Chinese state tankers avoid Strait of Hormuz, Bab al-Mandab – Reuters

On August 5, a state bank froze the accounts of the National Iranian Oil Company, NIOC, over about $1 billion owed to the sovereign wealth fund, two years past due. A separate case was already running: a $1.5 billion tax assessment the company says it simply cannot pay. Enforcement on that one stopped only when the presidency intervened.

The episode matters because the law shielding the company is also where its condition is recorded. NIOC publishes no audited accounts, and Iran's budget shows state companies only in aggregate, leaving its debt to be reconstructed from budget provisions and disclosures by other state institutions.

This year's budget sets the amount of NIOC debt to the central bank and commercial banks being deferred at 55 billion euros, about $63.5 billion, covering principal and interest on financing for upstream oil and gas development. It appears as a single sentence at the bottom of a table in which every other figure is in rials or percentages, renewed every year since 2019.

Iran's sovereign wealth fund, the National Development Fund, has separately said NIOC is its largest debtor, with $17 billion in unpaid loans.

Those two categories alone amount to more than $80 billion. No single official document presents them as one consolidated NIOC debt figure.

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Iran's entire general budget this year converts to roughly $37 billion at the open-market rate. For scale, the deferred bank debt alone is about 1.7 times what the government plans to spend in a year.

That burden grows without anyone borrowing another dollar. The debt is in foreign currency, and the rial has fallen from about 900,000 to the dollar in early 2025 to nearly 2 million today, a slide President Trump celebrated in August as his administration "destroying Iran's currency." Each step down makes the same $63 billion heavier against NIOC's rial costs and the state's domestic revenues.

That burden grows in rial terms without anyone borrowing another dollar. The debt is in foreign currency, and the rial has fallen from about 900,000 to the dollar in early 2025 to nearly 2 million today, a slide President Trump celebrated in August as his administration "destroying Iran's currency.” Each step down increases the rial value of the same $63 billion obligation and makes it larger relative to the state's domestic revenues.

Maximum pressure is usually scored from the outside: barrels tracked leaving the Persian Gulf, the rial's slide, the lengthening sanctions lists. By that scorecard the campaign is working.

A clearer measure is the condition of the company at the center of the sanctioned trade, and by that measure the campaign has worked more completely than the scorecard shows. The pressure did not stop Iran's oil. It changed the terms of the business, and the new terms have broken the company that produces it, in every sense but the accounting one.

The business model was set at the top. After the United States withdrew from the nuclear deal in 2018 and reimposed sanctions, Ali Khamenei told officials not to leave the economy waiting on "decisions to be made by others." The objective instead was to plan with the sanctions in place and, in his formulation, to neutralize them.

The oil ministry's version of neutralization was to keep production alive with domestic contractors, the Revolutionary Guard's companies among them. On its own terms, that part worked. Output that had fallen below 2 million barrels a day in 2020, the lowest in almost four decades by American government estimates, was rebuilt to about 3.6 million by mid-2024, a recovery the oil minister boasted of publicly.

Selling those barrels was another matter.

"We have unofficial or unconventional sales, all of which are secret," then-oil minister Bijan Zanganeh said in 2019, "because if they are made known America would immediately stop them." His deputy called it the grey market.

In practice, that meant selling at sanctions-driven discounts that have varied widely over time, reaching $10 to $15 a barrel below Brent through 2024 and 2025, particularly to China's independent refiners; using a shadow fleet, ship-to-ship transfers and obscured vessel identities; relabeling Iranian crude as originating elsewhere; and paying intermediaries to keep the chain moving. China has at times taken roughly 90 percent of Iran's exported crude.

Payment itself became another layer of the sanctions trade. Iranian oil proceeds have been trapped or restricted in foreign banking systems, while other sales have been settled through barter or in currencies that are difficult to repatriate freely.

India created a rupee payment mechanism for Iranian crude in 2019, and the channel stalled the same year when Indian purchases stopped. Roughly $6 billion in Iranian oil proceeds frozen in South Korea were eventually transferred to restricted accounts in Qatar as part of the 2023 prisoner exchange.

Every additional discount, commission and restriction reduces what reaches Iran. NIOC's statutory share of crude and condensate export proceeds is set at 14.5 percent, so lower realized export revenue narrows the company's own take as well.

The difference between what the model earned and what production cost was covered on credit, in foreign currency, from the central bank, state banks and the sovereign wealth fund, with parliament's authorization.

By January 2019 the state knew in writing that the arrangement was not paying for itself. The parliament's research arm reported that NIOC, then about $50 billion in debt on its own count of the previous year, could not repay what it owed. The party line continued anyway: the same parliament approved fresh lending in the same budget, and two months later wrote the first deferral into law.

