Economics and Iran's
Future as an Oil Power
Iran's future as an oil power is another major factor that must be considered in shaping policy towards Iran. Iran's oil and gas export revenues shape the health of its economy, and determine its military expenditures and its ability to fund economic development and recovery. They also determine much of Iran's behavior in dealing with other oil and gas exporting states, and the extent to which Iran can or cannot provide the levels of oil and gas necessary to meet rising world demand and keep oil and gas prices moderate.
Oil and gas resources are also the Iranian government's major source of revenues. It owns all of Iran's petroleum and utilities industries and banks, and the revenues that its draws from oil and gas exports fund 90% of the Iranian budget and some 60% of Iran's five year plan. The US Department of Energy indicates that Iran's oil export revenues were estimated at just over $14 billion in 1994, and were 77% percent of total export earnings.
Iran is trying to diversify the country's economy, and to reduce imports in order to stabilize the country's trade balance. It has had some success. Imports fell by about 30 percent in 1994, and dropped to $17.6 billion, while non-oil exports rose 16 percent. This improvement was aided by a March 1993 devaluation of the Iranian Rial as well as a subsequent depreciation of the currency during 1994. In February 1995, the Rial's market rate had dropped to 4,000 Rials per dollar from 2,500 rials per dollar a year earlier.
Iran remains a major oil power, but there is considerable debate over how large Iran's oil reserves really are and just how large an oil power Iran will be in the future. A very conservative estimate of Iran's proven, economically recoverable reserves gives it 35.6 billion barrels of oil, or about