BREAKINGVIEWS-Iran crisis gives oil an even starker swing factor

By Afiq Fitri Alias

LONDON, Jan 9 (Reuters Breakingviews) - Oil investors are having quite a week. Saturday’s capture of Venezuelan leader Nicolas Maduro by United States forces has prompted speculation about whether the Latin American state can revive its battered crude production. Yet protests in Iran, which were intensifying on Friday, may yet present markets for the black stuff with an even greater swing factor.

Demonstrations in the Islamic Republic have yet to reach the scale seen in 2022, when widespread protests broke out following the death in custody of 22-year-old Mahsa Amini. Unrest has spread across the country, prompting 86-year-old Supreme Leader Ali Khamenei to denounce protestors as “mercenaries for foreigners” and block internet access. And they have economic roots that foreign sanctions only partly explain.

In the last year, Iran’s currency has lost roughly half its value: $1 is now worth 1.5 million rials, decimating purchasing power. At 43%, Iran’s official inflation rate this year is set to be second only to that of Sudan and Venezuela – sending the price of everyday staples like bread soaring. Lower consumption and interrupted oil output from the 12-day war with Israel mean the 0.7% increase in Iranian GDP expected by the World Bank for 2025 is now predicted to be a 1.7% contraction, with a 2.8% drop for 2026.

Crucially, the Islamic Republic’s security powers are weaker too. The assassinations in June of key leaders within the Iran Revolutionary Guard Corps (IRGC) by Israeli forces may limit authorities’ ability to crack down. U.S. President Donald Trump has warned Tehran not to hurt protestors.

Khamenei, in charge for over 35 years, has faced down past crises. And while recent U.S. and Israeli military and intelligence successes might encourage speculation about a Maduro-style endgame, removing the Iranian leader would be a much bigger and riskier undertaking.

Still, any change of leadership looks a bigger deal for the oil market. Iran currently produces over 3 million barrels of oil per day – three times as much as Venezuela – and exports over 2 million of those. While the Iranian government’s 5.7 million barrel daily production target for 2031 is unlikely to be achieved, things would look more positive if a new regime persuaded Washington to substantially ease its sanctions and encourage inward investment.

Equally, if the Islamic Republic lost its supreme leader without an obvious successor, it’s unclear which internal candidate could maintain order. Ongoing chaos in the country of 90 million people would threaten Middle East stability, and the fifth of global oil supply that passes nearby through the Strait of Hormuz. The recent uptick in the price of Brent crude oil, which has risen by $2 per barrel, may not factor in the widening range of possible outcomes.

CONTEXT NEWS

Iran's Supreme Leader Ali Khamenei urged Iranians to "preserve unity" on January 9, after widespread protests across the country. Khamenei also told U.S. President Donald Trump to "focus on problems in your own country" and warned that the state would not "tolerate mercenaries for foreigners".

Protests in Iran started on December 28, after shopkeepers in Tehran’s grand bazaar were angered by a sharp slide in the value of the Iranian rial. The demonstrations have spread to all 31 provinces in Iran as of January 8. At least 34 protesters and four security personnel have been killed, and 2,200 arrested during the unrest, according to the U.S.-based Human Rights Activists News Agency.

Iran suffered a nationwide internet blackout on January 8, which internet monitoring group NetBlocks said extended into Friday. It coincided with calls from abroad for more protests from Reza Pahlavi, the son of Iran's last shah who was toppled in the 1979 Islamic revolution.