Isfahan Refinery, one of the largest refineries in Iran. – Fatemeh Bahrami/Anadolu/Getty Images
The United States is considering whether to strike Iran as turmoil intensifies for the country’s authoritarian regime.
The Iranian government is at its weakest point in years, destabilizing yet another OPEC nation less than two weeks after the United States toppled the government of Venezuela.
Protests have erupted in the streets across Iran, and the government’s deadly crackdown on protesters crossed a red line President Donald Trump had drawn. Trump has signaled that his administration is weighing an attack – although on Wednesday, Trump said the United States will continue to “watch and see what the process is” to determine whether to take action against Iran.
Iran controls the third-largest proven oil reserves on Earth and one of the world’s most important oil shipping lanes. Those factors will shape the country’s future, regardless of whether the US intervenes.
Iran produces about 3.2 million barrels of oil per day, on average, according to OPEC, accounting for roughly 4% of global crude production. That makes Iran the world’s sixth-largest oil producer – an impressive feat, considering Iran faces burdensome worldwide sanctions that have severely limited its potential customers .To skirt sanctions, Iran operates a shadow fleet of vessels to export oil at a steep discount.
But Iran’s potential far outweighs its actual output. The country is sitting on 209 billion barrels of oil in reserve, behind only Venezuela and Saudi Arabia. And its daily production is less than half the 6.5 million barrels per 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 also nationalized the country’s energy infrastructure after expropriating foreign oil companies’ assets in past decades.
The ‘8th International Oil, Natural Gas, Refinery and Petrochemical Exhibition organized in Tehran. – Fatemeh Bahrami/Anadolu/Getty Images
But Iran is a much more important for global energy than Venezuela.
“Iran is significantly larger than Venezuela for oil markets,” said Luisa Palacios, a former Citgo chairwoman and current managing director of Columbia University’s Center on Global Energy Policy. “Developments for Iran matter much more for oil markets in the near term, because of the risk of oil supply disruption.”
The price of oil has already risen sharply because of the threat of disruption to Iran’s oil. Crude rose above $61 a barrel Wednesday in response to threats of an attack on Iran – just a week after oil fell to $56 a barrel when Trump promised US oil companies would ramp up production in Venezuela. Oil fell 4%, back below $60, Thursday morning after Trump suggested an attack wasn’t imminent.
Oil could rise significantly higher if the United States strikes Iran – but that probably depends on the extent of the possible attack and Iran’s response.
For example, crude prices surged 7% and rose above $74 a barrel in early June as tensions escalated between Israel and Iran. But prices actually fell sharply after the United States’ historic attack on three Iranian nuclear facilities later that month because the United States avoided attacking the country’s oil infrastructure – and Iran’s missile attacks on US bases were intercepted and widely viewed as symbolic.
Iran has the power to inflict serious damage on the oil market, however, if it wants: The country controls the northern side of the Strait of Hormuz, a pinch point for other oil-producing countries through which 20 million barrels of crude – about one-fifth of daily global production – flow. The strait is the only way to ship crude from the Persian Gulf to the rest of the world.
“Iran’s ability to cause chaos in the oil markets is significant if they choose to lash out,” said Dan Pickering, founder and chief investment officer at Pickering Energy Partners.
That’s why the oil market is getting jittery.
“Oil traders are effectively placing bets on chaos,” said Nigel Green, CEO of global financial advisory giant deVere Group. “Traders appear to be positioning for a scenario where the Strait of Hormuz shifts from being a shipping route to a strategic pressure point capable of choking global supply.”
Iran has a surprisingly diversified economy for a sanctioned nation, with oil making up only about 10% to 15% of the country’s overall gross domestic product. But Iran’s government relies heavily on the oil industry for its finances, bringing in half of its revenue from crude exports.
“Oil plays a critical role in the current regime and would continue to do so if the regime changes,” said Pickering.
Iran also has a leg up on Venezuela, whose authoritarian regime allowed the country’s oil infrastructure to crumble over the past couple decades. By contrast, Iran’s infrastructure is in decent shape.
“A future government would not be starting from zero,” Green said. “It would be starting from constrained capacity that can be, in most likely scenarios, unlocked.”
Of course, that’s if a new government in Iran is friendly to the West, persuading countries around the globe to drop their sanctions, noted Helima Croft, head of global commodity strategy at RBC Capital Markets.
“It all depends on what comes next and what regime emerges post Khamenei,” Croft said.
In the near term, regime change could send oil prices higher, as the uncertainty of a political transition – including determining who would control the state-run oil industry – would add risk to the global crude market. But a new government in Iran could help stabilize and reduce oil prices in the long run, especially if it adds the transparency that the current authoritarian Iranian government has prevented for decades.
That could put a significant amount of oil into the global market, according to Matt McManus, a former State Department official and a visiting fellow at the National Center for Energy Analytics.
Like Venezuela, however, US oil companies’ interest in moving into Iran could be limited, at least at first.
Political stability and guarantees of security would need to precede any major American oil company’s involvement in Iran. And with crude prices still quite low, oil companies aren’t exactly rushing into new opportunities with questionable profits.
“As for Iran, it has significant resources,” said Mike Sommers, CEO of the American Petroleum Institute, the oil industry’s trade group. “But any discussion of investment would depend on political stability.”
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