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Iranian oil production: from global domination to subjugation under sanctions

June 15, 2021

For the last 100 years, the petroleum industry has been Iran’s main source of revenue, and it is likely to retain that position for decades to come. However, as with everything else in Iran over the last four decades, the 1979 revolution and the global reaction to Islamic Republic’s foreign policies, have had a profound impact on Iran’s oil economy. During the Shah’s regime Iran was a global leader in oil production, but after the revolution, that lead quickly slipped away. Difficulties of establishing a new state system, the war with Iraq and the long-running US-imposed sanctions have robbed the state of much of its economic power. Today, Tehran has found itself in a position where the oil industry under the Islamic Republic does not appear to be in charge of its own destiny.

Figure 1 shows the history of Iran’s crude production from 1965 to 2019.


Iran's oil production increased from less than two million b/d in 1965 to a peak rate of more than six million b/d in 1974. This success catapulted Iran into one of the most important players in the global oil market, at one stage providing 10.3% of the global oil production. This dominant position in the industry was interrupted by the 1979 revolution and later on by the Iran-Iraq war. But more than three decades after the end of the war, subsequent Iranian governments could not reach pre-revolution oil output rates.

To better understand Iran’s history of oil production, we can look at the average production rates for each government (we tried to divide up the production into eight year portions to reflect the terms of Iran’s recent presidents), as shown in Figure 2.


This figure shows that Iran is highly unlikely to reach its pre-revolution oil production levels any time soon. Each government since the revolution has shown a decline in average production rates compared to the Shah’s era (ranging from -23.4% to -63.4%).

To put this into perspective, we can look at Figure 3, which shows Iran’s position as a major oil player in the decade before the revolution, in some years supplying more than 10% of global demand (average 9.5% for the eight years prior to the revolution). 


Compare this to the last eight years, where Iran averages 4.5% of the world oil supply. In 2019 that rate dropped to 3.7%. This was not due to a decline in Iran’s resource base. In fact, Iran’s oil reserves increased from 58.3 billion barrels in 1980 by 267% to 155.6 billion barrels in 2019 (see Figure 4).


It is important to note that during the pre-revolution period, OPEC did not have formal production quotas, which only came into force for the first time in 1983. However, Iran has produced below its OPEC quotas in many instances over the past 40 years.

To better understand this, we look at the key highlights/lowlights for each of the governments in this period. We have divided the production performance into the governments of the Shah as well as various Iranian presidents:

1965-1978 (Pre-Revolution Era):

  • Majority of the oil production was from onshore fields managed by the “International Oil Consortium” but Iran had also signed other contracts with international companies, for example with Italian firm ENI and American company AMOCO, for production in the Persian Gulf.
  • Iran’s production increased year-on-year with many new oil fields discovered and quickly put into production.
  • International oil companies were active in every aspect of the oil industry and Iran had access to the latest technologies and knowhow.
  •  The 1973 Arab-Israeli war and the oil embargo by Arab countries pushed oil prices from $3/B to $12/B. Iran - along with Indonesia and Nigeria - did not participate in the Arab oil embargo and continued to supply oil to Western countries. Iran’s oil reportedly was sold as high as $17/B in December 1973, equivalent to $101/B in 2021 currency).
  • The oil boom continued in 1974, leading to Iran exceeding 6 million b/d for the first and last time.
  • 1975 witnessed the first year of production decline as the world economy and hence the demand for oil collapsed because of the high oil prices.
  • Iran bounced back in 1976-77 and came close but could not reach 6 million b/d as there were some production issues and drop in reservoir pressures.
  • 1978 promised to be another high production year but because of the oil industry strikes in the fourth quarter (October-December), production declined on average.

In a recent interview, the Iranian oil minister, Bijan Zanganeh, said that "Iran has the potential to produce 6.5 million b/d.” He also encouraged the next Iranian government to try to reach that pre-revolution production height. But given the poor performance of the Islamic Republic in the past four decades - and its current nuclear and foreign policies especially vis-à-vis the United States - Iran is highly unlikely to reach its pre-revolution status in oil production anytime soon.

