The Islamic Republic of Iran is often identified as a theocracy but seldom characterized as a rentier state. This paper is an attempt to problematize Iran’s oil-centred rentier state and its correlation with authoritarianism. The paper’s theoretical standpoint is equally distanced from cultural essentialism (Iran’s culture as the main obstacle to democracy) and conventional structuralism (economic determinism – undermining the intersection of political economy, history, culture and human agency). The paper adopts a critical political economy approach to the study of democratization in Iran. This paper is divided into three sections: The first section is a critical study of conventional and more recent theories of rentier state and its correlation with authoritarianism/democracy. The second section examines why postrevolutionary Iran is a rentier state. Iran’s oil export has declined due to the targeted economic sanctions. However, it still holds the fourth largest oil resources and remains among the top ten exporters worldwide. Iran’s economy relies on substantial external rent and state remains the principle recipient and distributor of the external rent. 60% of Iran’s annual budget comes from oil revenues and Iran’s Oil Stabilization Fund has compensated 90% of the annual budget deficits. The third section demonstrates how and why the oil revenue has strengthened authoritarianism in Iran. Oil dependency has increased under the Islamic Republic. Oil rents created a new class of ruling oligarchy whose survival rests on the status quo. The paper examines politics of petro-populism under former President Ahmadinejad whose government received the highest oil revenues in Iran’s history and is known for one of the most corrupt administrations. The threefold findings of the paper are based on critical literature review, data analysis and field research. First, oil is not the only explanatory factor for authoritarianism; autocracy existed long before the discovery of oil in Iran. However, rentierism has immensely reinforced autocracy. Second, rentier state is a double-edged sword: it consolidates authoritarianism but it also contributes to socio-economic development and the expansion of middle class who often pushes for political reform. Rentierism has nurtured its own enemy from within. Third, rentierism is not a destiny. The paper examines case studies (Norway, Mexico, etc.) and three different strategies to move beyond rentierism (privatization, populist re-distribution, and decentralization of oil revenues). It shows whether and how theses experiences and strategies help Iran move beyond politics of rentierism and petro-populism.