Iran's Cheap Oil Fuels Economic Fears: Unrest & US Threats Send Prices Soaring & Plunging

Political unrest in Iran and renewed threats from US President Donald Trump have once again rattled global oil markets, highlighting the country’s outsized influence on crude prices despite years of international sanctions. As one of the world’s major oil producers with vast reserves and low extraction costs, any sign of instability in Iran quickly triggers fears of supply disruptions, leading to sharp price swings.

Iran remains among the world’s top ten oil producers, even though its output has declined significantly since the 1970s due to repeated rounds of US sanctions. In 1974, Iran was the third-largest oil producer globally, pumping nearly six million barrels per day. Today, production stands at around 3.2 million barrels per day, according to OPEC. Despite the drop, Iran is believed to possess the world’s third-largest crude oil reserves, underlining its strategic importance in global energy markets.

A key factor amplifying market sensitivity is the profitability of Iranian oil. Analysts note that Iranian crude is relatively easy and inexpensive to extract, with production costs as low as $10 per barrel. Only a handful of producers, including Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates, enjoy similar cost advantages. By contrast, production costs in countries such as the United States and Canada typically range between $40 and $60 per barrel, making Iran particularly well-positioned to benefit when global prices rise.

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US sanctions, in place since Iran’s 1979 Islamic Revolution and intensified under Trump’s renewed “maximum pressure” policy, have sharply narrowed Iran’s export options. China has emerged as Tehran’s primary buyer, often purchasing Iranian oil at discounted prices. Market data firm Kpler estimates that Iran exported an average of 1.74 million barrels per day in the final quarter of 2025, with virtually all shipments destined for Chinese refineries, including independent “teapot” operators targeted by Washington.

Rising tensions recently pushed Brent crude prices to around $66 per barrel, their highest level since October, before easing after Trump suggested that violence against protesters in Iran had subsided and that the US would hold off on immediate military action. Analysts warn, however, that any direct US strike on Iran could send prices surging to $80–$85 per barrel, similar to levels seen during the brief Iran-Israel conflict earlier this year.

The most severe risk, experts caution, lies in potential escalation beyond Iran’s borders. If Tehran were to retaliate by targeting oil facilities in Gulf states or attempting to block the Strait of Hormuz—a critical chokepoint through which roughly 20 percent of the world’s oil supply passes—the impact on global energy markets could be dramatic. As long as political uncertainty persists in Iran, oil prices are likely to remain highly sensitive to developments in the region.

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