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Last Updated: Wednesday, 15 February 2006, 13:28 GMT
Iran: Energy overview

Iran has the world's second biggest proven oil reserves after Saudi Arabia and the second biggest gas reserves after Russia.

Iran's geo-strategic position and its already-existing network of pipelines also make it a key actor in the energy world.

Ship loads oil from Lavan island refinery
Iran is currently Opec's second largest producer
But international and domestic factors have hampered optimal use by Iran of its energy resources since the 1979 revolution that toppled the Shah.

Revenues from oil exports - projected to reach at least $45bn dollars in the year to March 2007, according to reports in the Iranian press - fund about 50% of Iran's annual budget.

Iran supplies about 5% of the world's oil supply. In February 2006 an oil ministry official put crude production at 3.5-4m bpd, a figure which could be increased by 1m bpd "although it calls for major investments."


Iran's oil and gas sector suffers from under-investment as a result of US sanctions, which have been in force for more than two decades.

The sanctions have not only kept US companies out of Iran but have also served as a disincentive to other countries' firms and multinationals because of the threat of secondary sanctions (approved by the US Congress in 1996).


Petrol is heavily subsidised in Iran. This has led both to very high consumption levels and a big smuggling problem as petrol is transported out of Iran's border areas for re-sale in neighbouring countries, where petrol prices are much higher.

Also, a shortage of refineries combined with wasteful consumption means that Iran regularly imports petrol despite being one of the world's biggest oil producers. (In the Iranian year which will end in March 2006, the cost of petrol imports is put at about 4.5bn dollars.)


Iran has a vast network of pipelines and should be a major contender in regional pipeline projects. But the US has tried to ensure that any new pipelines in the Middle East/Central Asia region bypass Iran.

The US is also putting pressure on India to dissuade it from a big pipeline project that would take gas to India from Iran via Pakistan. The fate of the project still hangs in the balance.


Iran and the former Soviet Union observed bilateral agreements (signed in 1921 and 1940) on the division of the Caspian Sea.

But the collapse of the USSR meant the number of Caspian Sea littoral states jumped from two to five (Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan) and generated disagreements over laws governing the sea which remain unresolved.

Eventual decisions will obviously have implications for the exploitation of Caspian Sea oil.


Iran's nuclear energy programme has proved controversial in recent years. Some international critics say that Iran does not need nuclear energy in view of its vast oil and gas reserves.

Iran responds by saying that Western opposition to its nuclear energy programme is politically-motivated, since there was no opposition to the Bushehr nuclear power plant project when it started before the 1979 revolution with German involvement.

Iran also maintains that if it can use nuclear power to meet some of its domestic energy needs, it will be able to export more oil and generate more foreign currency revenue.

It could face punitive international sanctions over its nuclear programme once the issue is in the hands of the UN Security Council.


According to the director of Iran's New Energies Organization, 0.2% of Iran's oil revenues - amounting to millions of dollars - is to be used to develop new energy sources.

Their use is also due to increase over the next five years to 1% of domestic power generation.

The New Energies Organization is, among other things, producing a "wind atlas" and a "biomass atlas" and working to attract private-sector financial and technical support to build wind-powered power plants.

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