Oil, gas and Iran economic analyst
As Iran faces a serious energy crisis, Israel's potential retaliation could reportedly target oil refineries or export terminals, turning the country's struggling energy sector into a prolonged disaster.
This summer, Iran faced a 20,000-megawatt electricity deficit, equivalent to 25% of the country's electricity demand. Unlike previous years, Iran experienced a gas shortage alongside the electricity deficit. As a result, the consumption of fuel oil (mazut) in Iran's power plants doubled, and diesel consumption increased by 80%.
Altogether, these two polluting fuels accounted for 15% of the power plants' fuel supply. With the onset of autumn, this share has risen to 25%, and in winter, it's expected that half of the fuel used in power plants will be fuel oil and diesel, requiring the consumption of 150 million liters of liquid fuel per day in this sector.
Meanwhile, data from the Ministry of Oil shows that the country's reserves of diesel and fuel oil amount to only 1.5 billion liters. Even if no diesel or fuel oil is provided to industries or land and sea transportation, this quantity would only suffice for 10 days' worth of electricity production.
In recent years, Iran has faced a growing gasoline crisis, with average daily consumption reaching 124 million liters (nearly 33 million gallons). This winter, a severe natural gas shortage is expected to halt the supply of 20 million cubic meters of CNG daily, pushing gasoline consumption to nearly 140 million liters. However, data from the Ministry of Oil shows that the country’s strategic gasoline reserves are barely one billion liters—enough to cover just one week of domestic demand.
If Israel targets just two of Iran's refineries—such as the Persian Gulf Star and Abadan refineries—30% of the country's liquid fuel production capacity, or 800,000 barrels per day, would be lost.
A quarter of the government's budget is allocated to subsidies, which range from monthly cash handouts to heavily subsidized fuel, bread, and other essentials. These subsidies are primarily funded by the domestic and international sale of petroleum products. According to the Supreme Audit Court of Iran, in the first five months of the current fiscal year (starting March 20), the government borrowed 800 trillion rials ($1.3 billion) to cover subsidies—an amount equivalent to one-fourth of the total subsidy expenditure.
The reason for this borrowing is the sharp decline in petroleum product exports due to the significant rise in power plants' demand for fuel oil and diesel, caused by the natural gas shortage. This has resulted in a severe drop in the financial resources for subsidies.
Half of Iran's population lives in poverty, with their livelihoods dependent on government subsidies. If the country’s refineries are attacked, the government will essentially be unable to continue providing subsidies to the people.
Iran is already grappling with an inflation rate exceeding 40%, and the elimination of subsidies and a surge in fuel prices would trigger hyperinflation.
This summer, due to the electricity shortage, Iran's steel production and exports, which account for 16% of the country's non-oil exports, sharply declined. It is expected that this winter, the production of petrochemical products, which make up 30% of non-oil exports, will also drop significantly due to the severe gas shortage.
Iran's winter gas shortage is projected to reach 250 million cubic meters per day, accounting for 25% of the country’s total gas demand. If oil refineries are attacked, the government could lose its ability to supply fuel to power plants, exacerbating the energy crisis.
Crude oil revenues would also be severely impacted in case of an attack on Iran’s production infrastructure. Despite a significant rise in the country's oil exports, only 74% of the government’s oil revenue target has been met in the first five months of the current fiscal year. Even if only the Kharg oil terminal is attacked, Iran would lose 90% of its oil export capacity.
Last year, Iran's oil and petroleum product exports totaled $36 billion, which accounted for 8% of the country's total GDP and nine months of the government's general budget.
"Some people are in denial, but the war is at our doorstep," says Shayan, a 28-year-old artist who makes a living by teaching painting. "I immediately Googled for shelters in Tehran after the missile attack was announced, but found none. We’re on our own. The authorities don’t even bother to inform or reassure the public."
He refers to reports that Iran's missile attack on October 1 occurred before Iranian airspace was closed. "They launched ballistic missiles while passenger flights were still in the air. Human life holds no value, neither for Khamenei nor for Netanyahu."
Iranian reactions to military actions are often reflected at gas stations. Mere minutes after the missile strike, long lines were formed at gas stations across the country. I’m not sure why. Perhaps a full tank is a slight assurance that you can go somewhere safer if things heat up. I was guilty of this collective rush that night, reaching the actual pump after an hour in line. The attendant asked if I wanted to fill it up. I said please. “I’d do it for free if Israel hits them," he joked.
The killing of Ismail Haniyeh in Tehran led many Iranians to believe that Israel can ‘take out’ anyone it wants—and with precision. This belief was strengthened after the attack on Hezbollah HQ in southern Beirut. Strangely enough, not much was reported about civilian casualties in that operation. Many don’t seem to note that several residential blocks were bombed to rubble, most likely with hundreds in them.
The day after Nasrallah was killed, I overheard a conversation in a pharmacy. "I wonder when they’ll cut off the head of the snake," a young man asked an older man, both waiting for their prescription. “Soon, God willing,” was the response, “and hopefully they’ll be precise like with the last two.” No names were mentioned, but all present knew what was meant by ‘head of snake’ and ‘the last two’.
“People hoping for Israel to attack think it will only wipe out the regime. I don’t believe that’ll be the case.” This was Nasrin, 46, an Instagram ‘influencer’. She’s annoyed by what she calls “casual warmongering” of some people around her. “We all hate the Islamic Republic, but we also love Iran; we don’t want to see it ruined,” Nasrin says. “Those here who cheer for an Israeli attack are either delusional or have no recollection of war like I and many in my generation do.”
