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ANALYSIS

The unlikely return of European diplomacy in the Iran-US conflict

Clément Therme
Clément Therme

Visiting lecturer, Paris School of International Affairs (PSIA)

Aug 19, 2026, 17:00 GMT+1
US Secretary of State Marco Rubio meets Greek Foreign Minister Giorgos Gerapetritis in Washington, March 1, 2025. (Marco Rubio/X)
US Secretary of State Marco Rubio meets Greek Foreign Minister Giorgos Gerapetritis in Washington, March 1, 2025. (Marco Rubio/X)

For years, diplomacy between Iran and the United States has largely been conducted through a familiar group of intermediaries.

Oman has traditionally provided the most discreet and trusted channel, while Qatar, Pakistan and Turkey have used their relations with both sides to facilitate contacts or transmit messages.

Yet the continuing deadlock in negotiations has now encouraged Washington to widen the diplomatic circle.

In recent days, Austria and Greece have separately opened contacts with Tehran after consultations with US Secretary of State Marco Rubio, according to media reports.

The unexpected involvement of Austria and Greece suggests that European diplomacy, long marginalized in the Iran-US relationship, may be making a cautious return in the context of a regional military escalation.

The sequence of recent contacts is striking. US Secretary of State Marco Rubio met Austrian Foreign Minister Beate Meinl-Reisinger in Washington on August 11 and spoke by telephone with Greek Foreign Minister George Gerapetritis the following day. On August 13, both European ministers held separate conversations with Iranian Foreign Minister Abbas Araghchi. Although the US State Department denied asking them to transmit messages, the timing was probably not coincidental. The State Department subsequently confirmed that Iran had been discussed, while Austria formally offered Vienna as a venue for potential future talks. Greece emphasized freedom of navigation and maritime security in its exchanges with Tehran.

This is not yet formal mediation. Neither Austria nor Greece has the experience, access or accumulated trust that Oman possesses. Their involvement should instead be understood as an exploratory attempt to identify additional channels at a moment when traditional diplomacy is struggling. The proliferation of intermediaries itself is revealing: it demonstrates not the vitality of the diplomatic process, but its fragmentation.

Austria’s possible role is rooted in diplomatic history. Vienna hosted negotiations that culminated in the July 14, 2015 nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA). It is also home to the International Atomic Energy Agency, which would likely play a central role in verifying any future settlement concerning Iranian nuclear activities. Austria can therefore offer more than a neutral meeting room. It provides an institutional environment closely associated with nuclear diplomacy, technical verification and the memory of an agreement that once appeared capable of containing the Iranian nuclear crisis.

Vienna nevertheless carries contradictory symbolism. For Iranian officials, it recalls the JCPOA’s acceptance of limited Iranian enrichment for civilian purposes and the partial lifting of sanctions. But it also evokes the subsequent collapse of the agreement after the first Trump administration withdrew from it in 2018. Austria cannot repair that breach of confidence on its own. Its principal advantage is therefore procedural rather than political: it can provide a discreet and credible setting in which the United States, Iran and the IAEA might clarify their positions.

Greece brings a different form of leverage. As one of the world’s leading maritime nations, it has direct interests in the security of the Strait of Hormuz and the Red Sea. The disruption of navigation through Hormuz is not an abstract geopolitical problem for Athens. It affects Greek-owned shipping, insurance costs, energy prices and the stability of international trade. Greece can consequently address Iran not only as a European Union member and US ally, but also as the representative of an industry directly exposed to the consequences of escalation.

This maritime dimension may make Athens useful in discussions focused on practical arrangements rather than an immediate comprehensive agreement. Measures guaranteeing freedom of navigation, reducing threats against commercial vessels or creating communication mechanisms to prevent incidents at sea could be easier to negotiate than the most divisive nuclear and security questions. Greece could contribute technical knowledge and political advocacy to such discussions, although it lacks the capacity to provide Iran with the sanctions relief or security guarantees Tehran ultimately seeks.

The emergence of Austria and Greece also exposes the decline of the traditional European powers in the Iranian diplomatic arena. France, Germany and the United Kingdom were central to the nuclear negotiations that began in the early 2000s. Since then, however, the credibility of the European trio has deteriorated in Tehran and the three countries are facing bilateral diplomatic crises in their relations with Tehran. Iranian leaders accuse them of failing to protect the economic benefits of the nuclear agreement after the American withdrawal and of increasingly aligning themselves with Washington’s coercive approach. The mutual distrust generated by sanctions, mutual accusations of security “infiltration” and spying, regional conflict and disputes over Iran’s nuclear activities has left little space for the earlier model of European mediation.

