The Iranian economy is largely dependent on export of oil and on the foreign exchange that the country earns from this export. Therefore, developments in the oil market at the international level vastly affect the Iranian economy.

According to US Energy Information Administration world demand for crude oil rose from 75.7m barrels per day (bpd) in 2001 to 76.3m in 2002, while supply dropped from 76.8m in 2001 to 76.0m in 2002. In the same period OPEC’s exports decreased by 3.5m bpd. Thus Iran’s exports declined by 5.8% down to 2.2m bpd.

Meanwhile the price of oil in 2001 was 21.4 USD, 15.3% lower than in 2000. Iran’s total production was 3.463m bpd in 2001 and 3.259m bpd in 2002. If we assume that there will be an equal rise in demand in 2003 over 2002 as there was in 2002 over 2001, then total world demand in 2003 should be 77.6m bpd of which
29.3m bpd shall be provided by OPEC member nations. At one time the price of oil fell down to 21 USD per barrel forcing OPEC to decrease production in order to maintain the price. In September 2003 OPEC had a meeting in which the members unanimously agreed to reduce production by 3%, that is 900,000 bpd. Price of oil was also affected by events in Iraq. First there was a reduction in supply. But when Iraq fell into the hands of
America and Britain they allowed exports from Iraq to resume, and soon Iraq was exporting about one million bpd of crude oil which obviously affected the price of crude.

In short, if conditions do not permanently settle down in the world, oil prices shall continue to fluctuate almost haphazardly, and Iran’s economy will remain precarious. According to predictions made by the US Energy Information Administration the average price of crude oil, which was 20 USD per barrel in 2002, and is 21 USD in 2003, shall be 18 USD in 2005, 19 USD in 2010 and 21 USD in 2015. The same Administration also predicts that Iran shall continue to spend one billion USD per year on import of oil products (petrol/gasoline in
particular).

Iran has 90b barrels of proven oil reserves, roughly 9% of the world’s total. It also has some 812 trillion cu ft (22.8 trillion cu m) of proven natural gas reserves, making it second in size only to Russia. Impressive as these figures are, they only provide part of the picture. Iran recently announced a giant new oil discovery at Azadegan region near the border with Iraq, which could add as much as 50% to total reserves; and this is just one of many areas still being developed.

Many potential gas fields are also waiting to be opened up. For instance, at Assalouyeh in the south, Iranian and non- Iranian entities working as joint ventures are making large investments in many projects of the South Pars gas field. The total amount of these investments is expected to reach $22b within the next two years.

In 1974, Iran exported 6m bpd of crude oil but presently it is not able to raise production beyond the 3.8m level and although the country is implementing vast projects to increase production from the existing wells it has not been able to make great headway. Even so, Bijan Zanganeh, the Oil Minister, claims that the country plans to produce 5.6m bpd in 2010 and up to 7.3m in 2020. If the country is to achieve these objectives, very heavy investments must be made in the oil sector which Iran is not able to do without the cooperation of foreign investors and foreign technology.

Iranian oil exports according to region
Region	1997	1998	1999	2000	2001
Europe	51.4	49.8	33.6	31.4	14.0
Japan	19.1	18.7	24.7	21.9	23.7
Asia & Far East	26.9	27.8	26.1	39.6	41.8
Africa	-	-	-	7.1	6.9
Others	2.6	3.7	15.6	-	13.6
Total	100	100	100	100	100

Source: Central Bank of Iran, “Annual Report 2001-2002”

The country needs about five billion USD of foreign investment. Some authors maintain that the country’s
exchange reserves are adequate for such an investment, but even if this be so, it would be wiser for the country to opt for foreign investment which is usually accompanied by technology and effective management. Foreign investors are usually in touch with their own buyers of crude oil, as well. To raise the rate of flow of oil from the
existing wells, experts have proposed that natural gas should be transferred from gas fields to oil fields to be injected into the existing wells forcing the oil out.

In November 2000 Iran signed an agreement with Japan, according to which the two sides would cooperate in mobilizing oil wells to produce oil at higher rates. Japan undertook to provide Iran with 3b USD in loan of which 2b have already been paid, the second one billion having been paid in April 2002. Towards the end of 2001 Italy’s Center for Energy and Oil signed a one-billion dollar agreement with Iran with the object of developing the Darkhoveyyen Oil Field, which may contain 3-5 billion barrels of crude oil. Italy owns 60% of the project and the remaining 40% belongs to NIOC.

The field is expected to provide about 160,000 bpd. These are just two of many joint efforts towards developing
Iran’s oil industry and expanding production.