The main objective of this study is to examine the fiscal sustainability of the Iranian government and analyze the response of fiscal policy to structural shocks in the global oil market over the period 1980–2022. The study aims to evaluate the impact of different types of oil price shocks on the fiscal reaction function and on the ratio of the primary budget balance and public debt to GDP. To achieve this goal, the study employs a Structural Vector Autoregression (SVAR) model and, based on Kilian’s (2009) methodology, decomposes oil price shocks into three distinct categories: oil supply shocks, global aggregate demand shocks, and specific oil market demand shocks. These shocks are then incorporated into the fiscal reaction function model to assess their impact on fiscal sustainability coefficients and are ultimately analyzed through impulse response functions. The findings indicate a nonlinear relationship between government debt and the primary balance: at lower levels of debt, governments tend to improve the primary balance through increased revenues or reduced expenditures, while at higher debt levels, this response weakens, leading to a deterioration in the primary balance. Additionally, initial model estimations suggest that Iranian fiscal policymakers do not significantly react to the origin of oil price changes. However, impulse response analysis reveals that each type of shock has a distinct effect on fiscal indicators. Overall, the results highlight that fiscal policy in Iran is heavily oil-dependent, and designing sustainable fiscal strategies requires a nuanced understanding of the source and nature of oil market shocks.