82 Billion Dollars in the Hole: Iran's Oil Empire is Collapsing from Within
The debts of the National Iranian Oil Company reach about 82 billion dollars - more than twice the public budget. Sanctions did not stop exports, but the expensive evasion model deepened the debt and passed the cost to the public through inflation.
The National Iranian Oil Company, buried under a debt larger than the entire national budget, is passing its bill to the public tables through inflation, according to a publication by "Iran International". On August 4, the Bank of Industry and Mine froze the accounts of the National Iranian Oil Company due to a debt of about one billion dollars, a debt that had been in arrears for two years. A few days earlier, the Tax Affairs Organization imposed a fine of 287 trillion Tomans, equivalent to about 1.5 billion dollars, on the same company, while simultaneously admitting that the oil company is unable to pay it. Three days later, the President's legal assistant canceled the seizure, claiming that the oil company's debts were written off under the current year's budget law and that their collection was illegal.
A 82 Billion Dollar Sentence
But the same law that released the oil company's accounts from seizure also contains the true picture of the company's financial situation. The National Oil Company does not publish financial reports regularly, and its last public report dates back to 2018. The gaps in these reports are filled with one sentence; a sentence that has been extended in the budget law every year since March 2018. This sentence appears at the end of the expenditure table, where all data is written in Rials and percentages, with only this item being in foreign currency. The wording states that the repayment of 55 billion Euros (about 63 billion dollars) in principal and interest on facilities that the National Oil Company owes to the Central Bank and commercial banks for oil and gas projects will be deferred for another year. The meaning of the freeze is the same: the debt is not paid and not forgiven; it is simply deferred.
On August 9, the deputy director of investments of the National Development Fund announced another part of the oil company's debts, saying that the fund had lent more than 20 billion dollars to oil company projects, and about 17 billion dollars of that were long overdue. If we add up the components that the government itself has announced, the total debt reaches 82 billion dollars. The total public budget this year is about 37 billion dollars at the open market exchange rate; meaning, one bank debt alone is 1.7 times larger than the government's total annual expenditures. The reason for this imbalance is clear: the debt is in foreign currency, and the government's revenues are in Rials, which have fallen.
Business Model for Evading Sanctions
Maximum pressure is usually measured externally: by barrels monitored from the Persian Gulf, by the falling Rial, and by the growing list of people and companies sanctioned. By these metrics, maximum pressure worked. But a more accurate metric is the state of the company at the center of the sanctioned trade; and by this metric, maximum pressure looks much more effective. The pressure did not stop Iranian oil sales; but it changed the terms of the business in such a way that it pushed the company producing it into bankruptcy.
When the nuclear deal collapsed and sanctions returned, Ali Khamenei summarized the government's strategy in one sentence, saying in December 2019: "The removal of sanctions is in the hands of the enemy, but their neutralization is in our hands." The Ministry of Oil's agenda for neutralization was to keep production active, at any cost. This policy was relatively successful: production, which fell below 2 million barrels per day in 2020, returned to about 3.6 million barrels by the summer of 2024. Selling the barrels, however, was a different story. In practice, Iranian oil is sold at a 12-15 percent discount to small Chinese refineries, which buy almost all Iranian exports. The cargoes are transported by shadow fleet tankers with silent tracking devices, with intermediaries at every stage collecting their commission. A large part of the price of this oil never reached Iran: revenues are locked in Rupee accounts in Kolkata or remain in Chinese banks.
The Bill People Pay
The gap between the income from this model and the cost of production was covered by foreign currency credit from the Central Bank, government banks, and the National Development Fund, with the approval of the Knesset. Since January 2018, the government knew in writing that this cycle does not pay for itself. However, the official government policy continued. The oil company's debt meter is still running. Even if we assume a minimum interest rate of four percent, at least 3 billion dollars will be added to the oil company's debt every year; interest that will never be collected. To understand the scale, the country's total foreign currency contribution to medicine this year is 1.5 billion dollars. Interest for just one year on the oil company's debt is worth three times the price of the people's medicine.
The Islamic Republic has been promising a better year for 47 years; a year that has yet to arrive. The money created against these loans remains in the monetary base and reaches the people in the form of inflation; a tax that no one voted for and that takes its largest share from the tables of low-income earners. The company that once symbolized Iran's oil wealth was not defeated by a rival, but was quietly sacrificed: a victim of the ambitions that brought sanctions on the country, and a victim of the business model built to evade them.