The dollar figures were tracked for two more years, to about $60 billion in March 2020 and about $70 billion in March 2021. Then that series went quiet.

The liabilities themselves did not vanish from the record. Two years later the Economy Ministry put NIOC's debts for 2021 at 1,683 trillion tomans, the largest of any state company in Iran, ahead of Bank Sepah and Bank Melli. At the exchange rate of the day, that is the same $60 to $65 billion the dollar series had been reporting.

What disappeared was the ability to follow it: a comparable figure, year by year, in the currency the money was owed in. The largest corporate debt in Iran's history was reduced to one renewable sentence that for six years carried no number at all. When a number finally surfaced this February, it settled what the silence had left open. The bank debt did not go away. It was rolled forward.

The meter still runs, though not at one rate. The sovereign fund's published terms for foreign-currency oil and gas facilities are 3.5 percent for the fund plus 2.5 for the agent bank, 6 percent all-in. On the $17 billion it is owed, that alone is close to $1 billion a year, almost exactly the size of the claim that froze the company's accounts in August.

The central bank has never published its contract rate, so the future cost can only be estimated. If even a 4 percent rate were applied to the $63 billion outstanding balance, it would add more than $2.5 billion in interest over a year; at the sovereign fund's 6 percent rate, the figure would approach $3.8 billion.

What the budget does establish is that the deferred bank debt already consists of principal and interest. The cost of carrying the old debt has become part of the debt.

For comparison, $1.5 billion in foreign currency is allocated for medicine this year, in a spring when pharmacy prices jumped several hundred percent, cancer and dialysis drugs ran short, and officials blamed scarce foreign currency. Depending on the rates applied to NIOC’s different debts, the annual interest burden could exceed that amount by several billion dollars.

An Iranian who misses a single loan installment pays the contract rate plus a 6-point penalty. The oil company's interest simply accrues, uncollected, year after year. A deferral, in the end, is a bet that a better year is coming, one with a surplus large enough to settle old bills. The Islamic Republic has been promising that better year that is yet to come for forty-seven years.

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Because the loans are neither collected nor written off, the central bank and the state banks carry them as sound assets, the same accounting that keeps Iran's insolvent banks upright. When those banks come up short, they overdraw at the central bank, and that is where base money is created.

The transmission is not mechanical, but it is the route by which a single failed lender, Bank Ayandeh, accounted for about a quarter of the growth in Iran's monetary base in 2022-23. The bill reaches Iranians as inflation: the tax no one votes on, taking its largest share from the poorest.

Fifteen years of records say NIOC could not pay when conditions were merely bad. With its fields bombed and its exports blockaded, repayment is beyond reach in any scenario.

And the pressure is still tightening. On August 13, Treasury Secretary Scott Bessent, who runs the Economic Fury campaign against the Islamic Republic, promised measures "like have never been seen in the history of the economic isolation of a country," on top of a blockade meant to keep anything from moving in or out of Iranian ports. Whatever they turn out to be, they are aimed at the only revenue that could ever service this debt.

Nor does the optimistic case rescue the company. Even a full lifting of sanctions would not change the arithmetic quickly, because a company with damaged fields and war-hit infrastructure would have to borrow more before it could export more.

Maximum pressure set the terms of this downfall, but the decisive choices were Tehran's: to keep pumping at any margin, to stop publishing a comparable foreign-currency debt figure after 2021, and to push the bill forward one year at a time.

The company that once symbolized Iran's oil wealth was not felled by a rival or a market. It was sacrificed, quietly, by its own state, to the nuclear program and the regional ambitions that brought the sanctions, and to the business model built to outlast them, and the receipt is one sentence long, perpetually renewed every year.

The options include imposing a daily cap on supplies to filling stations, tightening vehicle quotas and allowing additional gasoline to be sold at market rates, or transferring fuel allocations from vehicles to individuals and permitting citizens to trade them.

No proposal has been approved, and the government has not announced any immediate change to subsidized gasoline prices.

Esmail Saghab-Esfahani, a vice president and head of Iran's Strategic Energy Policy and Management Organization, outlined the three scenarios on state television and said the public would be informed before any decision was implemented.

Daily supplies could be capped

Under the first proposal, existing prices would remain unchanged, but filling stations nationwide would receive a combined 121 million liters of gasoline per day.

Saghab-Esfahani said pumps would stop operating once that amount had been sold, effectively imposing a nationwide daily supply ceiling without formally increasing prices.

The second proposal would divide the same 121 million liters among registered vehicles through a stricter quota system. Motorists exceeding their allocation would have to purchase additional gasoline at an unsubsidized market rate.

