Oil and Gas in Iran
Oil has been Iran’s most prominent industry since the early 1900s. During the peak of the Iranian oil industry in the 1970s, Iran was the fourth largest producer of crude oil and the second largest exporter of petroleum. The war with Iraq significantly reduced the production and distribution of Iran’s oil and gas in the 1980s.
Iran still, however, retained title of being the fourth largest oil reserves in the world even during this period. Because the oil giants are largely cash rich they rarely have a need for commercial property mortgages and are able to save lenders and brokers fees that they would otherwise have to pay.
During 1951, nationalization of Iran’s oil industry resulted in a temporary political and financial turmoil. The production did not resume again until late in 1954. As part of the nationalization process, the Iranian government formed the National Iranian Oil Company.
As a direct result of the Consortium Agreement in 1954, Iran’s government and a consortium of foreign oil companies agreed to increase the Iranian government’s share of income and rising oil production provided the government with increased revenues as well.
The combination of the two left the Iranian government more funds in which to finance industrial development. The resolution of the oil crisis in 1954 led to a policy of increased economic and political cooperation between Iran and other states outside the Soviet circle of influence.
Iran joined with other major oil producing and exporting countries in 1961 and formed OPEC. The members of OPEC acted to increase each country’s control over its own production of oil and to maximize the revenues that each government would receive over that country’s oil exportation.
When the war with Iraq began to take its toll on the Iranian economy, Iran’s willingness to abide by the guidelines set forth by OPEC began to decrease. From 1983 and 1984 when OPEC priced oil at $29 per barrel, Iran undercut the OPEC prices to just $28 per barrel until October 1984.
After that it significantly reduced oil prices again making them just $26.50 per barrel. Iran continued in its deliberate price undercuts until the pricing crisis in July 1986. During this time prices dropped below $10 per barrel and the countries in which oil-exporting was abundant met to reach an agreement both on price and on levels of production.
The thirteen members of OPEC, along with several other countries who were not members of OPEC met and agreed in December 1986 that a price of $18 per barrel, with a differential of $2.65 between light and heavy crude oil would stand.
Due to the war with Iraq as well as the government’s conservation policies, crude production in Iran averaged only about 2.2 million bpd by January 1987. This number was approximately 100,000 below Iran’s OPEC quota.