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WEEKLY NEWSLETTER
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Iran
Index
Petroleum is the engine that drives the Iranian economy
Courtesy United Nations (E. Adams)
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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