This marginalization is being reinforced by the widening security confrontation. The Financial Times reported Wednesday that Iran had considered attacking US military targets in Europe, including in Bulgaria and Cyprus, if Washington further escalated the war.

Reuters reported Wednesday that a NATO official said the alliance was prepared to address any threat and take necessary action to defend its members. The official cited four occasions earlier this year when NATO air defenses intercepted Iranian ballistic missiles heading toward Turkey, saying they demonstrated the strength and effectiveness of NATO’s deterrence and defense posture.

Smaller European countries may therefore benefit from carrying less political baggage. Austria is associated more closely with dialogue than with strategic pressure and maintained substantial economic and energy ties with the Islamic Republic throughout the 1990s and 2000s. Greece, for its part, has generally remained outside the most confrontational debates over Iran. Yet their relative neutrality should not be overstated. Both countries are members of the European Union and close partners of the United States. Tehran will ultimately judge their usefulness by their ability to secure concrete concessions from Washington, not by the cordiality of their diplomatic rhetoric.

Their involvement also reflects the widening international cost of the conflict. The restriction of traffic through Hormuz, a corridor through which roughly one-fifth of global oil consumption normally passes, has transformed the crisis from a bilateral confrontation into a global economic emergency. Washington wants the strait reopened, while Tehran sees control over navigation as one of its most powerful remaining sources of leverage. Austria and Greece are entering the process because the consequences of failure now extend far beyond the Middle East.

The immediate objective should therefore be modest. Vienna and Athens are unlikely to replace Muscat, Doha or Islamabad, and multiplying intermediaries can produce contradictory messages and allow both Iran and the United States to avoid making difficult decisions. Their most useful contribution would be to support a coordinated diplomatic framework: Austria concentrating on nuclear verification and the venue for talks, Greece on maritime security, and traditional regional mediators on political communication and guarantees. Ultimately, no mediator can compensate for a lack of political will to pursue a diplomatic solution rather than military escalation. Austria and Greece cannot make that choice on behalf of Washington and Tehran, but they may help create the conditions in which diplomacy becomes possible.

Their return is therefore neither a diplomatic breakthrough nor an irrelevant gesture. It reflects an increasingly marginalized Europe urgently seeking new ways around a dangerous impasse. If carefully coordinated, these unlikely European channels could help prepare the ground for renewed negotiations. Otherwise, they risk becoming yet another improvised attempt to contain a conflict that its principal actors have so far proved unable to resolve. Europe nevertheless has a strong interest in assuming a more active diplomatic role: European states are already bearing many of the conflict’s economic and security consequences, yet they possess neither the political leverage to shape a settlement nor the military capacity – and, in most cases, the willingness – to impose one.

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Tehran gas stations run dry as fuel price hike fears mount

Aug 19, 2026, 16:09 GMT+1
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A general view of a gas station, Tehran, Iran.

Gas stations in parts of Tehran closed after running out of fuel Wednesday, while motorists elsewhere in the Iranian capital waited up to an hour to fill their tanks amid mounting fears of a fuel price hike, locals told Iran International.

“I went to three gas stations to fill up and all three were closed,” one Tehran resident told Iran International on Wednesday. “One of them had put up a banner saying, ‘We have no gasoline.’”

Another resident said: “Today I spent about an hour in line for gasoline. Many gas stations had no fuel.”

Another Tehran resident said the Interior Ministry had ordered traffic police to crack down on older cars and motorcycles and impound them.

“They have said these vehicles should remain in impound lots for a month so that fuel consumption can be reduced this way,” the resident said.

The accounts come as Iran faces mounting pressure on fuel supplies, with domestic production struggling to keep pace with demand as a US naval blockade on Iranian maritime traffic disrupts fuel imports that previously helped cover the country’s domestic shortfall.

Esmail Saqab Esfahani, head of Iran’s Energy Efficiency Organization, said Saturday that the country faced a daily gasoline shortfall of around 14 million to 15 million liters.

Hossein Samsami, a member of parliament’s Economic Committee, warned Monday that raising gasoline prices amid current economic pressures could trigger widespread unrest, likening it to “a spark in a powder keg.”

