Iran’s regional dominance and its role as a key player in the global energy market have long been underpinned by its vast oil and gas reserves. However, the regime’s reliance on proxy organizations and its economic mismanagement have placed it in a precarious position. If the regime in Tehran collapses, it could lead to significant changes in the geopolitical and economic landscape, particularly in the energy sector.

For decades, Iran’s influence extended through groups such as Hezbollah, Hamas, and the Houthis, which acted as proxy forces in the region. However, recent developments have left Tehran isolated. This diminishes its regional leverage and increases its domestic vulnerability.

Iran is one of the world’s largest holders of oil and gas reserves, but U.S. sanctions and underdeveloped infrastructure have severely hindered its ability to capitalize on these resources. According to Dr. Meir Javedanfar from Reichman University, Iran’s dependence on discounted oil sales to China highlights its economic struggles. While China benefits from these discounts, it does not rely heavily on Iranian energy, leaving Iran in a one-sided dependency.

Internally, Iran faces an energy crisis despite its natural wealth. Aging refineries and poor infrastructure mean that even during a harsh winter, Iranian citizens could face energy shortages. This internal strain, compounded by an economic crisis driven by sanctions, inflation, and poor governance, creates fertile ground for domestic unrest.

If the Iranian regime falls, the global energy market could shift in several ways:

Optimistic Scenario: A moderate, democratic government could emerge, leading to the lifting of sanctions and reintegration into the global economy. This would allow Iran to increase oil exports, stabilize its currency, and attract foreign investment. Global oil prices could drop as Iran resumes full production, providing relief to energy markets worldwide.

Pessimistic Scenario: Alternatively, another extremist regime could take power, maintaining or even escalating tensions. This could worsen Iran’s economic woes and limit its contributions to global energy supplies. Under such circumstances, volatility in oil prices could persist.

Minimal Global Impact: As Dr. Javadanfar points out, the global energy market has become more diversified since the Ukraine-Russia war. European nations, in particular, have reduced their reliance on specific suppliers, sourcing oil and gas from the U.S. and Qatar. This diversification could buffer against potential disruptions from an Iranian collapse.

The possibility of regime change in Iran, while significant, is far from certain. The Iranian government’s repressive measures and the absence of a unified opposition make a coup or uprising challenging. Yet, popular discontent over economic mismanagement and energy shortages could spark unrest.

Regardless of the regime’s trajectory, its current economic and infrastructural challenges have already curtailed its influence on global energy markets. Should the regime fall, the aftermath will largely determine whether Iran becomes a stabilizing or destabilizing force in the global economy.

Image credit: Gas flare on an oil production platform alongside an Iranian flag July 25, 2005. REUTERS/Raheb Homavandi