Tightening the screws on Tehran risks triggering a global energy shock, but backing off lets the regime finance its war economy

The United States is trying to cut off Iran’s oil revenues without sending global oil prices sharply higher. That is proving easier said than done.

Last week, Washington launched Operation Economic Outcast, a new sanctions campaign targeting the financial, shipping and trading networks Iran uses to sell oil and move money around the world.

“Our objective is to sever every economic lifeline that sustains this tyrannical regime until Tehran stands alone,” U.S. Treasury Secretary Scott Bessent told reporters.

Yet Iran is still selling oil and earning substantial revenues from it.

Iran transferred US$7.5 billion in oil revenues from sales during the first four months of the current Iranian year to the central bank, the semi-official Fars News Agency reported Saturday. The Iranian financial year runs from March 21, 2026, to March 20, 2027.

The funds would be sufficient to cover the government’s foreign-currency expenditures from July through December, the report said, citing information obtained from Iran’s Oil Ministry. More significantly, Iranian oil revenues during the first four months of its financial year reached 99 per cent of the amount projected in the budget for the period.

From an Iranian perspective, this is not a bad report card.

Iran’s Oil Ministry also says the country has enough oil available for sale outside the U.S. naval blockade to meet the revenue requirements set under its state budget.

None of this means U.S. economic pressure is having no effect. Iranian President Masoud Pezeshkian himself acknowledges that sanctions are hurting the country’s economy.

“Some say sanctions have no effect at all; to those people, I really don’t know what to say,” Pezeshkian told Iranian state television. “We are in a war situation, and we must accept these wartime conditions.”

The problem for Washington is how much harder it can squeeze. Oil is a global commodity, and removing substantially more Iranian oil from the market could tighten supply and drive prices higher.

That risk is particularly important in the Strait of Hormuz, one of the world’s most important oil routes. Before the current conflict, roughly one-fifth of global petroleum liquids consumption passed through the narrow waterway.

Oil volumes moving out of the Persian Gulf have recovered to about two-thirds of typical levels before the Iran war, Bloomberg reported last week, citing Goldman Sachs analysts. As many as 15 million to 16 million barrels per day (bpd) of crude and petroleum products are now leaving the Persian Gulf, about five million to six million bpd above the March trough.

Of that, an estimated eight million to 10 million bpd is moving through the Strait of Hormuz. Considerable volumes are also moving from the west coast of Saudi Arabia through the Bab al-Mandab passageway.

The recovery is significant, but it is far from complete. Total oil flows from the Persian Gulf remain about seven million to eight million bpd below February levels.

Qatar and Kuwait, which together exported about two million bpd through Hormuz before the conflict, have restored their crude exports through the strait to about 70 per cent of pre-war levels, Bloomberg reported. The United Arab Emirates had already restored its oil exports to pre-crisis levels by June.

The oil trade is also adapting to the disruptions. Goldman analysts noted an increase in tanker movements with tracking systems switched off, along with ship-to-ship transfers.

All of this has helped ease pressure on global oil markets. More oil reaching the market reduces the risk that Washington’s confrontation with Iran will produce another sharp increase in crude prices.

But the market has already shown how quickly sentiment can change.

Oil prices fell by about five per cent last week as fears of supply disruptions eased. But renewed military exchanges between the U.S. and Iran sent crude sharply higher again Monday. Brent crude settled at US$90.49 per barrel, up 2.7 per cent, while U.S. benchmark West Texas Intermediate settled at US$85.76, up 2.8 per cent.

Washington is therefore left with an uncomfortable choice. Push too hard against Iranian exports and global oil prices could rise. Push too little, and Tehran continues to earn the revenues Washington is trying to deny it. Higher prices could even allow Iran to earn more from the barrels it still manages to sell.

Washington wants to increase economic pressure on Iran. The challenge is doing it without creating another supply problem in the global oil market.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.