Iranian officials have grown increasingly concerned about the prospect of renewed protests, while seeking to cast public discontent as being fueled by foreign adversaries.

Parliament Speaker Mohammad-Bagher Ghalibaf said Tuesday that the enemy was seeking “riots, assassinations and separatist activities” and intended to “exploit” any potential dissatisfaction over gasoline.

Concerns over methanol-blended gasoline

Plans to blend methanol into gasoline have also raised concern among Iranians, with locals telling Iran International they were uneasy about the fuel’s safety and its potential impact on vehicles and public health.

The concerns come against a backdrop of longstanding questions over fuel quality in Iran and previous reports that authorities used non-standard chemical compounds to help offset gasoline shortages.

Vahid Ghanei-Fard, CEO of the Persian Gulf Star Refinery, Iran’s largest gasoline producer, said Tuesday that a pilot project to produce methanol-based gasoline had been successful, with methanol accounting for 3% of the blend.

He said the fuel met “national and international standards” and that the use of methanol had helped raise the refinery’s daily gasoline output to around 49 million liters.

Saadatollah Molavi, an Iran-based refinery expert and frequent energy commentator, told IMNA, an Isfahan municipality-affiliated news agency, that methanol could play a role in easing Iran’s fuel shortage.

But Molavi warned against treating it as a long-term solution without assessing costs, efficiency, gas consumption and infrastructure needs, suggesting the blend may offer only a temporary fix rather than a sustainable answer to Iran’s fuel deficit.

Last May, the London-based independent research group Iran Open Data reported in May 2025, citing a confidential Oil Ministry document, that authorities had used hazardous and contaminated chemical compounds outside the conventional refining process to increase gasoline supplies.

The report described the practice as widespread and systematic and said it was aimed at compensating for the country’s gasoline shortfall.

Concerns over the quality of Iran’s gasoline are longstanding. In January 2023, Dariush Golalizadeh, an official with the Department of Environment, said only 38% of gasoline produced in the country met Euro 4 and Euro 5 standards.

The 60-day deadline is over. Now what does Trump do with Iran?

Aug 19, 2026, 02:56 GMT+1
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Negar Mojtahedi
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US President Donald Trump seated next to Pete Hegseth

With the 60-day period set by the June US-Iran memorandum now over and no final agreement in place, Washington faces a choice between intensifying pressure, renewing major strikes or settling into a prolonged and unstable holding pattern.

President Donald Trump said Tuesday that there were “no talks or conversations going on, or scheduled” with Iran and that the US naval blockade remained in force.

A White House official told Semafor that Trump’s Truth Social post amounted to calling off talks with Iran for the foreseeable future.

The message appeared to contradict Jared Kushner, who just a day earlier described contacts with different parts of the Iranian government as unusually “robust” and spoke of “very positive and active conversations.”

The IRGC, meanwhile, has denied Trump’s claim that US officials were holding back-channel talks with Revolutionary Guard officials.

The conflicting accounts underscore one of the central uncertainties after the 60-day deadline passed: how much of the confrontation visible in public reflects what may be happening behind the scenes.

Interviews with three analysts and former officials suggest the end of the 60-day period does not necessarily leave Washington with a binary choice between launching another major offensive and walking away.

A third possibility is emerging: an extended and highly unstable holding pattern in which Washington intensifies economic pressure, maintains the blockade and avoids a return to the intensive military campaign seen earlier in the conflict, while retaining the option of renewed strikes.

Neither war nor peace

Former US Ambassador John Craig said he believes Trump has been persuaded by his military and foreign-policy advisers that further major military action would not necessarily resolve the conflict, particularly the nuclear issue.

“I think this is going to go on for quite a while, simply because there doesn't seem to be any other alternative,” Craig told Iran International.

Craig described that status quo as one in which the United States continues trying to keep ships, oil and goods moving through the Strait of Hormuz while Iran carries out lower-level attacks and probes against regional targets, all without a meaningful diplomatic process capable of producing an agreement.

“So no peace,” Craig said. “Not very high level of attacks and kinetic actions, but still no agreement and no process — even more important, no process to find an agreement.”

But Craig stressed that what is visible may tell only part of the story.

He said it is impossible to know what preparations could be taking place during the apparent lull, including whether new targeting packages are being assembled, intelligence operations are underway or assistance is being provided to people inside Iran.

“We don't know everything that is going on,” Craig said.

