Iran's Own Arithmetic: What a Closure Would Cost the Country That Controls the Threat
The strategic logic of Iran’s Hormuz threat rests on the assumption that the cost of closure to the outside world exceeds the cost of closure to Iran. This assumption is correct in relative terms and misleading in absolute terms. Iran would suffer severely from a Hormuz closure that it initiated. Its oil exports, its import supply chain, and its remaining international financial connections all depend on the strait remaining open. The question is whether the political leadership in Tehran would initiate a closure despite these costs, and under what conditions the answer would be yes. The Iranian domestic economy is the ledger that answers that question.
Iran’s government revenue depends on oil exports for approximately half of its budget under normal conditions. Sanctions have reduced the absolute level of these revenues significantly since 2018, but Iran has adapted its export infrastructure — the shadow fleet, the Chinese buyers, the price discounts — to sustain a flow of income that keeps the government funded at reduced but functional levels. A complete Hormuz closure would eliminate this income stream entirely, not because the strait carries Iranian exports but because the closure itself would trigger a military conflict that would shut Iranian export operations regardless of which route those exports nominally used.
The inflation that has resulted from sustained sanctions — the rial’s collapse, the rise in consumer prices for basic goods, the unemployment particularly among young Iranians — has already created conditions of significant domestic economic stress. Polling and academic survey work on Iranian public opinion, conducted under conditions that make honest responses difficult, consistently indicates deep dissatisfaction with economic conditions even among Iranians who do not oppose the political system. A military conflict that closed the strait would add supply chain disruption to existing inflation, import shortages to existing scarcity, and international isolation to an economy already severely constrained by it.
The paradox of maximum pressure sanctions is that they may have reduced the cost-benefit calculation against closure without intending to. If Iranian oil revenues are already near zero due to sanctions, the additional revenue loss from a closure is proportionally smaller than it would be if Iran were exporting at full capacity. An Iran earning 20 billion dollars annually from oil exports (which is itself a significant reduction from pre-sanction levels) loses less in absolute revenue terms from a closure than an Iran earning 100 billion. Sanctions that reduce the price of economic self-destruction make self-destructive decisions marginally more thinkable.
The IRGC’s institutional position within the Iranian economy adds another dimension. The corps has expanded its economic footprint — controlling companies in construction, manufacturing, logistics, and financial services — to the point where it is not simply a military force with a budget. It is an economic actor with business interests that are partially insulated from the external trade channels that sanctions target most effectively. An IRGC that can sustain its institutional finances through domestic economic activity is less deterred by external economic pressure than a force that depends entirely on government appropriations that depend entirely on oil revenues. The sanctions architecture that was designed to constrain the IRGC has partially been undermined by the IRGC’s domestic economic diversification.
The political conditions under which Iranian leadership would accept the costs of a closure and initiate one are not precisely specifiable in advance. Analysts who say that economic rationality makes closure impossible are making a prediction about political behavior under conditions of extreme crisis that the historical record does not support. Governments have imposed severe costs on their own populations in service of political objectives repeatedly and across many contexts. Iranian leadership has demonstrated in the nuclear program, in the proxy network, and in the domestic suppression of dissent that it is willing to absorb enormous costs to achieve political goals it considers essential. The question of whether strait closure would ever enter that category is a question about political judgment under conditions that have not yet arrived.
The arithmetic is available to any analyst. What it does not tell you is what the decision-makers in Tehran will do when the pressures that change the arithmetic become acute enough. That is always the question that matters.