Iran is considered an energy superpower, largely due to its petroleum industry. In 2004, Iran produced 5.1 percent of the world's total crude oil ( per day), which generated revenues of US$25 billion to US$30 billion and was the country's primary source of foreign currency. At 2006 levels of production, oil proceeds represented about 18.7% of gross domestic product (GDP). However, the importance of the hydrocarbon sector to Iran's economy has been far greater. The oil and gas industry has been the engine of economic growth, directly affecting public development projects, the government's annual budget, and most foreign exchange sources.

In FY 2009, the sector accounted for 60% of total government revenues and 80% of the total annual value of both exports and foreign currency earnings. Oil and gas revenues are affected by the value of crude oil on the international market. It has been estimated that at the Organization of the Petroleum Exporting Countries (OPEC) quota level (December 2004), a one-dollar change in the price of crude oil on the international market would alter Iran's oil revenues by US$1 billion.

In 2012, Iran, which exported around 1.5 million barrels of crude oil a day, was the second-largest exporter among the Organization of Petroleum Exporting Countries. In the same year, officials in Iran estimated that annual oil and gas revenues could reach $250 billion by 2015.Mehr News Agency: Iran eyes $250 billion annual revenue in 5 years Retrieved December 22, 2010 The industry was subsequently disrupted by an international embargo from July 2012 to January 2016.

Despite ongoing sanctions, Iran's petroleum exports have increased in recent years. According to the U.S. Energy Information Administration, Iran exported an average of 1.4 million barrels per day of crude oil and condensate in 2023, rising to approximately 1.5 million barrels per day during the first eight months of 2024. Petroleum product exports, including liquefied petroleum gas, fuel oil, and diesel, exceeded 1 million barrels per day in 2023, up from around 820,000 barrels per day in 2022. The majority of Iranian crude exports were directed to China, while other export destinations included Syria, the United Arab Emirates, and Venezuela.

History

The era of international control, 1901–1979

Iran's oil industry began in 1901, when the British speculator William D'Arcy received a concession from Iran to explore and develop southern Iran's oil resources. The exploration in Iran was led by George Reynolds. The discovery of oil on May 26, 1908 led to the formation in 1909 of the London-based Anglo-Persian Oil Company (APOC). By purchasing a majority of the company's shares in 1914, the British government gained direct control of the Iranian oil industry, which it would not relinquish for 37 years. After 1935 the APOC was called the Anglo-Iranian Oil Company (AIOC). A 60-year agreement signed in 1933 established a flat payment to Iran of four British pounds for every ton of crude oil exported and denied Iran any right to control oil exports.

In 1950, ongoing popular demand prompted a vote in the Parliament to nationalize the petroleum industry. In 1951, the government of Prime Minister Mohammad Mosaddeq formed the National Iranian Oil Company (NIOC). A 1953 coup d'état led by British and U.S. intelligence agencies ousted the Mosaddeq government and paved the way for a new oil agreement.Kinzer, All the Shah's Men: An American Coup and the Roots of Middle East Terror (John Wiley & Sons, 2003), p.166The Ford Presidency: A History, by Andrew Downer Crain, p.124 In 1954, a new agreement divided profits equally between the NIOC and a multinational consortium that had replaced the AIOC, which at this time had been renamed The British Petroleum Company. In 1973, after the Shah threatened that the agreement would not be extended unless the consortium doubled oil production or handing over oil production entirely to Iranians, Iran signed a new 20-year concession with the consortium, which handed over oil production entirely to NIOC while giving the consortium privileged priority to purchase oil from NIOC.

Beginning in the late 1950s, many of Iran's international oil agreements did not produce the expected outcomes. Even those oil companies that managed to extract oil in their designated areas contributed very little to the country's total oil production. By the time of the Islamic Revolution of 1978–79, the five largest international companies that had agreements with the NIOC accounted for only 10.4 percent of total oil production. During this period, Iran's oil industry remained disconnected from other industries, particularly manufacturing. This separation promoted inefficiencies in the country's overall industrial economy.

In 1973, at a time when Iran was the second-largest oil exporter in the world and the Arab–Israeli War of October 6–25 was pressurizing the price of oil, the Shah of Iran told the New York Times,Smith, William. D. "Price Quadruples for Iranian Crude Oil at Auction", New York Times December 12, 1973 "Of course the world price of oil is going to rise. ... Certainly! And how ...; You [Western nations] increased the price of wheat you sell us by 300%, and the same for sugar and cement ...; You buy our crude oil and sell it back to us, refined as petrochemicals, at a hundred times the price you've paid to us ...; It's only fair that, from now on, you should pay more for oil. Let's say ten times more."

