Iran's energy exports rise as domestic grid falters

A third of Iran’s projected oil revenue for the year ending March 2026—worth $12.4bn—will go directly to the armed forces and military projects, three times more than last year.

The rest of the oil income, along with $33.5bn in gas revenues, will be split between the government’s budget, the National Development Fund (NDF), and the national oil company.

“The best course of action is to deposit all oil revenues into the National Development Fund,” the head of Iran’s planning and budget organization Hamid Pourmohammadi told a forum in Tehran on Monday.

“This way, we can determine at the start of the year how much the government needs, and based on that, the government can plan how much it can spend by year’s end.”

Pourmohammadi offered no detail on the existing arrangements which allow the fund to be bypassed and institutions such as the Revolutionary Guards (IRGC) access a portion of Iran’s oil revenue before it reaches the government’s coffers.

He conceded, however, that the administration of moderate president Masoud Pezeshkian lacks consensus on how to implement the NDF-takes-it-all idea.

The NDF was established in 2010 to replace the Foreign Currency Reserves Fund (FCRF). While the FCRF was meant to safeguard oil income for future generations, the NDF has increasingly been used to cover budget deficits, despite the state objective of investing oil revenues.

The fund has long operated under the direct control of supreme leader Ali Khamenei, with administrations needing his approval for withdrawals.

One of Pezeshkian’s first moves in office was to request funds to pay wheat farmers.

In recent years, billions have been syphoned to the IRGC and the state broadcaster, functioning as main vehicles of Khamenei’s hard and soft power.

The NDF’s share of oil and gas revenues dropped from 40% to 20% in the two years ending December 2024, according to Didban Iran citing a deputy of Iran’s budget office Hamid Amani Hamadani.

Iran’s private sector owed $7bn to the fund in January 2025, according to senior NDF official Mehdi Ghazanfari. This is a debt repaid slowly in local currency, which the fund must convert to dollars at below-market rates.

Ghazanfari put the total pay-outs from the fund to the administration at just above $103bn in 12 years. He also said $45bn had been loaned to private-sector in the same period—often to firms with ties to the IRGC or the supreme leader’s office

As of May, the fund’s remaining assets stood at $30.7bn—dragged down by unpaid debts from both government and politically shielded companies.

Demonstrations were reported in Isfahan, Ahvaz, Birjand, Kermanshah, Qom, Shahinshahr and Mashhad, where bakers voiced frustration over the economic strain threatening their businesses and livelihoods.

Protesters held banners reading, “We are bakers, not slaves. Hear our voice,” and chanted, “Enough with the promises, our tables are empty.”

Footage verified by Iran International showed bakers in Mashhad returning their card readers in protest. In Qom, one baker said he had ceased baking for days, citing nearly a month of uncompensated labor: “I worked 27 days for nothing. The old saying goes, whether it’s a donkey or a fool, it’s still working.”

Bakers cite the failure of the government’s integrated system, delays in promised subsidies under President Masoud Pezeshkian’s administration, and steep rises in fuel, insurance, and raw material costs.

Some complained of repeated power outages that destroyed large batches of dough. One video showed a baker smearing spoiled dough on his face in protest over the blackouts.

The protests follow weeks of similar actions outside governorate and municipal offices. In several rallies, demonstrators chanted for the resignation of what they called “incompetent officials.”

On May 7, Gilan governor Hadi Haghshenas acknowledged that current bread prices were unsustainable for producers. “Given the increase in labor wages and utility costs, a price adjustment is reasonable,” he said, adding that a working group would soon finalize a decision on revised rates.

The unrest underscores deepening tensions over basic commodities in Iran, where inflation and subsidy mismanagement continue to fuel economic discontent. Bakers say that without immediate relief, Iran’s most essential staple may soon be priced—or simply unavailable—beyond the reach of ordinary households.

She and her husband both work in the public sector. They now have to work from 6 a.m. to 1 p.m. as the government forces offices to shut down during peak heat hours to curb electricity use.“The people making these decisions think everyone owns a car or can afford rideshare every day,” she said. “Most of us rely on buses. Not everyone lives within 30 minutes of work. For us, the commute is at least an hour. It’s exhausting.”

To be at work by 6, they wake at 4:30. The metro is too far, so they rely on buses, which now begin service only slightly earlier—at 5:30 a.m. Their children’s school hasn’t changed its start time to match, and nurseries don’t open before 7:30, leaving working parents stuck in the dark—literally and figuratively.