The third option would transfer gasoline quotas from vehicles to individuals. Every citizen would receive about 30 liters per month, whether or not they owned a vehicle, and could use or sell the allocation.

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Around 30 million liters per day would separately be reserved for public transportation, conventional taxis and ride-hailing services under that proposal, in an effort to prevent fare increases.

Saghab-Esfahani said the third plan would be accompanied by a three-year program to electrify 400,000 motorcycles, convert 130,000 pickup trucks to natural gas and add 7,300 buses. He did not explain how the program would be financed or provide a detailed implementation schedule.

Conflicting production figures

In his latest remarks, Saghab-Esfahani put daily gasoline production at about 121 million liters and consumption at around 135 million, implying a shortfall of approximately 14 million liters per day.

Tehran-based news website Rouydad24 cited earlier remarks by the official that put production at about 112 million liters. The reason for the nine-million-liter discrepancy was not explained and may reflect different reporting periods or production conditions.

President Masoud Pezeshkian has said Iran spent about $6 billion importing gasoline during the Iranian year that ended March 20, 2026. Officials say falling revenue, limited access to foreign currency and obstacles affecting import routes have made that approach increasingly difficult.

Kerman plan halted before launch

The debate intensified after authorities abruptly announced and then suspended a plan to sell gasoline consumed beyond existing quotas at a sharply higher rate in southern Kerman province.

The plan was halted hours before it was due to begin following talks between Kerman’s governor and national officials. Provincial authorities said the existing system would remain in place while the proposal underwent further review.

Neither the Oil Ministry nor the government disclosed the legal basis for the plan or how the new price had been calculated. Officials also did not clarify whether Kerman had been selected for a local anti-smuggling initiative or as a test for wider changes.

Legacy of the 2019 protests

Gasoline pricing remains among the most politically sensitive issues in Iran.

An overnight nationwide price increase in November 2019 triggered protests in more than 100 cities. Rights groups documented hundreds of deaths in the ensuing crackdown, during which authorities imposed a near-total internet shutdown.

Pezeshkian promised during his 2024 presidential campaign that gasoline prices would not be increased without public consent and that more fuel-efficient vehicles would be made available before any increase.

Government officials have said no immediate price rise is planned, but all three proposals now under consideration would restrict consumption or redistribute subsidies.

The proposals leave the government seeking to address a growing supply deficit without an abrupt policy change that could further strain household finances and renew public anger over gasoline prices.

Trade with China has fallen to roughly a quarter of last year’s level by one measure, while commerce with Turkey, India and the European Union has also contracted sharply as war and disruption in the Strait of Hormuz reshape Iran’s foreign trade.

Mohammad-Sadegh Ghanadzadeh, a senior official at Iran’s Trade Promotion Organization, said both non-oil exports and imports fell by roughly 30% during the first four months of the current fiscal year, from March 21 to July 22.

The government has stopped regularly publishing detailed foreign trade statistics since the war began, making a fuller assessment difficult.

Iranian customs data show the country recorded slightly more than $34 billion in non-oil trade during the same four-month period last year, including $15 billion in exports.

China trade plunges

China is Iran’s largest trading partner, accounting for roughly one-third of the country’s non-oil foreign trade.

Chinese data put non-oil bilateral trade at around $10 billion in 2025—substantially lower than Iranian figures, in part because the two countries classify and record parts of their trade differently, including sanctioned Iranian commodities.

According to Chinese customs records, trade with Iran totaled less than $823 million during the first four months of the war, from March through June. That is roughly one-quarter of the level recorded during the same period a year earlier.

The disruption has also sharply increased transportation costs.

Majidreza Hariri, chairman of the Iran-China Chamber of Commerce, said transporting goods from China to Iran by sea or land now costs four times as much as before the war, with shipping a container costing as much as $13,000.

Major partners hit harder

Trade with several of Iran’s other major partners has also contracted sharply.

The United Arab Emirates, Iran’s second-largest trading partner, has largely halted trade with Tehran. Before the war, annual trade between Iran and the UAE stood at around $27 billion, about 80% of it Emirati exports to Iran.

The precise impact on trade with Iraq, Iran’s third-largest trading partner, remains unclear. But official data from Turkey, its fourth largest, show Turkish exports to Iran fell by almost half between March and June to around $716 million, while imports from Iran dropped 37% to $907 million.

India has recorded a similar decline. Its exports to Iran fell by around 60% during the first four months of the war to approximately $150 million.

Indian imports from Iran moved sharply in the opposite direction, reaching around $1 billion in the first half of the year — four times the level recorded during the same period last year—after India bought several shipments of Iranian crude oil and liquefied petroleum gas.

