The oil revenues have positive and negative effects on economic performance through different channels that can cause curse or blessing. The Dynamic Stochastic General Equilibrium (DSGE) model is amongst the best tools for understanding how different economic shocks affect macroeconomic variables. This study uses a DSGE model to analyze how oil shocks affect the Iranian economy in the short and long run. The model emphasizes the role of rent-seeking behavior and institutional factors in the transmission of oil shocks. The results show that a positive oil shock increases non-oil output in the short run due to expansion of demand and increased supply of goods, but leads to a decrease in non-oil output in the long run due to rent-seeking behavior and institutional weaknesses.