That’d be two-thirds of Iran’s population. The war that broke out following Iraq’s invasion of Iran in 1980 ended in 1988. Only a third of Iranians are old enough to remember the sirens and the Soviet-made Scud missiles raining on Iran’s urban centers in the war's latter years—known as the War of Cities.
This is not to suggest that those younger than Nasrin look forward to an Israeli attack. Far from it, in fact. Shabnam is a 36-year-old lawyer who grapples with the “societal consequences” of a theocratic state every day. “I detest the Islamic Republic and its allies. But I abhor Israel too. Hezbollah holds meetings under residential buildings to make it harder for Israelis to strike. But Israel bombs everything including the kitchen sink. And the Islamic Republic retaliates with 200 missiles, firing while Iran’s airspace is open. They’re all fanatic criminals with no regard for human life.”
Shabnam’s friend, Sadra, enters the conversation. “The world revolves around power. If you can, you do. And that’s not changing anytime soon.” Sadra is 34 and out of work. “Humanitarian law is obsolete in times of war. So are the institutions tasked to preserve it. But that’s all we have for now. What I think is really dangerous is for rogue states like Iran and Israel to undermine the UN or its watchdogs because they don’t like their rulings or findings.” We’re nearing a “complete dog eat dog” world order, he fears.
Around me, I see people growing less indifferent to the situation in the Middle East. More are becoming wary—or at least more alert. As conflicts that once felt distant inch closer to home, many are increasingly attuned to words like displacement and famine.
A few days after Nasrallah was killed, I asked my 70-year-old neighbor if he was worried about a potential war. “There won’t be a war because the Islamic Republic is afraid of war,” he said with no detectable hint of humor. I asked him again the day after Iran fired missiles at Israel. “I stand by my word dear: there won’t be a war,” he replied. Time might prove him right. But for now, most here would tell you he’s wrong.
"The IDF [Israeli military] is preparing a response to the unprecedented and unlawful Iranian attack on Israeli civilians and Israel," the official, speaking anonymously due to lack of authorization to discuss the matter publicly, told AFP. However, he provided no further details regarding the nature or timing of the potential Israeli retaliation.
Israel’s newspaper Haaretz cited military sources confirming that the planned response would be "significant."
"The IDF is preparing for a significant strike in Iran following this week's missile attack from Tehran," the paper reported. Additionally, Haaretz noted that the military has not ruled out the possibility of further missile launches from Iran after Israel retaliates.
The Iranian missile strike on Tuesday involved around 180 missiles targeting Israel, marking Iran’s second direct assault on Israel in less than six months.
A former IDF spokesperson suggested that Israel’s response could include high-profile targets such as "regime symbols," including the residence of Supreme Leader Ali Khamenei and key Iranian officials. Though these actions carry significant risks, they remain possible options, according to the retired Lt. Colonel Jonathan Conricus. In an episode of the podcast Eye for Iran this week, Conricus, now a senior fellow at the Foundation for Defense of Democracies (FDD), indicated that Israel is likely to retaliate strongly, but many strategic factors will influence the final decision.
Since Iran's attack, unconfirmed reports have surfaced suggesting that the potential successor to the late Hezbollah leader Hassan Nasrallah, killed last week, has been unreachable since Friday, following an Israeli airstrike that allegedly targeted him, according to a Lebanese security source on Saturday.
Meanwhile, Israel’s Channel 12 has reported that Esmail Ghaani, the commander of the IRGC's Quds Force, was likely present and injured in the Israeli strike in southern Beirut aimed at Hashem Safieddine, head of Hezbollah's executive council. Although the hardline website Mehr initially dismissed these reports, the content has since been removed from their site.
Despite rising tensions, Iranian Oil Minister Mohsen Paknejad expressed confidence on Saturday, stating he was "not worried" about a regional conflict, even after reports suggesting an imminent Israeli strike on Iran. Speaking to the ministry’s Shana news site, Paknejad said, "I am not worried about the crises that the enemies of the revolution are creating, and this trip is considered a normal work trip."
Paknejad made these remarks during a visit to Assaluyeh, a major hub for Iran’s exploitation of the world’s largest offshore gas field, which it shares with Qatar in the Persian Gulf.
US officials remain divided on the recommendations they offer Israel regarding potential targets in Iran. President Joe Biden, who initially ruled out endorsing strikes on Iran’s nuclear facilities, later extended this caution to include Iran’s oil infrastructure. This shift in stance has led analysts to speculate that the administration may be signaling a preference for targeting Iran's military bases, steering away from actions that could escalate into broader economic or environmental fallout.
“It appears that his unspoken intentions are more revealing than his words. Suppose oil or nuclear facilities are off-limits as potential targets. In that case, the logical focus will shift to military assets,” Kamran Matin, Senior Lecturer in International Relations at the University of Sussex, told Iran International TV.
“I believe the Biden administration may not only refrain from condemning but could implicitly endorse Israeli strikes on missile bases, production facilities, or even on the leadership and strongholds of the IRGC's Quds Force,” he added.
The Biden administration would prefer no major shock to oil prices four weeks before presidential elections, which could hurt the chances of Vice President Kamala Harris.
Reuters also reported that, according to numerous experts, including over half a dozen former military, intelligence, and diplomatic officials from the US and the Middle East, Israel is less likely to target the oil facilities that form the backbone of Iran's economy or its nuclear sites.
Meanwhile, former President Donald Trump, in an interview with Fox News on Friday, criticized President Biden’s stance, asserting that it was a mistake for the administration to signal that the United States would withhold support for an Israeli strike on Iran’s nuclear program.