Analysis: Despite the Weight of American Sanctions, Why Does the Iranian Regime Show No Signs of Yielding?

Analysis by David Goldman from Afaq News - The US-led sanctions and blockade against Iran are bearing fruit, and their success may determine the next phase of the war. Iran's available oil stocks for sale are nearly depleted, and crude oil production has halved.

Moreover, the main source of the regime's revenues is dwindling, while hyperinflation has led to an economic collapse. At the same time, the flow of oil from other Gulf countries through the Strait of Hormuz - which Iran once had significant influence over - has effectively returned to normal.

However, Iran shows no signs of yielding yet; the regime is not willing to make any concessions regarding its nuclear program, and negotiations over the freedom of navigation through the Strait of Hormuz have repeatedly stalled. Why does the regime refuse to yield, while the Iranian government acknowledges that its economy is facing a historic disaster?

Iran has been in this position before; five decades of successfully operating under harsh sanctions have taught the Iranian regime much about coping strategies. The regime's ongoing brutal crackdown against protests has successfully suppressed a popular uprising, and the high cost of the ongoing American operation has made the current situation a politically toxic burden for Iran's adversary.

For this reason, the regime may be in a much better position than it appears. Iran has not shipped any quantities of oil from its ports in September.

This was the first month in which Iran did not load crude oil onto tankers since the maritime data tracking service "Kpler" began monitoring Iranian exports in 2013; the last successful loading of Iranian crude oil took place on August 25. Meanwhile, Iran has virtually no quantities of crude oil left to sell; the amount of oil outside the scope of the U.S. blockade has dropped to 45 million barrels, down from 100 million barrels in July, according to data from "Kpler". If Iran continues to find buyers at the current pace, its stockpiles of sellable crude oil could run out by the end of October.

The situation is not much different for Iran domestically; in the absence of outlets for selling newly extracted oil, its land stockpiles are approaching unprecedented record levels, reaching 70 million barrels - a level close to the peak recorded during the pandemic - according to Matt Smith, director of commodity research at "Kpler". Iranian oil production has dropped to half of its pre-war levels, reaching about two million barrels per day, a quantity barely sufficient to meet domestic demand.

U.S. sanctions have caused severe damage; the Iranian economy contracted at an annual rate of 10% between March and June, according to government data. The annual inflation rate surged to 90% last month, averaging 73% over the past year, the highest level since World War II.

Adnan Mazarei, a senior fellow at the Peterson Institute for International Economics, pointed out that the situation has become so dire that Iranians, as soon as they receive cash, spend it immediately on basic needs because the value of their money will drop immediately if they do not. The government cannot finance itself, so it resorts to printing money, which exacerbates inflation; sanctions have also sharply reduced imports, leading to widespread factory closures and rising unemployment rates.

Mohsen Rezaei, the secretary of Iran's Supreme National Security Council, acknowledged that the current economic situation in the country is among the worst in its history, according to a report published by the semi-official Iranian news agency "Tasnim" on Saturday. Nevertheless, Iran seems far from capitulating.

Mazari said: "The economy is in a very bad state, but there is no specific point at which one can say that the patient's body temperature has reached a critical level and that he will die." The political system in Iran - along with its harsh repression of protests - has provided the country with some protection against the economic devastation caused by the blockade and sanctions; it also seems that Iran is succeeding in circumventing some of those restrictions.

Mazari pointed out that "people are becoming more miserable, but the regime has immense patience and endurance towards the suffering of its people," adding that "Iran has a long history of circumventing sanctions." Iran's options for evading sanctions seem more limited than ever; the "economic pariah" strategy launched by the Trump administration has become so effective that some governments that largely ignored U.S. sanctions in the past have begun to take those restrictions very seriously.

For example, dozens of Iranian oil tankers have been stranded, fearing that their crews might fall into the hands of the United States and its Western allies; humanitarian assistance has been refused to them while they are anchored off the coast of Sri Lanka, despite their repeated distress calls, according to Charlie Brown, a senior advisor at the organization "United Against Nuclear Iran" - a nonprofit that monitors and reports on violations of sanctions imposed on Iran. These details were first published in the "Wall Street Journal."

However, the Iranian regime has developed sophisticated networks to confront and circumvent sanctions. Michelle Brohard, head of geopolitical policy and risk at the company "Kpler," points out that despite the tightening noose, this struggle does not seem different; Iran's unwillingness to yield suggests that the circumvention of sanctions is still ongoing.

She said: "The Iranian regime has an extraordinary ability to manage the country without resources. I do not believe that Iran has reached a critical turning point; they must be receiving money from somewhere."

Where there is smoke, there may be fire, but uncovering sanction evasion operations is a challenging task. Brown pointed out that Iran may be transporting oil overland to Kazakhstan and Russia, or by sea across the Caspian Sea, noting that Tehran has been disguising its exported oil as Iraqi oil and has transferred oil to ships belonging to other countries to get the crude out of the strait.

According to Brown, the regime has agents in many neighboring countries who secretly conduct financial transactions on its behalf—whether in US dollars, cryptocurrencies, or other means—to avoid detection and exposure. Brohard mentioned that one of the more intriguing possibilities is that some oil-exporting Gulf states are paying Iran secret fees for safe passage through the Strait of Hormuz, despite being under American military protection and escort.

Although there is no conclusive evidence of such an arrangement, both Mazzari and Brown noted that they have heard discussions suggesting that oil producers are paying Iran a 'security tax' to ensure safe passage. Iran has continued to attack some tankers transporting oil through the strait, but Brohard pointed out that those ships may have refused to pay the fees.

A murky path forward, whether some Gulf states are paying Iran directly or not, the cost of maintaining the status quo and ensuring the flow of oil through the Strait of Hormuz has become extremely high for all parties involved. The US Navy must allocate significant resources to the blockade and escort program; this costs the American taxpayer tens of billions of dollars at a time when fuel prices remain historically high.

Oil producers are incurring extremely high costs to hire tankers to transport crude to their destinations; between labor, fuel, insurance, and other costs, operating a Very Large Crude Carrier (VLCC) currently costs $1.6 million per day, which is 24 times the cost recorded for 2025, according to data from Clarkson's shipping and maritime services. Brohard stated, 'Someone is getting paid; right now, fees are being paid to insurance companies, and we are the ones bearing the cost.'

This current situation - which is unsustainable - may be the reason why Iran is patiently waiting for the Trump administration's term to end; although Iran may have lost its leverage in the oil market and its economy has been severely damaged, it may succeed in enduring longer than the United States is willing to continue down this (costly) path. In other words, Mazari said: "We will be on the brink of war for a long time."