Iran, Islamic Republic

What it is

The Islamic Republic of Iran is a theocratic republic on the eastern shore of the Persian Gulf, founded in February 1979 after the Islamic Revolution deposed Shah Mohammad Reza Pahlavi. Supreme political authority rests with the Supreme Leader; the elected presidency is held by Masoud Pezeshkian, who won office in July 2024. Population reached 92.4 million in 2025, with the capital Tehran at around 16 million. Iran borders Iraq and Turkey to the west, Azerbaijan and Armenia to the northwest, Turkmenistan and Afghanistan to the northeast, Pakistan to the east, and the Persian Gulf and Sea of Oman to the south. That coastline covers the northern shore of the Strait of Hormuz, the passage through which roughly 20% of globally traded oil flows.

History

The 444-day US hostage crisis (November 1979 to January 1981) ended all formal US-Iran diplomatic relations, establishing the sanctions-and-proxy-conflict dynamic that has defined bilateral relations since. The 1980-88 Iran-Iraq War, which Iraq began with US backing, cost an estimated 300,000 to 500,000 Iranian lives and cemented the Islamic Revolutionary Guard Corps as the dominant domestic security and economic institution. Iran's nuclear program became a global flashpoint in 2002, when a dissident group publicly revealed the Natanz enrichment facility. The 2015 Joint Comprehensive Plan of Action (JCPOA) capped enrichment at 3.67% in exchange for sanctions relief, but US President Trump withdrew in May 2018 under a "maximum pressure" campaign. By June 2025, Iran had enriched to 60% U-235, accumulating 440.9 kg, approaching weapons-relevant concentrations. Israeli military strikes in June 2025 hit seven declared nuclear facilities, including Fordow and the main Fuel Enrichment Plant at Natanz. Iran notified the IAEA of a new enrichment facility, IFEP, on June 12, 2025.

Current state

Iran's economy contracted 2.8% in 2025, reaching US$362.7 billion in current prices, with inflation at 42.2% and unemployment at 8.3%. Iran is the fourth-largest crude oil producer in OPEC, pumping roughly 2.9 million barrels per day in 2023. Sanctions have routed approximately 90% of Iran's crude exports to China through shadow-fleet arrangements; net oil export revenue was roughly US$53 billion in 2023, a figure compressed by the 호르무즈 재개통과 이란 휴전 지속으로 원유, 코로나 이후 최대 분기 하락. Military spending fell for a second consecutive year to US$7.4 billion in 2025, a real-terms constraint driven by 42% annual inflation eroding the nominal budget. In June 2026, the IRGC conducted drone and missile strikes on targets in Bahrain and Kuwait, and renewed threats to close the Strait of Hormuz during and after the Doha talks that concluded July 2.

Relationships

Iran's sharpest active conflict is with Israel, whose June 2025 strikes destroyed or damaged most of the declared nuclear infrastructure and triggered the current military-diplomatic crisis. The US has maintained no formal diplomatic relations with Iran since 1980; the Witkoff-Kushner channel conducting indirect Doha talks is the primary live US-Iran contact. A June 17 Hormuz de-escalation MoU (60-day clock expiring approximately August 16) frames the immediate ceasefire. Pakistan's Prime Minister Shehbaz Sharif and Turkey's government have served as regional intermediaries, per the 파키스탄 샤바즈 총리, 이란-미국 셔틀 중재자로 7월 3~6일 테헤란·앙카라 방문 track. Within OPEC, Iran's revenue pressure intensified as the fourth OPEC+ production hike of 2026 pushed Brent crude below US$67, reducing per-barrel earnings against a fixed sanctions ceiling on volumes. The Hormuz oil glut risk reflects how Iran's threat capacity and OPEC supply growth now simultaneously weigh on oil prices from opposite directions. Iran's gold reserve position is a secondary hard-currency buffer as sanctions compress US dollar access.

What to watch

• Whether Iran's post-Khamenei leadership contest, with the state funeral running July 4-9, shifts the negotiating posture before the Hormuz MoU deadline of approximately August 16, 2026.
• The next-round nuclear talks, targeted for the week of July 14-21, compressed by the 60-day MoU clock that started June 17.
• IAEA access to IFEP and the previously declared enriched uranium stocks, which the agency could not verify for nearly a year as of July 2026, the key proliferation threshold question.
• Whether China's continued purchases of Iranian crude hold steady if US secondary sanctions pressure on Chinese banks intensifies.