From 1991 to 2022, Iran observed daylight saving time. But then the conservative-led parliament repealed the law, claiming it caused confusion and disrupted the economy. The government tried to reverse course with an urgent bill, but parliament blocked it.So we are stuck with fixed clocks—just as we are with the incompetent bunch ruling, and ruining, our country.

Blackouts are now a daily affair. They’ve hit businesses, factories, homes—even as the Supreme Leader declared this the “Year of Investment for Production.”Images of producers burning heaps of spoiled eggs due to outages have gone viral, along with photos of diesel generators lined up outside homes and shops.

“You cry if you don’t laugh,” my sister says. “Most people who post or see these images on social media are raging inside.”

The minor schedule tweaks in cities like Tehran haven’t helped much, and conditions are even worse in smaller towns. Many schools still refuse to shift their hours, creating logistical nightmares for parents juggling long commutes and childcare.

Then there’s the water crisis.We live in a four-story building where water pressure has dropped so much that the upper floors barely receive any.Officials now warn that by summer 2025, apartments above the second floor will face complete water cuts unless they install electric pumps. But with power outages so frequent, even that solution is flawed.

In practice, this means residents on lower floors get by, while those higher up are left dry. Once again, the burden has shifted to the public.

More than 40 cities across Iran are under water stress, according to official figures. Millions are affected—and occasionally insulted by clerics pontificating about the link between drought and sin.

“The government can’t be blamed for lack of rain,” my brother-in-law interjects as he walks past the sofa my sister and I are slumped on.

“To be fair, it can’t be blamed for worn-out infrastructure either, or for sanctions, or the failure to coordinate and communicate basic schedules. It has just one job: to make your lives miserable. And that it’s performed to perfection if your faces lit by your phones’ glow are any measure.”

Iran’s real GDP is set to grow by just 0.3% in 2025, the IMF's Regional Economic Outlook for the Middle East and Central Asia published this month projected.

That’s a sharp fall in its October 2023 estimate for this year of 3%.

The revision appears to reflect the tightening of US sanctions under President Donald Trump, who has promised to slash Tehran’s oil revenues and restrict its access to international finance.

In April alone, the Trump administration imposed eight new packages of sanctions targeting tankers and trading networks that facilitate the sale of Iranian oil. Between January and April 2025, imports from China—Iran’s primary oil buyer—fell to 1.38 million barrels per day (bpd), about 7 percent below the 2024 average.

The IMF estimates both production and exports to fall by 300,000 bpd in 2025. Independent energy analytics firms such as Kpler, Vortexa, and TankerTrackers have predicted a steeper drop, as much as 500,000 bpd.

Surplus narrows, capital flees

Iran’s total exports, including non-oil goods and services, is projected to decline by 16% this year to $100 billion, according to the IMF. Imports are expected to fall 10% to $98 billion, leaving a slim trade surplus of just $2 billion, compared to $10 billion last year.

Despite running trade surpluses in recent years, capital flight remains alarmingly high.

Iran’s Central Bank estimates that $14 billion exited the country in the last nine months of 2024. That comes atop $20 billion the year before. Since 2018, when Trump introduced his so-called maximum pressure campaign against Tehran.

Currency falls, economy shrinks

Perhaps the most shocking of IMF figures is those of Iran’s nominal GDP—which reflects the size of an economy in global terms. Iran’s nominal GDP will fall from $401 billion in 2024 to $341 billion this year, according to the report.

The primary reason behind this dramatic fall is the collapse of Iran’s currency, Rial, which lost nearly half its value in 2024.

While real GDP appears relatively stable domestically as it adjusts for inflation and ignores currency devaluation, the dollar-denominated figures reveal a steep contraction.

In 2000, Iran’s economy was larger than those of the United Arab Emirates, Turkey and Saudi Arabia. Today, all three have surpassed Iran, with GDPs more than three times that of Iran in the case of the latter two.

Prices soar, pockets empty

Adjusting for ever-rising prices in Iran, the IMF has upped its inflation estimate for 2025: from 37% in its last report to just above 43% in the latest.

Iran now ranks fourth in the world in inflation, beaten by Venezuela, Sudan, and Zimbabwe only.

Several factors are fueling the surge: the rial’s collapse, restricted access to foreign reserves, excessive domestic borrowing, and rising import costs under sanctions.

What next?

Most troubling for Iran’s government could be the IMF's estimate that the country would need oil prices to reach $163 per barrel just to balance its 2025 budget. That is more than double the current global average.

