The ongoing Israeli war with Hamas, Hezbollah, and Iran is currently ruling geopolitics and media headlines. At the same time, US presidential elections in the coming weeks could refocus the discussion on the need to increase Western sanctions on Iran. Without any question, current sanctions regimes are flawed, not only due to a growing division of global powers but also to a lack of hardline implementation of existing or future sanction regimes. The need is clear, especially when looking at the latest news coming from Iran. Tehran has proposed a fourfold increase of oil and gas revenues going to the hardline extremist military group IRGC, which is on the sanctions list of most OECD countries already.
Iranian sources have stated that the new Iranian government’s budget bill (2024-2025) shows that more than 50% of total oil and gas export revenues will flow into the coffers of the Iranian Armed Forces. At the same time, the Iranian government will receive around 37.5% of the total oil and gas export revenues, slated to be around EUR24 billion. Taking the latter figure, EUR12 billion will go to the Armed Forces. This includes the Army, the Islamic Revolutionary Guard Corps (IRGC), and the Law Enforcement Forces (LEF). The budget also stated that 42.5% of the remaining funds would go to the government’s operating budget, while 6.5% is linked to “special projects.”
Even though the total amount is not very impressive, the reality is different. Taking into account that the official exchange rate for the EURO is set at 502,000 rials in 2025, in comparison to 310,000 rials in 2024, the latter means a vast increase in total Armed Forces’ income, as it grows from EUR4.3 billion in 2024 to EUR12 billion in 2025. An analysis of the budget also shows that around 583,000 bpd of Iran’s crude oil and gas exports is allocated for the military budget, based on an official budget oil price of EUR57.5 bpd.
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Based on international tanker tracking data, Iran’s current IRGC exports 85,000 bpd to Syria. The other barrels are slated to be exported to China, holding already 95% of Iran’s oil exports. In 2024, Armed Forces export volumes are around 200,000 bpd, 50% to Syria and 50% to China.
Most of Iran’s oil and gas revenues finance the government budget. The budget bill indicates a total oil and gas export revenue of EUR64 billion next year, of which EUR4.8 billion will come from gas exports (16 BCM at EUR0.30 per cubic meter) and EUR 59 billion from oil and petrochemical products. The 2025 figure estimates are much higher than current levels; in 2023, revenues were EUR37 billion (oil), and H1 2024 shows EUR24 billion. Some potential revenue growth is expected to come from a proposed 350,000 bpd export increase, targeting a total of 3.75 million bpd in 2025.
This increased reliance on oil and gas export revenues is definitely the weak spot of the Iranian regime, especially of the IRGC and other military factors. Without the revenues to keep Iranian support of Hamas, Hezbollah, Houthis, and Iraqi militias at the same level or even increase as needed in a full-scale confrontation with Israel, Tehran will lose its regional power position. At the same time, oil and gas revenues are also needed to keep the overall Iranian regime stable, as without revenues, the IRGC, the main power broker, will either be weakened or start looking for other options outside the ruling elite. Still, as shown by a long list of reports, Iran has been very successful until now in reaping the rewards of its illegal oil trade. US and European sanctions have been implemented, but the execution has been fledgling. Mainstream research has shown that Iran still funnels tens of billions from illegal oil sales to international banks, partly funding Hamas, Hezbollah, and Houthis. Iran’s role inside the BRICS group also makes it a power player. Russia needs Iran for its weapons (drones), while China and India are hooked on Iranian oil.
In a new report (FIN-2004-Alert003) by the US Treasury Financial Crimes Enforcement Network (FinCEN), the latter has called upon financial institutions to counter financing Hezbollah and others. The new alert is directly linked to FINCEN’s 2024 advisory on Iran-backed terrorist organizations. The latest alert explicitly states again that “Hizballah generates a large portion of its revenue through the smuggling and sale of Iranian oil and liquified petroleum gas (LPG) to buyers in Asia and the Middle East, often in collaboration with Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and Houthi networks. Most of this oil is sold to the People’s Republic of China (PRC); however, the Syrian regime is also a major buyer.” Executing existing sanctions is already being discussed, but at present, political unwill or reactive behavior in Washington and Brussels keeps Iranian oil and gas flowing and supporting the “Axis of Evil” (Western quote) or “Axis of Resistance” (Iran-Russia statement). Maybe the US election outcome will show the future of all. Israel’s answer to Iran is also still hovering over the horizon.
By Cyril Widdershoven for Oilprice.com