Ilan Berman, senior vice president of the American Foreign Policy Council, similarly said the current situation could persist well beyond the end of the 60-day period.

“I have the growing feeling that this status quo could persist for some time,” Berman told Iran International.

One reason, he said, is domestic US politics. With midterm elections approaching, the opportunity for attempting a quick and decisive conclusion to the conflict may already have passed.

Instead, Washington may increasingly conclude that time is on its side.

Berman said countries around the Persian Gulf, Central Asia and elsewhere are also using this period to build infrastructure and alternative transport corridors aimed at reducing vulnerabilities exposed by the conflict, particularly the dependence of global trade on the Strait of Hormuz.

“This isn't a great situation,” Berman said, “but time ends up working for Washington and not for Tehran.”

Can economic pressure break the stalemate?

Iran's economy is already under extraordinary pressure.

Iran's annual inflation reached 66% in July, while food prices rose 128% year-on-year, according to the Statistical Center of Iran, severely eroding household purchasing power.

Those pressures are being compounded by sanctions, the naval blockade, disruption to Iran's energy trade and the prospect of another round of US economic measures.

For Washington, that raises the possibility that time itself, combined with escalating economic pressure, could accomplish what another major military offensive may not.

Berman described Iran's economic crisis as potentially “the transformative variant,” arguing that the danger for the government grows as the rial loses value, purchasing power collapses and basic foods become increasingly unaffordable.

“This is not a sustainable condition,” he said.

But he cautioned that economic deterioration does not automatically produce political upheaval. Tehran can attempt to soften the impact through currency measures, trade arrangements and other economic interventions.

What has changed, Berman argued, is the nature of the leadership confronting those pressures. He described the current system as increasingly rigid and militarized, leaving it potentially less willing to prioritize domestic economic development.

Casey Babb, a senior fellow and director at the Macdonald-Laurier Institute, described the current moment as a “very uncertain and fragile holding pattern.”

He said Washington could combine substantially greater economic pressure with military capabilities it has so far chosen not to fully deploy.

But Babb cautioned that economic warfare carries consequences far beyond Iran's leadership.

“There is a human cost to that as well,” he said. “Innocent Iranians are going to suffer from that as well and already are.”

Babb said the United States clearly does not want a costly conventional ground war, while Iran's leadership has shown little indication that it is prepared to make the concessions Washington is seeking.

“It will take something probably quite significant for the regime to behave differently,” Babb said.

When does the shooting start again?

None of the analysts interviewed for this story suggested the current lull means the military confrontation is over.

Berman went further, saying he expects US strikes against Iran to happen again.

“The question to me is not whether or not there are going to be strikes again, because I think there will be,” he said.

The more important question, he argued, is whether future attacks remain limited actions designed to restore deterrence — what he described as “knuckle wraps” — or become the beginning of another major phase of the war.

Berman described the confrontation as an increasingly prolonged battle of wills, contrasting it with what he said Washington had initially envisioned as a shorter conflict similar to its campaign in Venezuela.

That creates another danger.

Unlike during the Cold War, he said, Washington and Tehran lack reliable lines of communication specifically designed to keep tactical confrontations from escalating into something much larger.

The result may be neither war nor peace.

Berman compared the current moment to the end of the second act of a three-act play — the point when the action temporarily slows before the pace picks up again.

But the apparent lull may be deceptive.

As Craig emphasized, intelligence operations, military targeting and other preparations could be taking place beyond public view. Diplomatic contacts may also be more complicated than the conflicting public statements from Washington and Tehran suggest.

The visible status quo could persist for some time.

What is happening underneath it — and what eventually breaks it — is much harder to know.”

Trump calls off Iran talks as Tehran doubles down on Hormuz leverage

Aug 18, 2026, 21:45 GMT+1
•
Maryam Sinaiee
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An illustration posted by US President Donald Trump on his Truth Social account on August 18, 2026.

President Donald Trump has halted diplomatic engagement with Iran until further notice, the White House said on Tuesday, as Tehran hardens its position over the Strait of Hormuz and presses Washington to meet its demands.

Trump said Tuesday on Truth Social that no conversations with Iran were taking place and none were scheduled, adding that the US naval blockade remained “in full force and effect.”

A White House official later told Semafor that Trump’s post amounted to calling off talks with Tehran “for the foreseeable future.”

