Iran's economy: oil sold under sanctions to one buyer

How oil and gas pay for the state

Britannica calls the extraction and processing of petroleum the country's single most valuable economic activity, and natural gas is catching up. The state-owned National Iranian Oil Company pumps crude for export and home use and sends it by pipeline to the terminal on Kharg Island in the Persian Gulf, where tankers load it. The main refinery at Abadan was destroyed in the war with Iraq and rebuilt; the company also runs refineries at Isfahan, Shiraz, Lavan Island, Tehran and Tabriz. The Economy of Iran article puts Iran's share at 10% of the world's proven oil reserves and 15% of its gas reserves, and Britannica describes estimates of crude reserves above 200 billion barrels.

The gas lies mostly in the south. Fields have been opened on the Persian Gulf near Asaluyeh and, above all, in the South Pars field, onshore and offshore. Trunk lines carry the gas to Tehran, Kashan, Isfahan, Shiraz, Mashhad and Ahvaz, and Britannica records contracts to supply Turkey, Pakistan, India and others through pipelines still being built in neighbouring countries. A petrochemical industry built in the south before the revolution was largely destroyed in the 1980s and restored afterwards.

Oil money pays for the government. Britannica records that oil and gas exports usually provide the largest share of state revenue and that the share swings with world prices. The Economy of Iran article records that oil and gas made up most exports and most government revenue in 2010.

Nuclear power has been a long project with one result. The Atomic Energy Organization of Iran was founded in 1973 to build more than twenty reactors; two 1,200-megawatt units at Bushehr were nearly finished in 1978 when the revolutionary government cancelled the programme. One of them was completed with Russian help and began operating in 2011 on Russian fuel. Britannica records no plan to finish the second.

Why sanctions decided who buys the oil

Sanctions are older than the nuclear dispute. An American embargo on imports of Iranian petroleum products was already in place when the Iran and Libya Sanctions Act of 1996 extended it to investment in Iran's oil industry by American and non-American companies alike. The United Nations Security Council added nuclear sanctions from 2006, and after the secret enrichment site near Qom was revealed in 2009 the United States and the European Union aimed sanctions at Iran's oil and gas industries directly.

The agreement of 2015 opened a window. International sanctions were lifted in January 2016 once the United Nations was satisfied that Iran was meeting its terms. In May 2018 the United States withdrew and reimposed its own sanctions from 5 November, with temporary exemptions for China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey, which expired in May 2019. Britannica describes the effect as devastating: output shrank and inflation reached its highest level since the mid-1990s.

The trade did not stop; it moved. By early 2026, Britannica records, China took more than 90% of Iran's crude exports, about 7% of the remainder went to Syria, the United Arab Emirates, Venezuela and Iraq, and the oil travelled by a shadow export network of largely unregulated tankers. China paid in part by financing and building infrastructure projects in Iran. During the war with Israel in June 2025 exports fell by 94%, from about 1.7 million barrels a day to barely 100,000, according to the Economy of Iran article.

Who owns the economy after the revolution

The constitution divides the economy into a public sector of major industries, banks, insurance, utilities, communications, foreign trade and mass transport, a cooperative sector and a private sector that supplements the other two. All private banks and insurers were nationalised in 1979, and the Economy of Iran article records that after those nationalisations and the war with Iraq more than 80% of the economy was under state control. Islamic law forbids interest, so banks charge service fees and commissions in its place, and the Central Bank of the Islamic Republic of Iran issues the rial.

Between the state and the market sit the bonyads, tax-exempt foundations funded by subsidies and religious donations. The Economy of Iran article counts more than 120 of them, not subject to audit, and describes them as competing with private firms on unequal terms. Setad, a business organisation answering to the Leader, was valued at $95 billion in 2013, with accounts secret even from the Majles, according to the Iran article. Britannica records that economic policy since Khatami's presidency has favoured the business reach of the Islamic Revolutionary Guard Corps, and the Economy of Iran article records that the corps' retirement funds bought a majority stake in the state telecommunications company in 2009; the corps also builds roads and develops oil and gas fields.

Workers have a theoretical right to form unions and, Britannica records, no union system in practice: they are represented by the state-sponsored Workers' House, and strikes since 1979 have often been met by the police. The working week is five and a half days, 44 hours, with a four-hour Thursday before the Friday rest day.

What Iran makes besides oil

Industry began in earnest in the mid-1950s. Iran was building cars in the 1950s and exporting them to Egypt and Yugoslavia by the early 1970s, and its first steel mill began producing structural steel in 1972. Britannica lists cars, electrical appliances, telecommunications equipment, industrial machinery, steel, textiles, food and pharmaceuticals among its manufactures, with textile mills in Isfahan and along the Caspian. Heavy industry, steel, petrochemicals, copper and cars among it, stayed mostly in the public sector. Kerman is the centre of copper mining, and since the 1990s uranium and gold have also been mined.

