The Oil and Gas Industry
- Lifting sanctions could revive oil and natural gas production in Iran. Foreign private and national oil companies are looking to invest in the Islamic Republic, particularly in light of changes to investment terms offered by the Iranian government. Plans for pipelines and liquid natural gas could also be revived.
- The Iranian economy is heavily dependent on the lucrative oil and gas sector. The vagaries of oil markets and Iran’s reliance on a single resource for most of its income have created disincentives to develop a more diversified and globally integrated economy. This weakness has made sanctions more potent. But impaired access to imports may have also boosted domestic production to some extent. Nonetheless, the oil and gas sector has been a source of periodic but persistent economic instability.
- Iran’s oil and gas sectors have faced key structural problems. On the demand side, subsidized prices and a population that has doubled since the 1979 revolution have created excessive demand. On the supply side, an aging oil resource base has been stymied by financial constraints, technical shortages, sanctions, and using gas to stimulate oil production.
- One of the ironies of the oil-rich Gulf states’ predicament – Iran’s situation is typical of the region -- is that they are short on hydrocarbon resources. Moreover, as global environmental concerns mount, Gulf countries are facing pressures to curb their greenhouse gas emissions. Both factors are pushing the Gulf to explore alternative energy sources, including nuclear options.
- The end of international sanctions may revive investment in the oil and gas sector in the short term, which could lead to an increase in oil and gas output.
- The sharply lower oil price could keep the Iranian economy on the defensive, since Iran balances its external accounts around $75 per barrel.
- If sanctions are lifted, higher oil output and exports may increase export earnings. Greater foreign investment in the oil and gas sector may also help boost economic growth and improve the liquidity of external accounts.
This chapter was originally published in 2010, and is updated as of August 2015.
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