Iran's oil industry after the revolution evolved in six distinct stages:

1979-1981 (Early Years After the Revolution):

  • Shortly after the revolution, Iran produced six million b/d for a very short period of time as a test to show that it can do it but did not sustain it for the whole year. Foreign experts had left Iran and the government was trying to find ways to manage the oil industry.
  • With the political isolation of Iran after the invasion of the US Embassy (November 1979), the start of Iran-Iraq war (September 1980) and internal political upheaval (e.g. removal of President Banisadr), production declined to a low of  1.3 Million b/d

1981-1989 (Presidency of Ali Khamenei):

  • With the recapturing of the city of Khorramshahr in May 1982 from the Iraqi army, Iran started to increase its production to an average of 2.3 Million b/d for the six years of Khamenei’s presidency.
  • However, because of the war of attrition with Iraq, lack of investments and the continuous attacks by the Iraqis on Iran’s oil facilities, the production could not be increased. Meanwhile, many of Iran’s neighbours used the high oil revenues to build their infrastructure and improve their positions within OPEC.
  • Oil prices crashed in 1986, at one point dropping below $10/barrel. The drop in oil revenues was considered one of the reasons for Iran agreeing to a ceasefire with Iraq in August 1988.

1989-1997 (Death of Ayatollah Khomeini and Presidency of Akbar Hashemi Rafsanjani):

  • The era of post-war reconstruction for Iran saw a gradual increase in production to 3.8 Million b/d in 1996.
  • The post-Khomeini period saw Iran slowly opening up its oil industry to foreign investors. President  Rafsanjani, who had a pragmatic approach, had no qualms about trading with the United States. In fact, the first upstream oil contract after the revolution was signed with an American company Conoco (later ConocoPhillips) to develop the Siri oilfield in the Persian Gulf island of Siri.  The Clinton administration, however, forced Conoco to rescind the contract. French company, Total, then stepped in to develop the Siri oilfield.

1997-2005 (Presidency of Khatami):

  • With the reformist movement, Iran’s oil and gas industry was opened for investment to international companies, following on from the Buyback contracts signed under President Rafsanjani. Many companies signed contracts with Iran, including Shell (Anglo-Dutch), Statoil (Norwegian), OMV (Austrian), ENI (Italian), and Petronas (Malaysian).
  • Most of the leading oilfield service companies strengthened their presence in Iran, which helped NIOC to explore and develop its oil and gas resources.
  •  Despite the collapse of the oil prices in 1998-99, Iran maintained its average production at 3.9 million b/d for the period of Khatami’s governments.

2005-2013 (Presidency of Mahmoud Ahmadinejad):

  • During the eight years of Ahmadinejad, the Iranian oil industry experienced the most unusual combination of situations. On the one hand, the world demand for oil was high and we saw the highest-ever oil prices. In fact, during the eight years of Ahmadinejad, he was blessed with an average oil price of $84.67/b compared to Khatami’s era of $24.35/b (i.e. almost 3.5 times higher).
  • On the other hand, the hardline politics of Ahmadinejad and his pursuit of nuclear power, led to political isolation of Iran, sanctions and the departure of international oil companies. Furthermore, most of the international oilfield service companies left Iran and the oil industry was starved of new technology.
  • The combination of sanctions and lack of new technology led to a decline in oil production towards the end of his presidency (down to 3.81 mb/d by 2012).

2013-2019 (Iran nuclear deal (JCPOA) and Presidency of Rouhani):

  • The roller coaster ride and extreme ups and downs continued during the Rouhani era. In the early  years of Rouhani, sanctions impacted oil production, which was down in 2012-2015.
  • Production increased after JCPOA was signed in 2015. Oil production started to build up as some of the sanctions were lifted. However, production of oil started to drop after US withdrew from JCPOA in 2018 and

To better understand the difference between Iran’s oil production dynamics pre and post-revolution, we can look at figure 5, which shows the final ten years of Shah’s regime with an average oil rate of 5.11 Mb/d. 


This trend indicates a steady increase in production that is reflective of a concerted effort and a vision for the future. On the other hand, figure 6 is the last 10 years of Islamic Republic, which shows ups and downs and an average oil rate of 4.18 Mb/d. This is a decline of 22% compared to the pre-revolution years.