. While this leakage remains manageable in stronger price environments, the fixed costs of shadow operations consume progressively larger shares of gross receipts in periods of weaker crude prices. As such, Iran’s ability to generate a meaningful net profit remains uncertain, even amid low upstream breakevens of $20 to $25 per barrel.

Iran’s survival under sanctions reflects a mix of sustained upstream investment, strong trade relationships and covert workarounds. The continued brownfield redevelopment of mature fields has helped keep output stable, while contracts awarded to local players have added incremental volumes. However, a heavier reliance on China has drawbacks for Iran. Its margins will weaken as shadow logistics and intermediaries are priced in, and demand could be volatile as quotas and refinery runs change.

Contacts

Aditya Saraswat
MENA Research Director
Phone: +971 04 5943846
aditya.saraswat@rystadenergy.com

Katie Keenan
Senior Media Relations Manager 
Phone: +1 713-301-9300
katie.keenan@rystadenergy.com

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