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Iran
Oil and Gas Industry
Petroleum has been the main industry in Iran since the 1920s.
Iran was the world's fourth largest producer of crude oil and
the second largest exporter of petroleum at the peak of its oil
industry in the mid-1970s. The war with Iraq cut Iran's production
in the 1980s, although Iranian oil reserves remained the fourth
largest in the world.
Nationalization of the oil industry in 1951 resulted in temporary
political and financial chaos. Production did not resume until
late 1954 (see Mossadeq and Oil Nationalization , ch. 1). As part
of the nationalization process, the government formed the National
Iranian Oil Company (NIOC). As owner, the government directed
NIOC policy. As a result of the Consortium Agreement reached in
1954 between the government and a consortium of foreign oil companies,
industry control of the oil companies was left virtually intact,
but the agreement greatly increased the government's share of
income from each barrel of oil produced. The combination of the
larger share of income and rising oil production provided the
government with increased revenues with which to finance industrial
development. In addition, slow but steady progress was made in
reestablishing Iran's relations with Western powers in the aftermath
of nationalization. The resolution of the oil crisis in 1954 (nationalization
of oil and the signing of the Consortium Agreement) led to a policy
of increased economic and political cooperation between Iran and
states outside the Soviet sphere of influence. In 1961 Iran joined
with other major oil-exporting countries to form OPEC, whose members
acted in concert to increase each country's control over its own
production and to maximize its revenues.
When Iran's economy worsened after the outbreak of war with Iraq,
its willingness to abide by OPEC guidelines decreased. From 1983
to 1984, OPEC priced oil at US$29 per barrel, but Iran undercut
OPEC prices at US$28 per barrel through October 1984 and subsequently
reduced it even further to US$26.50 per barrel. Iran continued
deliberate undercutting until the pricing crisis in July 1986,
when prices dropped below US$10 per barrel and the oil-exporting
countries met to reach agreement on both price and production
levels. The thirteen members of OPEC, and several non-OPEC countries,
agreed in December 1986 to a price of US$18 per barrel, with a
maximum differential of US$2.65 between light and heavy crude
oil. (Light crude is the source of products such as gasoline and
is more expensive, whereas heavy crude provides the components
used in products such as residual fuel, oil coke, and waxes.)
By January 1987, as a result of war damage and government conservation
policies, crude production averaged 2.2 million bpd, about 100,000
bpd below Iran's OPEC quota.
Data as of December 1987
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