Health Minister Mohammad-Reza Zafarghandi recently said India, Iran’s largest supplier of pharmaceutical raw materials, had stopped shipments after the IRGC closed the Strait of Hormuz.

He said India had made the resumption of pharmaceutical exports conditional on free passage for Indian vessels through the waterway.

Where has the trade gone?

Taken together, available data suggest Iran’s trade with several of its largest established partners has contracted substantially more than the 30% overall decline reported by Tehran.

The discrepancy suggests commerce with other countries may have partly cushioned those losses.

Russia, Pakistan, Iraq, Afghanistan and Central Asian states are among the possible destinations, though the absence of regularly published Iranian customs figures makes it difficult to establish how much trade has shifted or where.

The broader picture nevertheless shows the economic fallout from the war extending well beyond Iran’s oil exports, weakening some of Tehran’s most important commercial relationships even as the full extent of the shift remains obscured by the lack of detailed Iranian data.

Authorities in Kerman announced Thursday that gasoline consumed beyond the existing monthly quota would be sold at 872,000 rials per liter, roughly 17 times the current non-quota price. The measure was halted within hours, fueling speculation that it had been intended as a test for broader changes.

Under the current system, private-car owners receive 60 liters a month at 15,000 rials per liter and another 50 liters at 30,000 rials. Once that allocation is exhausted, gasoline costs 50,000 rials per liter.

The last nationwide gasoline price increase, imposed without warning in November 2019, triggered widespread protests and a deadly crackdown.

After the Kerman scheme was withdrawn, Esmail Saghab-Esfahani, vice president and head of the Organization for Optimization and Strategic Energy Management, appeared on state television to assure citizens that the government had no plan to increase gasoline prices.

Fars news agency, which is affiliated with the Revolutionary Guards, cited a government source Friday as saying an increase had been ruled out for now.

Mohammad-Saeed Ahadian, an adviser to parliament speaker Mohammad-Bagher Ghalibaf, said the heads of the three branches of government had decided against an increase and were considering alternatives.

A widening gasoline deficit

The retreat does little to resolve the problem that prompted the debate: Iran is increasingly consuming more gasoline than it produces.

Saghab-Esfahani said gasoline consumption had reached around 135 million liters a day, compared with domestic production of approximately 121 million liters. The daily shortfall must be covered through imports or strategic reserves.

Saghab-Esfahani also said the recent war had damaged some gasoline production capacity and made imports through southern Iran more difficult. He warned that the gap between production and consumption could reach 70 million liters a day within three years.

Increasing production enough to address the problem would require between $13 billion and $30 billion in investment, he said, money the government cannot afford.

Signs of tightening supply have already emerged, with images circulating on social media in recent days showing long lines of vehicles at fuel stations.

Searching for an alternative

With economic growth below zero and access to foreign currency under pressure, the government faces a choice between raising prices and fundamentally changing how gasoline subsidies are distributed.

One alternative gaining support would shift subsidized gasoline quotas from vehicles to individuals, an idea long promoted by hardliners and associated with former presidential candidate Saeed Jalili.

A version of the scheme was briefly tested on Kish Island under President Ebrahim Raisi before being abandoned.

Supporters argue that the current system disproportionately benefits wealthier households with multiple cars, while more than 40% of Iranian households without private vehicles receive no direct benefit.

Under the proposed model, individuals would instead receive gasoline allocations linked to their national ID or bank accounts and could use or sell them.

Economist Sadegh al-Hosseini, a prominent supporter of the proposal, argued that control over the subsidy should effectively be transferred from the state to citizens.

“Gasoline quotas should be given to people for free based on production, and people themselves should determine the price by trading their quotas,” he wrote on X.

Divisions over reform

The abrupt launch and cancellation of the Kerman scheme has exposed wider divisions within Iran’s political establishment over how to address the fuel problem.

Saghab-Esfahani supports linking gasoline quotas to national ID numbers rather than simply raising prices. His intervention drew criticism from reformist figures who warned of the political risks surrounding any changes to gasoline policy.

Abdollah Ramezanzadeh, spokesman for former President Mohammad Khatami’s government, criticized the handling of the issue in a post addressed to Pezeshkian.

“Entrusting the determination of energy prices—the most political and perhaps the most security-sensitive economic issue in the country—to someone with minimal political and security experience and no experience in crisis management has caused the current confusion over gasoline prices,” he wrote.

“The society is agitated and you have no room for mistakes.”

Ali Gholhaki, a political activist close to Ghalibaf, also pointed to resistance elsewhere in the establishment.

