The world is absorbing Iran’s oil shock. Can Tehran absorb its own?

On August 24, Treasury Secretary Scott Bessent announced Operation Economic Outcast, promising to “sever every economic lifeline” sustaining Iran’s government. Hours later, President Masoud Pezeshkian acknowledged major imbalances in water, electricity, gas, fuel, the environment and the banking sector, problems he said his government had inherited. The juxtaposition did not prove that a campaign announced that day was already succeeding. It revealed something more important: Tehran entered this new phase with almost no economic margin.

Nearly six months into the war that began with American and Israeli attacks on February 28, the prevailing image is a game of chicken. Washington tightens sanctions and maintains a naval blockade; Tehran constricts the Strait of Hormuz, threatens shipping and waits for economic costs to weaken its adversaries’ resolve. Each is betting the other yields first. But the popular metaphor creates a false impression of comparable stakes. A game of chicken does not require equally matched players, yet the image suggests both drivers face roughly the same consequences. They do not. This is an asymmetric contest of endurance, a siege dressed as a duel.

The global economy is absorbing a severe energy shock. Brent crude has traded in the low $90s, well above its prewar level, fuel costs are feeding inflation, and the International Energy Agency has described the conflict as producing the largest oil-supply disruption in recorded history. Yet the system continues to function. The shock is serious but, so far, systemically manageable.

Iran is absorbing the same crisis on a different scale. Its Statistical Centre reported consumer prices in July 87.9 per cent higher than a year earlier, with food inflation at 128 per cent. The IMF, which before the war expected modest growth, now forecasts a 5.4 per cent contraction in 2026 and average inflation of 68.9 per cent. The contrast is not between Western comfort and Iranian collapse. It is between one side confronting a costly but absorbable shock and another facing fiscal, monetary, industrial and household crises simultaneously. The first people paying for that imbalance are not Iran’s commanders but ordinary Iranians, with families cutting meat and other staples from their diets.

The Strait of Hormuz remains Iran’s most powerful lever, and it is neither irrelevant nor easily replaced. Roughly 20 million barrels a day passed through it before the war; the IEA estimates that flows averaged just 2.7 million barrels a day from March to May. Saudi Arabia shifted exports to its East-West Pipeline and the Red Sea port of Yanbu, governments released emergency reserves, and consumers cut demand. These measures did not solve the disruption; they bought time. But six months have shown that the oil weapon does not produce immediate surrender. The market has partially absorbed the shock through inventories, demand reduction and limited bypass routes. Iran’s leverage remains potent. It is no longer untested.

No country has approached that calculation more coldly than China. The US Energy Information Administration estimates that Beijing added an average of 1.1 million barrels a day to strategic inventories in 2025, reaching nearly 1.4 billion barrels by year-end, reserves that gave it room to reduce exposure when the war disrupted Gulf supplies. China has not abandoned Iran; it remains Tehran’s principal oil customer, and independent refiners still buy discounted Iranian crude. But shipments fell from roughly 823,000 barrels a day in July to a provisional 534,000 in August, far below their pre-war peak, while Beijing leaned on inventories, cut refinery runs and diversified its purchasing. China did not defect to the West. It simply did the math. It is Iran’s buyer, not its economic guarantor.

Then one of Iran’s most important commercial gateways closed. On August 19, the United Arab Emirates suspended all trade, commercial exchanges and financial transactions with Iran. The decision followed the UAE’s announcement that two ballistic missiles had been launched from Iran toward the country, as well as repeated attacks on ADNOC-linked vessels in the strait. The UAE was not Iran’s last connection to the world; China, Turkiye and informal routes remain. But WTO data show the Emirates accounted for 30.6 per cent of Iran’s recorded merchandise imports in 2024, and the relationship’s value came not only from Emirati goods but from the UAE’s role as a re-export and logistics hub. Abu Dhabi framed the decision as a sovereign response to regional escalation while reaffirming its commitment to dialogue. The significance lies precisely there: Tehran’s coercion helped close a channel that decades of American pressure had failed to eliminate. Iran cannot demand connectivity from its neighbours while attacking the maritime system that provides it.

None of this means economic pain guarantees capitulation. The Iranian state has survived decades of sanctions, can transfer costs to its population, and retains missile and drone capacity sufficient to impede tankers and raise the price of continued war; the Revolutionary Guard has assumed a larger wartime role and continues to back escalation. Any argument treating Iranian defeat as imminent is premature. Resilience, however, is not strength. It means Tehran can prolong the contest, not that it can do so without steadily narrowing its own options.

Which is where the chicken metaphor earns its keep. In the classic formulation, a driver wins by throwing the steering wheel out the window, making it impossible to swerve. The move is credible only if the opponent believes the driver can survive the crash, and Iran’s civilian leadership is increasingly signalling doubt. Pezeshkian has said it would be better to end the war now, while Iran retains a position of “power and dignity”; other civilian officials worry openly about the economic damage, while hard-line and Revolutionary Guard figures emphasise resistance. This is not a clean split between peace and war camps; Iranian officials can pursue diplomacy and escalation at once. But the disagreement shows that time is not merely Iran’s weapon against its adversaries. It is also a source of pressure inside the Iranian state.

Honesty requires one concession: time could still favour Tehran. Emergency reserves are depleting, global inventories are falling, bypass routes remain vulnerable, and the EIA expects most shut-in production to be largely restored only in the first quarter of 2027. If disruption continues, today’s price could prove a floor rather than a ceiling. Tehran’s best chance is to make the world absorb rising costs before its own weaknesses become decisive. That strategy is not irrational. But a strategy can be rational and still be losing.

There is a game of chicken in this conflict, an asymmetric one between Washington and Tehran. The more consequential version may now be unfolding inside Tehran itself, between civilian leaders searching for an off-ramp and a security establishment betting the world blinks first. Iran’s margin is contracting faster than its adversaries’ patience is fraying. That has been the reality behind this standoff from the beginning: a contest of nerve, never a contest of equals.

Mohammad AlDarmaki is a researcher and economic analyst at the Emirates Center for Strategic Studies and Research (ECSSR)