The move came as the 60-day period set by the Islamabad memorandum for reaching a final agreement reached its stated end. Iranian officials, however, dispute that the negotiating clock ever formally began, arguing that Washington failed to fulfill the commitments required for negotiations to start.

Iranian Foreign Ministry officials say the United States initially fulfilled only commitments concerning the lifting of restrictions on Iranian oil sales and the naval blockade before abandoning them, while failing to implement its other obligations altogether.

They therefore argue that negotiations with Washington never began and that the 60-day period cannot be considered to have expired in the manner described in media reports, although the memorandum says the two sides committed to reaching a final deal within a maximum of 60 days, extendable by mutual consent.

Citing that argument, the state-run IRNA news agency wrote Tuesday that although the Islamabad memorandum is not currently being implemented, it could still serve as a basis for returning to negotiations and ending the war.

“All it takes is the will on the American side to implement all of its commitments,” IRNA wrote.

Earlier in the day, Tehran-based news website Rouydad24 similarly argued that the end of the 60-day period did not necessarily mean the end of diplomacy.

The intensification of the naval blockade and economic pressure, Trump’s threat to take military action against Oman if it “gets in the way” of his administration’s dealings with Tehran, and his references to back-channel contact with the Revolutionary Guards suggested that pressure and diplomacy could still proceed simultaneously, it said, with the Strait of Hormuz emerging as Iran’s main bargaining tool.

“The existence of back-channel contacts with Iran, Oman’s efforts, and continued messaging from Pakistan and Qatar show that the path of diplomacy has not been completely closed,” Rouydad24 wrote.

It added that “the end of the 60-day period may perhaps be better understood not as the end of negotiations, but as the end of one model of negotiations.”

The editorial warned, however, that the challenge was no longer simply returning to the negotiating table. The question was whether the two sides could turn a combination of pressure, threats and confidential channels into an agreement before an incident in Hormuz or elsewhere in the region pushed the confrontation beyond their control.

‘New American Territory’

Trump on Tuesday posted, without explanation, a map showing Iran’s southern coastline, the Persian Gulf, the Gulf of Oman and the Strait of Hormuz, with the waterway circled and the words “NEW AMERICAN TERRITORY.”

For Tehran, the posts reinforced the argument that Washington is seeking to change the terms of the confrontation through pressure, making control over Hormuz an increasingly important bargaining asset.

Iranian parliament speaker and top negotiator Mohammad Bagher Ghalibaf said on Tuesday that Washington was increasing pressure on Tehran in an effort to secure concessions that were not part of the Islamabad memorandum of understanding.

“Americans think squeezing Iran harder will win concessions that were never part of the agreement,” Ghalibaf wrote on X.

“Bessent and Hegseth are way out of their league. Stop waiting for the clown crew to pull a rabbit out of their hat and clean up the mess you made,” he added, referring to US Treasury Secretary Scott Bessent and Secretary of War Pete Hegseth.

Kazem Gharibabadi, Iran’s deputy foreign minister, also responded to Trump while also referring to the long-running dispute over the name of the Persian Gulf.

“Just as Trump correctly wrote the name of eternal Persian Gulf, his illusions about the Strait of Hormuz will soon be corrected, or we will correct the delusions of this delusional man,” Gharibabadi wrote.

Hormuz remains closed

Ghalibaf also responded to Trump’s statements during an online parliamentary session broadcast on state television Tuesday, saying Tehran was using “the logic of power,” while coordinating its military and diplomatic efforts, to force the United States to accept its demands.

He said the Strait of Hormuz would remain closed until US commitments under the memorandum were implemented, including lifting the blockade, releasing frozen Iranian assets, lifting oil sanctions and ending threats and military operations on all fronts.

Ali Gholhaki, a political activist close to Ghalibaf, wrote on X on Tuesday that Iranian officials had decided in “recent meetings” that traffic through Hormuz should operate “completely according to an Iranian mechanism,” meaning only through the northern route controlled by Iran.

He said senior Iranian officials had linked reopening the Strait to “the complete lifting of the blockade,” “the release of Iran’s frozen assets” and “the lifting of sanctions.”

“A difficult and complicated step, but perhaps achievable!” he wrote.

Gholhaki also suggested that Trump’s earlier threat to bomb Oman could indicate that Muscat had agreed to an arrangement giving Iran control over passage through the Strait.

