Iran economy under strain as oil minister resigns and Hormuz remains closed

Iran’s oil minister has resigned as the country battles severe economic strain and a blockaded coast, with Tehran warning that the strategic Strait of Hormuz will remain closed to global shipping until the US meets its demands.

The departure of Mohsen Paknejad, who had run the oil ministry since August 2024, was announced by Iranian state media without explanation. Hamid Bovard, the head of the state-owned National Iranian Oil Company, has taken over as acting minister. The reshuffle comes at a critical moment. While Paknejad insisted before his exit that oil revenues are still flowing, the economic pressure of a seven-month war is visibly mounting on Tehran.

The closure of the Strait of Hormuz, which previously carried about a fifth of the world’s oil, is both Iran’s primary economic shield and its most dangerous weapon. Parliament Speaker Mohammad Bagher Ghalibaf made it clear on Sunday that the waterway will not reopen until the US satisfies seven conditions laid out in the "Islamabad Memorandum" — an interim deal signed in June by Donald Trump and Iranian President Masoud Pezeshkian. Those conditions include lifting the naval blockade on Iranian ports, stopping "acts of aggression", and releasing frozen assets.

But the strategy of economic brinkmanship is a double-edged sword. If Iran’s economy collapses under the weight of sanctions and the naval blockade, the consequences are unlikely to stay within its borders. Instead of forcing a retreat, financial desperation could trigger a much wider regional escalation.

Signs of that escalation are already visible on the water. Over the weekend, the UK Maritime Trade Operations service reported that two more tankers were hit by unidentified projectiles. One was struck on Saturday four miles east of Oman; another was hit on Sunday inside the Strait of Hormuz itself, suffering engine room damage.

At the same time, the war is expanding onto other fronts. Yemen's Iran-aligned Houthi rebels claimed a missile and drone strike on a Saudi Aramco facility in Riyadh, sending thick smoke over the Saudi capital.

If the Iranian economy implodes, observers fear Tehran could resort to a scorched-earth campaign, using its regional proxies to systematically disrupt Middle Eastern energy infrastructure. Already, the threat of renewed full-scale conflict has kept global energy markets on edge. Brent crude is trading at over $102 a barrel, even after G7 nations agreed to release emergency fuel reserves to cool prices.

Diplomacy is not entirely dead. Iranian officials say they are reviewing a US proposal sent via Qatari intermediaries, which could offer some sanctions relief in exchange for progress on dismantling Iran's nuclear programme. However, Donald Trump has publicly rejected any suggestion that he is offering concessions. With both sides dug in, the risk is that Iran’s economic breaking point arrives before a diplomatic breakthrough does.