Flames over Tehran: Energy future uncertain after Israeli strikes

At least four major Iranian energy installations have been targeted by Israel, which threatens to topple the country’s unstable energy grid and oil-reliant economy.

A man watches near a highway blocked with traffic as a fire blazes in the oil depots of Shahran, northwest of Tehran, on June 15, 2025.Picture: AFP

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Israel has destroyed much of Iran’s gas fields and power infrastructure, crippling the petrostate’s economy for years to come and deepening a local energy crisis, with more potential targets in site.

At least four separate installations crucial to Iran’s oil export market and domestic power grid were targeted by Israel on Saturday, local time. In Tehran, the Shahran fuel and gasoline depot and Shahr Rey oil refinery were both destroyed.

The South Pars gas field and Fajr Jam Gas Refining Company, both found along the Iranian south coast, were also hit.

The destruction of Shahr Rey refinery and the Shahran gas depot within the urban bounds of Tehran left emergency services scrambling and caused mass residential damage, with a layer of smoke and flames resting over the inland capital.

South Pars Gas Field was one of the world’s largest gas fields and a critical piece of Iran’s energy strategy before a swarm of Israeli drones descended upon it early in the second day of the Israel-Iran conflict.

Flames rise from an oil storage facility after it appeared to have been hit by an Israeli strike in Tehran, Iran. Picture: AP/Vahid Salemi

The Shahran gas depot stored and cycled through around eight million litres of gasoline daily, the Iranian oil ministry estimated.

The New York Times reported Israel had also struck a Tehran office of the oil ministry in an apparent attack on its engineering department.

While the global oil market has diversified away from Iran since its 1979 Islamic revolution, the domestic implications of recent attacks for the Iranian economy are nerve-racking.

Iran is home to the world’s second-largest gas and fourth-largest crude oil reserves. By the estimate of Barrons, it produces about 3.2 million barrels of oil daily, exporting more than half.

It remains under-represented in the global oil trade due to sanctions and meagre investment.

“We have entered the second phase of the war, which is extremely dangerous and destructive,” Iranian energy expert Abdollah Babakhani told the New York Times. “(Targeting energy infrastructure) will be a disaster because repairing them will be costly and take time.”

While targeting nuclear refinement facilities de-fanged Iran in the medium term, hitting oilfields has paved the way for a local crisis that could destabilise Ayatollah Ali Khamenei’s grasp on the ­nation .

On the last occasion where oil prices swelled significantly in 2019, it prompted the nationwide “Bloody November” protests. Amnesty International classified it as the largest anti-government insurrection since the 1979 revolution.

Israel, having declared “freedom of action” in the skies over Tehran, has plenty more targets should it decide to buck global calls for de-escalation and further impede Iran’s energy sector.

“(This is) a warning shot that Israel is willing to hit Iranian energy infrastructure if Israeli civilians are targeted,” Energy Aspects geopolitical head, Richard Bronze, told the New York Times.

Iran had been grappling with gas shortages, power outages and infrastructural shortfalls for years before the Israeli attack.

The International Energy Agency estimated Iranian oil production has swelled by 75 per cent since 2020 after Donald Trump reneged on a deal organised by Barack Obama to ease sanctions should Iran agree to ease back progress on its nuclear program. Navigating its volatile obligations to the international market, it routinely failed to meet demand and pushed the consequences on residents and businesses.

Pictures of the victims of the Israeli attack are seen during an Eid Ghadir ceremony and a protest march against the Israeli attacks on Iranian soil. Picture: Majid Saeedi/Getty Images

International boycotts will also frustrate any efforts to repair infrastructure affected by the current attacks.

Israel has held back on attacking Iran’s main oil export hub – the coral-studded Kharg Island terminal on the Persian Gulf. Hitting Kharg Island would be the next natural escalation for Israel and would disrupt exports across the Middle East, likely spiking oil ­prices in the process.

“If this proves to be an extended military operation, it is conceivable that the Netanyahu government could seek to eliminate the primary source of funds for Iran’s proxy network and nuclear program,” RBC capital markets strat­egist Helima Croft told Barrons.

Local Iranian media has reported that defences had consolidated around the energy refineries of ­Isfahan and Tabriz, along with the Bandas Abbas shipping port.

Iran also has the option to voluntarily sabotage the oil industry by blocking its own export routes or targeting petroleum installations in the United Arab Emirates and Saudi Arabia should it wish to dole out global financial pain.