Iran earning twice as much from war with US thanks to China — The Economist
Photo: the Shahran Oil Refinery in Iran (Getty Images)
Despite strikes on oil infrastructure, Iran is earning almost twice as much from oil sales as it did before the outbreak of hostilities. Iranian exports have remained at 2.4–2.8 million barrels per day, while prices for "black gold" have surged rapidly, The Economist reports.
Energy paradox of the war
The fifth week of the war between the United States and Iran has become a serious test for the global oil market. Due to the closure of the Strait of Hormuz, 15% of the world’s oil cannot reach buyers. Gulf countries have been forced to cut production and are losing export revenues.
Iran is an exception. Its tankers continue to pass through the strait, and oil revenues have nearly doubled compared to pre-war levels. The country may be losing on the battlefield, but is winning the energy war.
How much oil Iran exports
According to a source from The Economist familiar with Iran’s oil accounting, the country currently exports:
- 2.4–2.8 million barrels of oil and petroleum products per day;
- Of which 1.5–1.8 million barrels are crude oil.
This is roughly the same as the average over the past year, but prices for Iranian oil have risen significantly.
How Iran’s oil machine works
Iran’s oil business rests on three pillars: sellers, shipping, and shadow banking.
Sellers. Nominally, exports are handled by the state-owned National Iranian Oil Company (NIOC). In practice, different factions of power — from the Foreign Ministry to the police — are allocated quotas for sales. Around 20 oligarchs oversee these structures.
Islamic Revolutionary Guard Corps (IRGC). Most of the export growth is driven by the Islamic Revolutionary Guard Corps (IRGC), which owns its own oil fields. Its international arm, Quds, controls about 25% of crude oil production.
Shipping. The IRGC controls the Strait of Hormuz and logistics. Companies affiliated with the corps coordinate transportation. Tankers receive access codes, and in the Strait, they are escorted by small IRGC boats. Some vessels pay a "tax" of several million dollars.
Where the oil goes
The final destination is China, which absorbs more than 90% of Iran’s exports. The buyers are around 100 small "teapot" refineries in Shandong province.
Before the war, these "teapots" received discounts of $18–24 per barrel of Iranian oil. Now, as other supplies from the Persian Gulf are disrupted, the discount has narrowed to $7–12. Including freight costs, oil for China has become more expensive.
Shadow financial system
Iran’s payment system is built on "trust" accounts in small Chinese banks. These accounts are registered under shell companies created by local intermediaries. Money flows through hundreds of such accounts before reaching its intended destination in Iran.
Part of the funds remains in China to pay for imports, while the rest is distributed around the world. The Economist obtained the names of two Chinese companies that have transferred Iranian oil money in recent months. They conducted transactions with plastic manufacturers in India, Kazakhstan, and Türkiye.
Operators use additional layers of shell companies and act with "extreme caution." Funds end up in banks across East Asia, the United Kingdom, Germany, Georgia, Italy, and Romania.
Can this mechanism be stopped?
The system is so complex and well-protected that even Iran’s central bank struggles to track all flows. According to experts, the only way to stop it would be the total destruction of Iran’s energy infrastructure — but Tehran would respond with strikes on oil facilities in other Persian Gulf countries.
The war between the United States and Iran has been ongoing for more than a month. The Strait of Hormuz, through which about 20% of the world’s oil passes, is effectively closed, causing record price increases.
The situation is raising growing concern among world leaders. German Chancellor Friedrich Merz warned that the war in Iran could become as much of a burden for Europe as Russia's invasion of Ukraine.
The oil market has already reacted: prices hit a decade-high following Houthi strikes on Israel.
