COMMENT: Instability in Iran bigger threat to global oil markets than Venezuela
The mass demonstrations rocking Iran presents a far more serious risk to global oil markets than the US decapitation of Venezuela, according to note by Kieran Tompkins, Senior Climate and Commodities Economist at Capital Economics.
Both the scale of Iran’s oil production and the number of potential flashpoints that could disrupt supply make it “a much thornier problem for the global oil market,” says Tompkins.
“Iran accounted for 4.7mn bpd, or 4.4%, of global oil supply last year,” he noted. “That’s despite a backdrop of international sanctions that have caused oil output to fluctuate since the 2010s.” By contrast, Venezuela’s contribution is far smaller, about 800,000 barrels a day in 2025, and market reactions to Operation Maduro on January 3 reflected this. Brent crude prices have risen by approximately 6% since January 8, a movement Tompkins attributes to increased investor perception of geopolitical risk stemming from Iran not Venezuela.
Tompkins warned that some plausible escalation scenarios could “severely” reduce the current global oil surplus, which Capital Economics forecasts at around 3mn bpd in 2024. “Some of these flashpoints could halve that surplus,” he said.
While Iran is also a major natural gas producer — the world’s third largest in 2023, according to the US Energy Information Administration — its impact on the global gas market is limited.
“The country consumes almost all of its gas domestically,” Tompkins noted, with only 1% of global exports in 2023 coming from Iran, mostly via pipeline to Turkey and Iraq. That share has likely declined further due to the continued expansion of global LNG trade.
Looking to the past, Tompkins pointed to historic episodes in which Iranian political instability sharply impacted output. “Oil production peaked at 6mn bpd before the Iranian Revolution,” he said, “but slumped following politically-motivated strikes by oil workers and a flight of foreign expertise.” With exiled Crown Prince Reza Pahlavi now calling for strikes in key sectors, including oil, there are growing concerns that history could repeat itself.
The most severe risks stem from the possibility of military conflict. As bne IntelliNews reported, Arab leaders across the region are lobbying the White House to forego a mooted large-scale military strike on Iran to “help” the protestors. They fear regional instability or a possible regional war and the unleashing of extremist elements.
“That would risk oil infrastructure being targeted, or Iran retaliating by attempting to restrict shipping traffic through the Strait of Hormuz,” Tompkins warned. The strategic waterway handles a fifth of the whole world’s oil transits and LNG shipments; any disruption could send global prices soaring. However, he noted that both outcomes were avoided during the 12-day Israel–Iran conflict in 2025, suggesting that such scenarios remain low probability — for now.
US policy could also factor into the risk calculus. Tompkins recalled that former President Donald Trump threatened 25% secondary tariffs on countries trading with Iran, though similar threats toward Venezuela and Russia did not materialise.
“Iran has increasingly relied on the shadow fleet and a smaller number of buyers,” he said, estimating that China takes in around 90% of Iran’s 1.8mn bpd of seaborne exports.
Looking ahead, Tompkins argued that Iran has the resource base to become a far more prominent energy player — but only if sanctions are lifted and foreign investment returns.
“Iran has the world’s third-largest oil reserves and the second-largest gas reserves,” he said. “But the sector has lacked the technology and investment needed to ramp up production meaningfully.” Even so, low extraction costs in the region mean that, under different circumstances, Iranian oil could be highly competitive.
Iran has entered the seventh day of a near-total telecommunications blackout, with the disruption passing 144 hours and ranking among the longest on record, NetBlocks reported on January 14.
The network monitoring organisation said the blackout continues to isolate over 90 million Iranians from the outside world. Network data show the telecommunications shutdown began as nationwide protests erupted across the Islamic Republic.
According to several calls made to Iran by bne IntelliNews, locals were entirely uncontactable; however, several reports suggest that one-way calls to foreign telephone numbers were made. Social messaging apps have also been entirely disconnected, including several Iranian newspapers, who have been entirely disconnected; others have, however, somehow managed to stay online via government internet networks.
The extended disruption comes as Iran faces its most significant wave of civil unrest in decades. The US-based Human Rights Activists News Agency reported on January 14 that at least 2,571 people have been killed during the protests, a death toll that surpasses any other round of protest or unrest in Iran in decades.
Details of the government crackdown began emerging on January 13 as some Iranians were able to make international phone calls for the first time in days after authorities initially severed nationwide communications when the demonstrations began.
Earlier, on January 14, Iran's judiciary chief Gholamhossein Mohseni-Ejei indicated that authorities would conduct swift trials and executions for detained protesters. US President Donald Trump warned he would "take very strong action" if executions proceed and announced he was terminating negotiations with Iranian leaders.
Iranian President Masoud Pezeshkian said on January 13 that the government's failure to address complaints from merchants and guild members in a timely manner created conditions for the protests, according to Tasnim News Agency.
The telecommunications blackout has prevented independent verification of events inside Iran and hindered communication between protesters and international media organisations. Previous internet shutdowns in Iran during the 2019 protests lasted approximately one week.
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