Iran at a crossroads: Deal with US or oil shutdown?

A fragile ceasefire and Tehran’s signals about reopening the Strait of Hormuz briefly eased global energy markets, cutting oil prices by around 10 percent. But Washington’s decision to maintain restrictions on Iranian oil shipments has pushed Tehran to close the strategic waterway. Tehran has a stark choice to make: negotiate under pressure or begin shutting down oil production within weeks as export routes choke and storage fills—raising the stakes for both its economy and global energy stability. In a reversal of roles, Tehran now faces the same pressure it imposed on Gulf states and Iraq in early March, when it restricted ship movements through the strait.

Day by day, the losses from Iran’s 39-day war—especially the closure of the Strait of Hormuz—are increasing. In its latest World Economic Outlook report, the IMF points to the risks of a major global economic slowdown and rising inflation this year and next due to the situation in the Strait of Hormuz.

According to the IMF report, developing countries like Iraq are suffering twice as much as developed countries such as the UK from the consequences of the war and the continued uncertainty in the Strait of Hormuz. As long as this situation persists, their economies will face declining revenues, rising debt, and instability in monetary policy.

Until Donald Trump’s decision and the arrival of US ships in the Gulf, the movement of ships through the Strait of Hormuz was in Iranian hands—they could allow or prevent passage. During that time, they managed to export about 1.85 million barrels of oil per day at better prices than before the war. But from 6 pm last Monday, the Americans also took control of ship traffic, further complicating the situation. It is now unclear how ship passage through the Strait and Bab al-Mandeb will proceed in the coming days, and whose approval will be required.

The trait of Hormuz, Iran’s oil exports

Kpler’s data on ship traffic during the war shows that the Strait of Hormuz continued to transport oil, contrary to Iranian statements that said: “The Strait of Hormuz will either be a passage of peace and development for all, or a chokepoint of defeat and suffering for aggressors.” During that period, Iran’s daily oil exports reached 1.85 million barrels, compared to 1.75 million barrels before the war—meaning that during the war, Iran exported more than 100,000 additional barrels per day compared to pre-war levels.

It remains unclear whether ships have passed the choke point in recent days. Reuters reported that ships have been passing by switching off their radar systems, while the Financial Times said no ships passed for 24 hours.

If this complete closure of the Strait of Hormuz continues, Iran will move toward shutting down oil wells and reducing oil and gas production across different fields within 10 to 15 days, due to full storage capacity. Before this US-imposed closure, Iran was producing about 3.1 million barrels per day, of which 1.8 million were exported.

If the current situation in the Strait continues, Iran—like Iraq and the Gulf countries—will begin to feel the losses from the closure, which it had not experienced during the war. The revenue from the oil exported through the strait amounts to about $150 million per day, and during the period set by the US president to close the strait to all, Iran’s total losses could rise to $9 billion.

An important point in this new situation for Iran during and after the war is the narrowing gap between Brent crude prices and Iranian oil in the markets. Before the war, a barrel of Iranian oil was sold at $10–15 below Brent, but during the war, due to US leniency and the easing of sanctions, the gap decreased to about $2–3.

Iran’s oil production, exports (1960–2026)

Iran has a total of 145 oil and gas fields, including 102 oil fields and 43 gas fields, most of which are located in southwestern Iran and the Zagros region. Out of these, 78 oil fields are actively producing.

Iran has 12 major oil fields considered among the largest in the Middle East and the world, including Gachsaran, Ahvaz, Marun, Aghajari, Bibi Hakimeh, Karanj, Rag Sefid, Darkhovin, West Karoun, Forouzan, Abouzar, and Doroud-Kharg. For example, the Ahvaz oil field is the third-largest oil field in the world and accounts for 23 percent of Iran’s proven reserves. Discovered in 1958, it holds 65 billion barrels of oil, with an API gravity of 33–34, close to Brent crude, and has recently produced between 700,000 and 800,000 barrels per day.

In the history of Iran’s oil and gas industry, the best period for production and exports was in the 1960s and 1970s, when daily production exceeded 5 million barrels. In contrast, the worst decade was the 1980s–1990s, when production dropped to about 2.154 million barrels per day.

During the years of sanctions by the US, the United Nations, and the European Union—and even in recent years up to the 12-day war in June and 39-day war—Iran managed to maintain daily production between 3.6 and 4.1 million barrels.

According to OPEC and Energy Institute data, Iran’s oil production saw major fluctuations during Donald Trump’s presidency. In 2018, it averaged 4.7 million barrels per day, but in 2020, due to COVID-19 and sanctions, it dropped to about 2.2 million barrels per day. Notably, from March 2021 to June 2025, production and exports were on an upward trend.

During the 12-day war, production fell to 2.2 million barrels per day. In the early months of this year, before the war, production stood at 3.1 million barrels per day, with exports of about 1.85 million barrels per day, most of which went to China.

Iran exports oil to China but receives payment via the UAE

From 2018 to 2026, as shown in the second chart, between over 80 percent and 97 percent  of Iran’s oil exports went to China. Whether exports were around half a million barrels per day, as during the COVID period, or close to 2 million barrels per day, as during the 39-day war, what stands out is that most payments returned to Iran via the UAE rather than directly from China.

Over these nine years, Iran’s average oil production declined from 4.7 million barrels per day to 3.1 million barrels per day, but exports increased—especially to China.

The worst year for exports was 2022, with about 992,000 barrels per day. However, in the early months of 2026, exports rose again to about 1.85 million barrels per day.

A notable example is 2025, when Iran exported a total of 1.75 million barrels per day, about 1.5 million of which went to China. However, according to the US Energy Information Administration, Iran received $4.4 billion from the UAE and only $721 million from China. This reflects a system in which Iranian oil is purchased by traders in the UAE and then redirected to China.

The global markets are facing increasingly difficult days due to further reductions in oil supply. If Iran’s reliance on the Strait of Hormuz led to a reduction of 9 to 11 million barrels of oil globally, then the US-imposed closure of the strait would increase that amount further and push prices even higher.

The continuation of this situation in the Strait of Hormuz means rising energy costs for populations in countries dependent on oil from this region, alongside declining revenues for oil-producing countries. All of this translates into greater instability that could push financial markets toward an economic crisis similar to that of 2008.

In conclusion, with its proven oil and gas reserves, production infrastructure, and export capacity, Iran has the potential to be a key player in the global energy market—rather than becoming a source of risk by closing strategic straits, which would also harm its own economy.
 

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