Oil and Gas After the Revolution

This paper discusses Iran's oil and gas sector since the revolution. For a country with 5 percent of the world's oil and 14 percent of the natural gas reserves, Iran is not likely to run out of hydrocarbons any time soon. But at present Iran has to make do with only about one-tenth of oil revenues per capita in real terms compared to the boom years of the 1970's. While the country's dependence on oil exports has by no means diminished since the revolution, the government is not in a position to reverse the downward trend in revenues per person. The aging oil fields and rising domestic consumption are serious internal constraints to raising exports. In addition, there are some external constraints that did not exist before the revolution: OPEC quotas, a more competitive oil market in which OPEC has much less influence, and an unfavorable international political climate. Together, these prevent Iran from expanding exports or raising the price of oil.

The government has worked hard to reverse the decline in production capacity during the 1980's. About $10 billion was spent during the First Five Year Plan (1989-93) and capacity was raised to about 4.2 million barrels per day. Much of this gain in capacity is in danger of being swallowed up by domestic consumption that, thanks to extremely low refined-products prices, has been increasing at 6% per year, twice the rate of the increase in population.

The natural gas sector did not play much of a role in Iran's economy before the revolution, but it is now the linchpin of the nation's energy future. The expansion of the pipeline network in the country has increased access to natural gas for domestic consumers. While so far it has only slowed down the growth of refined products, it has the potential of allowing Iran's oil exports to go up by one third. Furthermore, maintaining oil production capacity at its current level, requires reinjection of gas into the oil fields.

The government also faces political and financial barriers to the implementation of its hydrocarbon programs. Development of Iran's giant gas fields in the Persian Gulf requires both financial and technical participation of multinational oil companies. While Iran appears to have solved certain domestic objections--constitutional and otherwise--to such participation, the international climate remains unfavorable.

* Abstract prepared by the author

Djavad Salehi-Isfahani
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