Iran’s Black Gold: How Oil Fuels Terror

July 8, 2021

by: Joshua Spurlock, The Mideast Update

In the spring of 2019, the Quds Force—the terror-sponsoring wing of Iran’s powerful paramilitary Islamic Revolutionary Guard Corps (IRGC)—used an oil shipment scheme in Syria to transport almost 10 million barrels of crude oil, which sold for the equivalent of more than US $500 million, a United States Treasury Department press release said. The profits Iran generated through those and other oil transactions had an ominous destination.

In October 2020, then-US Treasury Secretary Steve Mnuchin made it clear who was benefitting from Iran’s oil sales. “The regime in Iran uses the petroleum sector to fund the destabilizing activities of the [Quds Force],” he said in a Treasury Department press release. “The Iranian regime continues to prioritize its support for terrorist entities and its nuclear program over the needs of the Iranian people.”  

That support for terror is massive. US Treasury Under Secretary Sigal Mandelker said in 2019 that Iran has provided billions of dollars for terror groups such as Hezbollah and Hamas. Moreover, in 2018, Mandelker said that Iran was providing “upwards” of US $700 million per year to Hezbollah alone.

So if Iran is using oil to fund terrorism, how much chaos could the Islamic Republic buy? A lot. With sanctions lifted under the 2015 Iran nuclear deal, the US Energy Information Administration (EIA) estimated that Iran’s oil exports in 2017 totaled US $55 billion, although that money has more uses than terror. Nonetheless, from Israel to Lebanon to Syria and beyond, much blood has no doubt been shed thanks to the profits from Iran’s “black gold” oil industry.

Power of Petrol

Due to the amount of money Iran can generate via oil, the impact of oil sanctions on Tehran in recent years can be seen in more than one way. Dr. Tomer Fadlon, a research fellow at the Institute for National Security Studies (INSS) and a lecturer at Tel Aviv University, noted that sanctions—which attempt to stop countries from buying Iranian oil—drive down the demand for Iranian oil and therefore its price, although cutting Iran out of the picture causes the overall oil price to go up. So even when Iran can sell the oil, it tends to be at a discount from the benchmark price.

Fadlon noted that when taken as a whole, the sanctions relief under the 2015 nuclear deal—known as the Joint Comprehensive Plan of Action (JCPOA)—and the subsequent renewal of sanctions in 2018 by the Trump administration caused economic whiplash in the Islamic Republic. In 2016, with sanctions lifted, Iran’s economy exploded, growing by 12.5% in terms of gross domestic product (GDP), a common measure of overall economic success. In 2017, the GDP growth slowed but still increased by 4.3%. During that period, oil production increased as well to about double what Iran produces today. In 2018, when sanctions were renewed—including oil sanctions starting in November—the economy dropped more than 3%. 2019 was even worse. “We have to remember 2019 was a good year for economic growth all around the world [at around 3%]…and we saw the Iranian economy decline by 7%, which is major damage to Iran’s economy,” Fadlon explained. 

While oil is the “most important sector” of Iran’s economy, Fadlon noted that sanctions hit across the Iranian economy. Furthermore, Iran has been diversifying its economy with other industries, such as manufacturing goods, agriculture and mining. In fact, according to Fadlon, Iran’s non-oil GDP has surpassed its oil GDP in recent years.

“[Oil is] very important to Iran’s economy. However, every single time when we’re discussing Iran and sanctions and Iran and the oil industry, we have to take into account that Iran is more prepared than ever for sanctions [with a lot of experience adjusting to them since 1979] and as a result developed other industries as well,” Fadlon explained. He added that greater support from China also enhances Iran’s ability to handle sanctions. Furthermore, Fadlon noted that while Iran wants to achieve an agreement with the world powers while its economy is under sanctions pressure, there is no guarantee that an agreement will lead to a change of behavior. Iran’s support for terror after signing the JCPOA is a good example of that.

Power of Pain

 While sanctions—including oil sanctions—haven’t stopped Iran’s terror-wielding ways, the state of its economy seems to be impacting its behavior. Dr. Ephraim Kam, a senior research fellow at INSS, said that Iran has taken a more cautious approach to terrorist activities—and money is one reason why.

According to Kam, millions of Iranians are poor, and “the regime is concerned about the possibility that these poor people will try to undermine the regime. We hear from time to time demonstrations in Iranian cities shouting: ‘Why is Iran spending money in Syria? Why is Iran spending money in Lebanon, in other countries, we need this money for the poor people of Iran.’”

Kam added that the assassination of spymaster Maj. Gen. Qassem Soleimani and nuclear scientist Dr. Mohsen Fakhrizadeh were devastating and a serious warning to discourage terrorist activities, as is the general global view opposing terrorism.

As for the impact of Iran’s economic success, Kam noted that “one of the most important things in the Middle East” for Iran was keeping the Bashar al-Assad regime in power in Syria. Iran had to “spend a lot of money in order to make sure that this regime will survive, and they have been successful so far.”

Aside from covert Iranian military expenses, the Stockholm International Peace Research Institute reported in its Military Expenditure Database that Iranian military expenditure in 2017 was at its highest since 2010 as the economy grew quickly. Yet in 2019 and 2020, when sanctions were reinstated, military expenditure dropped significantly, with those years showing an almost 50% cut in military spending from 2017. Iran also spent big in 2016, which is before the JCPOA sanctions were fully lifted. While there is no clear cause and effect, it’s still noteworthy.

Perhaps the truly terrifying potential of Iran’s oil industry is the 2019 upsurge that generated the equivalent of half a billion dollars while Iran was subject to devastating US sanctions on its oil industry. If that’s what Iran can do when their oil trade is crippled and covert, what could they accomplish with no restrictions at all?