In its latest budget, the administration of president Masoud Pezeshkian has assumed daily oil exports of 1.85 million bpd at $67 per barrel. But the IMF expects actual exports to average just 1.1 million bpd, indicating a substantial shortfall.

This is a familiar story. Successive administrations in Iran have run deficits amounting to roughly one-third of total public spending, plugging the gap with heavy borrowing and money printing—both of which have fueled inflation and monetary instability.

The IMF projects Iran’s gross government debt to rise to just under 40% of GDP in 2025, and a couple of points above it in 2026 — troubling figures for an economy already under severe external pressure.

On Wednesday, the Expediency Council gave final approval to the bill that enables Iran to join the Palermo Convention, formally known as the United Nations Convention against Transnational Organized Crime. However, the legislation includes several conditions that could raise concerns for the FATF.

Officials say the Expediency Council is expected to review the second remaining bill, required for joining the Combating the Financing of Terrorism (CFT) Convention, next week.

Ratifying these two conventions is considered a final and necessary step in aligning Iran with FATF standards and can facilitate its removal from the global anti-money laundering body’s black list.

The breakthrough followed a green light given in December by Supreme Leader Ali Khamenei which allowed the Expediency Council to re-examine both bills after years amid political infighting.

Official and media optimism

“The conditional approval of the Palermo bill by the Expediency Council is an important step towards constructive engagement with the world,” government spokeswoman Fatemeh Mohajerani said in a post on X on Wednesday.

“The government welcomes the Assembly’s decision and hopes that national interests, economic benefits, and international considerations will guide the review of the CFT (bill) as well,” she added.

Iran's moderate and reformist media have also widely welcomed the move with optimistic headlines and commentaries.

“This can facilitate Iran’s return to the international financial system and its effective presence in global markets,” Donya-ye Eghtesad economic daily wrote.

“This important development has occurred while signs of progress in negotiations between Iran and the United States are also visible, and optimism about the future of Iran’s economy has increased."

Conditional ratification and FATF concerns

Despite the positive tone, the conditions attached to Iran’s ratification of the Palermo Convention—and the reservations included in the CFT bill—pose serious challenges to the country's full compliance with FATF standards.

The FATF has clearly said that Iran must ratify and implement the Palermo and CFT conventions “without undue reservations”, saying broad or vague reservations can undermine the conventions’ effectiveness and create loopholes for financing terrorism.

Speaking to IRNA after the Council’s decision, Deputy Economy Minister Hadi Khani downplayed the importance of the conditions.

“Many countries have set conditions for accepting these two conventions. Our country’s parliament, too, introduced conditions for certain articles of the conventions,” he said, adding that most of these were based on the principle that Iran would implement the conventions within the framework of its own Constitution.

Some FATF members including the United States, China, and India have ratified the Palermo Convention with the reservation that they do not consider themselves bound by Article 35(2), which involves mandatory dispute resolution by the International Court of Justice (ICJ).

Iran's Palermo legislation includes similar language, excluding ICJ jurisdiction while asserting that decisions on extradition and mutual legal assistance will be made on a case-by-case basis.

Iran has also declared that provisions incompatible with its national laws—many of which are rooted in Islamic Sharia—will not be binding. Pakistan and Saudi Arabia have accepted the Convention with similar reservations.

Moreover, Iran’s legislation explicitly states that accession to the required conventions does not imply recognition of Israel, a FATF member.

The CTF bill also includes language affirming the “legitimate and recognized right” of peoples under occupation to resist and pursue self-determination in apparent reference to the Israeli-occupied Palestinian territories.

FATF’s concerns are particularly related to the reservations included in the CFT bill. Iran's CTF bill does not accept the definitions of terrorism provided by other countries or international bodies if they conflict with its national laws and support for groups that it views as legitimate resistance movements.

Remaining on FATF black list

Iran was on FATF black lists from 2008 to 2016. In February 2020 it was black-listed again and has remained so to date.

While approval of the Palermo Convention and the CFT Convention bills is a critical step, removal from the FATF black list depends on effective implementation, not just legal ratification, and may take several years.

All countries—including allies such as China and Russia—will be obliged to apply enhanced due diligence to financial transactions involving Iran as long as it is on the black list.

In January, former Central Bank official Asghar Fakhriyeh-Kashani revealed that some Chinese banks had closed Iranian accounts to avoid FATF penalties and geopolitical analyst Abdolreza Faraji-Rad told Ham-Mihan daily at the time that Iran’s oil trade with China had to bypass the formal banking system, avoiding cash payments and relying on alternative mechanisms for the same reason.