“Using pricing tools under the current circumstances to control fuel consumption is highly sensitive, and some important institutions in the country are also opposed to it,” he wrote.

The Kerman reversal leaves the underlying problem untouched. Iran has a widening gasoline deficit, but the most obvious corrective tool—higher prices—remains perilous under the long shadow of the 2019 upheaval.

Mohammad Reza Kan’ani, head of the Environmental Protection Department in the northern province of Mazandaran, said Thursday that the Caspian’s water level was declining by around 10 to 20 centimeters annually, attributing much of the decline to rising temperatures, climate change and increased evaporation.

The Caspian’s water temperature had risen by about 1.5 degrees over the past two decades while evaporation had increased by an estimated 10% to 15%, he added.

Kan’ani warned that continued retreat of the shoreline could have serious consequences for coastal infrastructure, local economies and ecosystems dependent on the Caspian, including wetlands.

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About 25% of the Caspian’s water comes from precipitation and 75% from rivers, Kanani said, with the Volga – which flows through Russia into the northern Caspian – accounting for the overwhelming majority of river inflow.

Shina Ansari, head of Iran’s Department of Environment, gave an even broader measure of the retreat this week, saying the Caspian’s level had fallen by around two to 2.5 meters over the past decade.

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She described the decline as one of the region’s most serious environmental challenges and said reduced river inflows, alongside climate change, were contributing to the crisis.

Without cooperation among the five Caspian littoral states – Iran, Russia, Azerbaijan, Kazakhstan and Turkmenistan – the consequences could extend to ports, coastal communities and the wider ecosystem, Ansari warned.

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Falling waters meet a renewed legal dispute

The environmental warnings come as the Caspian has returned to the center of political debate in Iran over the government’s effort to ratify the 2018 Convention on the Legal Status of the Caspian Sea.

Hossein-Ali Haji-Deligani, deputy chairman of parliament’s Article 90 Committee, criticized what he called the government’s rush to approve the convention, saying this week that it could effectively reduce Iran’s share from 20% to between 3.5% and 5%.

That claim requires important qualification.

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The 2018 convention does not assign Iran – or any of the five littoral states – a fixed percentage of the Caspian or its seabed. Instead, it establishes territorial waters and fishing zones while leaving seabed boundaries to be negotiated between neighboring states.

Iran’s southern seabed boundaries with Azerbaijan and Turkmenistan therefore remain unresolved.

The frequently cited figure of 20% was a post-Soviet Iranian negotiating position based on dividing the Caspian equally among its five littoral states, rather than a previously established treaty entitlement.

Nor did the earlier Iran-Soviet treaties formally grant Iran 50% of the Caspian. Agreements concluded in 1921 and 1940 established a bilateral Iran-Soviet legal regime, including equal navigation rights and exclusive arrangements between the two countries, but did not divide the sea or its seabed into equal territorial halves.

After the Soviet Union collapsed in 1991, four former Soviet republics emerged as independent Caspian states. Russia subsequently reached agreements with several of them to divide northern seabed resources along modified median lines, while Iran resisted that approach and pushed for an equal 20% division if the seabed was to be partitioned.

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Iran ultimately signed the five-state legal-status convention in 2018, but the agreement deliberately left the final division of seabed sectors unresolved. Tehran also stressed at the time that the method for drawing baselines – an important issue because Iran’s concave southern coastline can disadvantage it in maritime delimitation – remained to be negotiated.

The current ratification debate therefore does not amount to a parliamentary vote assigning Iran a specific percentage of the Caspian. The more consequential question is whether Tehran should fully commit to the five-state framework before its own seabed boundaries and the baseline methodology have been settled.

Pollution adds to pressure on a shrinking sea

The falling water level is only one of several environmental threats facing the Caspian.

Iranian environmental officials have also warned of mounting pollution, shrinking fish stocks and destruction of coastal habitats.

Touraj Sadeghi, head of marine ecosystem protection at the Gilan provincial environmental department, told ISNA that untreated municipal and industrial sewage, waste dumping, petroleum leaks, excessive agricultural fertilizers and pesticides, and illegal fishing were among the main sources of environmental degradation.

Many cities along Iran’s Caspian coast still lack adequate municipal wastewater treatment systems, he said, while rivers carry thousands of tons of domestic, industrial and oil-related pollution into the sea each year.

Such pollution reduces water quality, damages natural habitats and contributes to deaths among fish and bird populations, Sadeghi said.

The Caspian supports distinctive wildlife including sturgeon, Caspian seals and migratory birds, but Iranian officials warn that the combination of pollution, habitat degradation and a rapidly retreating shoreline is increasingly threatening the resilience of the ecosystem.