Iran's petroleum industry: Significant role, reduced clout
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Iran, a country with a population of around 86 million, holds approximately 19% of the Middle East's proven oil reserves. However, the oil industry in Iran has faced numerous challenges, some of which have been exacerbated by sanctions.
Sanctions have limited access to financing, curtailed technology transfers, raised trade costs, and reduced overall competitiveness. These factors have hindered Iran's ability to expand its oil production beyond current levels. Despite large reserves and advancements in drilling and extraction technologies, Iran's oil production remains below its peak levels of the 1970s.
In 2023-2024, more than 50% of Iran's non-oil exports consisted of petrochemical products and gas condensates. Approximately 10 key trade partners contribute to roughly 85% of its non-oil exports, though specific details on these partners are not provided. China, being Iran's major trading partner, could also imply involvement in non-oil trade.
The search results do not specifically mention Iran's key non-oil export partners. However, Iran is currently exporting around 1.5 mb/d and producing close to its post-sanctions high of 4 mb/d. The share of oil revenues in Iran's public budget has remained higher than 25% in most years, while oil accounts for nearly 9% of its GDP.
Any meaningful expansion beyond current levels would require investment in infrastructure, technology, and field rehabilitation, which cannot be achieved quickly. Iran's fiscal breakeven oil price for balancing its budget in 2025 is $163 per barrel, the highest among Middle Eastern oil exporters.
Historically, international investors have found the terms of the buyback contract unattractive. In response, the government has adopted a more flexible stance toward foreign investment and introduced the buyback contract. Despite this, Iran has increasingly relied on domestic firms to develop its oil projects, but these companies often lack the necessary capital, technology, and expertise.
The critical variable is how OPEC would respond to potential supply constraints. Iran still controls the Strait of Hormuz, a key maritime passage that could significantly affect worldwide energy supplies and prices if disrupted. If sanctions are eased or lifted, Iran could increase its oil production and exports, but the upside would be limited due to underinvestment and limited foreign involvement.
If stronger penalties are introduced and enforced aggressively, Iran's oil exports could fall, creating upward pressure on global oil prices. U.S. shale producers would likely increase production if prices rise sharply. It is important to note that Iran nationalized its oil industry in 1951 and prohibited international investment after the 1979 Islamic Revolution.
Iran is the highest energy consumer in the Middle East, with natural gas and oil accounting for nearly all of its total primary energy consumption. The Iran-Iraq War devastated the oil sector, leaving it in urgent need of rebuilding. The government spends the most on energy subsidies worldwide.
In conclusion, Iran's oil sector faces significant challenges due to sanctions, underinvestment, and a lack of foreign involvement. The country's oil production remains below its peak levels of the 1970s, and its oil exports could be affected by various factors, including OPEC's response to potential supply constraints and the enforcement of sanctions.