Iranian Foreign Ministry spokesman Esmail Baghaei said in recent days that Tehran and Muscat were moving closer to an agreement on a safe route for ships to pass through Hormuz.

Washington has objected to elements of the emerging Iran-Oman arrangement, including proposals involving joint management of maritime traffic and the collection of fees from vessels, underscoring the extent to which control of the waterway has become part of the wider confrontation.

Hormuz as economic leverage

Nour News, a website close to Iran’s Supreme National Security Council, argued Tuesday that Iran had succeeded in transferring the cost of disruption in the Strait to global markets and the US economy, potentially creating political costs for the Trump administration ahead of the US midterm elections.

“From this perspective, Iran’s main leverage is not military competition with the United States, but its ability to turn the geography of Hormuz into an economic and political cost for Washington,” Nour News wrote.

The argument suggests that Tehran’s strategy depends less on matching US military power than on making the consequences of continued confrontation sufficiently costly for Washington, with Hormuz serving as the main mechanism through which it seeks to exert that pressure.

US rules out Iran truce extension as Tehran official sets new deadline

Aug 17, 2026, 22:11 GMT+1
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US President Donald Trump boards Air Force One in a file photo posted by the White House on X on Aug. 9, 2026.

The 60-day period associated with the Iran-US interim peace deal ended Monday without a breakthrough, with Washington rejecting an extension and a senior Iranian official saying the US had a few weeks to meet the agreement’s terms before further talks.

President Donald Trump said he did not expect Iran to agree to the kind of deal he considered necessary and again made preventing Tehran from obtaining a nuclear weapon the central US demand.

“They’re not going to make the kind of a deal that I feel is necessary,” Trump said Monday. “Iran cannot have a nuclear weapon. And they won’t have a nuclear weapon.”

Asked whether Washington wanted to extend the interim agreement, Trump replied: “No.”

He also said the United States had “total control” over the Strait of Hormuz through its naval blockade.

Tehran disputes 60-day deadline

Foreign Ministry spokesperson Esmaeil Baghaei disputed the characterization of Monday as the expiry of the memorandum itself, although the text of the agreement says the two sides committed to achieving a final deal within a maximum of 60 days, extendable by mutual consent.

Baghaei insisted that the 60-day period linked to the Islamabad memorandum had been intended for negotiations and was no longer relevant because Washington had breached the agreement.

He said the memorandum contained no formal 60-day deadline and that Iran would not make decisions in response to ultimatums.

Foreign Minister Abbas Araghchi had said Friday that the memorandum referred to an “end to the war,” rather than a 60-day ceasefire requiring an extension.

Iran gives US ‘a few weeks’

A senior Iranian official told Reuters that Iran had set a period of “a few weeks” for Washington to fully implement the memorandum before further negotiations could take place.

“Within the short period of a few weeks set by Iran, all the agreement’s provisions must be implemented by the US. This is a precondition for further negotiations with the US,” the official said.

Reuters reported, citing the official, that Iran had adopted a “fully offensive” posture and would be prepared to escalate in the Strait of Hormuz and across the region if diplomacy failed.

The official said Tehran’s timeframe would be conveyed to Washington and regional governments through mediators.

Contacts continue without agreement

Trump also confirmed that his administration had established a direct backchannel with the Revolutionary Guards and said he was “not in a hurry” to end the war. The IRGC later denied that talks with US officials were under way.

Trump envoy Jared Kushner said later Monday that US conversations with different parts of the Iranian government were probably “more robust than ever,” but that the two sides had yet to reach an understanding.

Oil prices also rose Monday as investors grew more pessimistic about efforts to end the Iran war and shipping through the Strait of Hormuz remained constrained.

WTI settled 2.5% higher at $84.50 a barrel, while Brent rose 2.7% to $90.87, the Wall Street Journal reported. Gains accelerated after Iranian state media reported that an Emirati oil tanker had been seized in the strait.

To survive maximum pressure, Iran kept pumping and broke its oil company

Aug 17, 2026, 18:44 GMT+1
•
Mohamad Machine-Chian
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File photo released by ISNA in September 2013 shows a worker during the installation of an oil rig in Changuleh, Mehran county, Ilam province, western Iran.

Donald Trump’s maximum pressure is usually scored by counting tankers and tracking the rial, but Iran’s budget points to a deeper cost: more than $80 billion in NIOC bank debt and sovereign-fund arrears, repeatedly deferred as Iranians shoulder the burden.

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.

100%

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.