The looming oil crisis in Iran

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: Excerpts from the executive summary of the NSCS report on Iran’s oil economy:

According to analysts, the Iranian economy is grossly mismanaged and highly vulnerable to external pressures. UNSC resolution 1747 has widened the scope of the sanctions imposed vide UNSC 1737. Further widening of the sanction in future can have serious impact on the Iranian economy.

Iran’s economy is overwhelmingly dependent on oil. Iran has a GDP of $194.8 billion (2006) and per capita income of US$2440. Foreign trade accounts for nearly 50% of the GDP. Oil and gas comprise more than 80% of Iran’s exports, presently US $63 billion. 60% of Iran’s oil exports are to OECD countries.

Although Iran is the fourth largest producer of oil in the world after Saudi Arabia, Russia and the US, its existing oil fields are in a state of natural decline. The oil and gas industry in Iran requires over $100 billion worth of investment for rejuvenation. Thus, Iran requires massive dose of foreign investment, which is not forthcoming because of sanctions.

Inadequate refining capacity is the major weakness of Iran’s oil and gas industry. Iran has a refining capacity of only 1.64 million barrels oil per day while it refines only 1.3 mbpd. The Iranian government imports large quantities of gasoline as well as natural gas —41% of its total consumption—to meet its domestic demand.

To make matters worse, Iran spends nearly $30 billion annually on subsidizing oil and gas to domestic consumers. This leaves little money for investment in new assets or for maintenance Iran has not been able to fulfill its production quota allotted by the OPEC due to the ageing of its oil production facilities. Given the rising domestic demand, Iran may not be able to export any oil by 2015 if fresh capacity is not added.

EU, Russia, China and Japan have major economic interests in Iran. However, isolation of Iran on the nuclear issue and the tightening of economic and trade sanctions will deter investment from these countries. Several US and European banks have stopped dealing with Iran under US pressure. President

Ahmadinejad is already under considerable domestic pressure for not having delivered on economic promises he had made to his voters.