Hand-woven carpets are the export most tied to the country's name. Britannica describes carpet-making as a substantial source of rural income and one of the main export industries. Fruit, nuts and metals are exported too. Food is the largest item among imports, ahead of basic manufactures and machinery. Britannica lists China, the United Arab Emirates, Iraq, Germany and Turkey as leading trading partners.

Farming works within the water limits set out in Iran's geography. About a third of the land is arable, Britannica records, but less than a quarter of that is cultivated because of poor soil and water distribution, and less than a third of the cultivated land is irrigated. Most farms are smaller than ten hectares. Wheat, barley, rice and maize grow alongside dates, figs, pomegranates, melons, grapes, nuts, olives, tea, cotton and sugar beet. The Caspian is the main fishery, and its sturgeon supply caviar.

How goods cross mountains and desert

Distance and terrain set the cost of moving anything. Britannica describes population centres scattered across mountain and desert, with buses and lorries carrying most passengers and freight, and about half the roads paved after a programme of building from the early 1990s. The state railway's trunk line runs from the Caspian to the Persian Gulf; UNESCO inscribed it as the Trans-Iranian Railway in 2021. A link through Turkey joined it to the European network in 1971, and a line opened in 1991 between Bafq and Bandar Abbas connects the southern ports to Central Asia, and Iran has promoted itself as a cheap transport outlet for the states of that region.

Five major ports serve the Persian Gulf, Bandar Abbas among them. The oil terminals at Abadan and Kharg Island were damaged or destroyed in the war with Iraq and rebuilt, and a newer port has been built at Chabahar on the Gulf of Oman. Caspian ports such as Bandar-e Anzali are used mainly for trade with the countries to the north.

Tourism has never become a large earner. Britannica dates its growth to the hotels and highways of 1964 to 1978 and its collapse to the revolution, after which the government discouraged visitors from non-Muslim countries. The Iran article records nearly nine million foreign visitors in 2019, before the pandemic; the travel article covers what has happened since.

How growth and the rial moved after the revolution

Central Bank data cited by the Economy of Iran article show growth averaging 9.1% a year from 1960 to 1979 and about 1.9% a year from 1979 to 2020. The war years pulled the second figure down: growth averaged 0.9% a year from 1981 to 1989, and the article puts the cost of the war to the economy at about $500 billion. Reconstruction under Rafsanjani brought about 5.5% a year from 1989 to 1997, until inflation set off riots in several cities in 1992 and 1994.

The currency has been the most visible measure. The rial fell to 23,900 to the US dollar in September 2012 as nuclear sanctions widened. In 2025 it passed one million to the dollar, and by December 2025 it traded at roughly 1.3 to 1.5 million on the open market. Annual inflation exceeded 40% in 2025 and reached about 44.6% in January 2026, when food prices were rising at close to 90% a year, according to the figures the Economy of Iran article reports. A replacement head of the Central Bank was appointed in late December 2025, as the protests over prices began.

Subsidies have been the other constant. The Iran article puts state subsidies on energy alone at $100 billion in 2022. A reform launched in 2010 cut energy subsidies and paid households cash in their place, a national basic income introduced that autumn. In November 2019 a rise in fuel prices of up to 300% brought protests across the country, and in March 2022 the Majles removed a $15 billion subsidy on imported food, medicine and animal feed. The Research Center of the Majles reported poverty at 30.1% of the population in 2023, up from about 26% in 2018.

What the latest war did to trade

The war that began on 28 February 2026 hit the economy from both sides. Britannica records that commercial traffic through the Strait of Hormuz fell by more than 90% after the war began and fell further when Iran attacked shipping in March, and that the oil price rose from about $70 a barrel before the war to an average of $103 in March, which gave Iran nearly $25 million a day in extra oil revenue that month. From 13 April the United States Navy blockaded ships using Iranian ports, cutting off imports of staple goods and threatening to fill Iran's export storage by May. The blockade was lifted with the memorandum of 14 June and reimposed on 14 July.

The World Bank estimates that the economy contracted by 2.7% in the Iranian year to 20 March 2026, whose last weeks included the start of the war, after the conflict of June 2025, the protests and strikes, and a nationwide internet and telephone blackout. Its outlook names damaged infrastructure, water and energy shortages, high inflation, falling real incomes and financial sanctions as constraints, and it expects poverty to rise. The Economy of Iran article reports that more than a million people had lost their jobs because of the war by April 2026. The IMF, whose last full consultation with Iran was in March 2018, projected in its July 2026 update a contraction of 5.4% for 2026 and consumer price inflation of 68.9%; the Economy of Iran article reports an earlier IMF projection of a 6.1% contraction for the same year.