The era of nationalized oil, 1979–present

Isolation and stagnation under Khomeini Following the 1979 Revolution, the NIOC took control of Iran's petroleum industry and canceled Iran's international oil agreements. In 1980, the exploration, production, sale, and export of oil were delegated to the Ministry of Petroleum. Initially Iran's post-revolutionary oil policy was based on foreign currency requirements and the long-term preservation of the natural resource. Following the Iran–Iraq War, this policy was replaced by a more aggressive approach: maximizing exports and accelerating economic growth. From 1979 until 1998, Iran did not sign any oil agreements with foreign oil companies.

Khatami era Early in the first administration of President Mohammad Khatami, in office 1997–2005, the government paid special attention to developing Iran's oil and gas industry. Oil was defined as inter-generational capital and an indispensable foundation of economic development. Thus, between 1997 and 2004 Iran invested more than US$40 billion in expanding the capacity of existing oil fields and discovering and exploring new fields and deposits. These projects were financed either in the form of joint investments with foreign companies or domestic contractors or through direct investment by the NIOC.

In accordance with the law, foreign investment in oil discovery was possible only in the form of buyback agreements under which the NIOC was required to reimburse expenses and retain complete ownership of an oil field. Marketing of crude oil to potential buyers was managed by the NIOC and by a government enterprise called Nicoo. Nicoo marketed Iranian oil to Africa, and the NIOC marketed to Asia and Europe. According to IHS CERA estimate, Iran's oil revenue will increase by a third to US$100 billion in 2011 even though Iran is under an extended period of U.S. sanctions.

Post-JCPOA era in July 2015, the signing of the JCPOA by Hassan Rouhani and Javad Zarif with Barack Obama heralded a new era of détente in foreign relations. With it, Iran was once again allowed to sell its oil unencumbered on the world stage. The withdrawal by Donald Trump from the JCPOA in May 2018 was an ill wind for Iran because he decided to re-apply the sanctions regime that had caused such difficulties to Ali Khamenei. For example, the Grace 1 oil tanker was captured near Gibraltar in July 2019 at the request of the U.S. by the armed forces of the UK. The incident was one of several that have been labelled as the 2019 Persian Gulf crisis, but the crisis soon widened to encompass more distant seas where Iranian arms are impotent.

In May 2019, the Iranian tanker Happiness 1 suffered difficulties near Jiddah. In August the tanker Helm encountered difficulties while transiting the Red Sea, and in October the Iranian tanker Sabiti was attacked by two missiles of unknown origin, again in the Red Sea. The fully laden Sabiti had been destined for the "Eastern Mediterranean".

China is a significant supporter of the Iranian petroleum industry. In 2017, 64% of an export total $16.9 billion with China was labelled "crude oil". Because the National Iranian Tanker Company cannot defend the product on the oceans, it most often leaves port under the flag of another nation which is able to defend its own interests. The case of a Shanghai-based operator of oil tankers, Kunlun Holdings is illustrative: in early June it was operating with a shipment of Iranian crude oil as the Pacific Bravo before its transponder disappeared on 5 June in the Straits of Malacca. When it reappeared on 18 July, the ship had been relieved of its load and was renamed the Latin Venture. The U.S., which had warned ports not to offload the $120 million cargo of the Pacific Bravo, was unhappy about the failure of its sanctions regime. Kunlun Holdings is owned by the Bank of Kunlun, which is owned by the (SOE) CNPC. The Bank "has long been the financial institution at heart of China-Iran bilateral trade". Chinese foreign ministry spokesperson Geng Shuang "resolutely opposes" American unilateral sanctions.

Oil production and reserves

Iran's total oil production reached a peak level of in 1976. By 1978, Iran had become the second-largest OPEC producer and exporter of crude oil and the fourth-largest producer in the world. After a lengthy decline in the 1980s, caused by the Iraq-Iran War, economic sanctions and the decline of mature oil fields, production of crude oil began to increase steadily in 1987. In 2008 Iran produced per day (bpd) and exported .Energy Information Administration: Iran's entry Retrieved November 21, 2010

Accounting for 5 percent of world production, it returned to its previous position as OPEC's second-largest producer. In 2005, Iran had the estimated capacity to produce ; it was believed that production capacity could increase to to , but only with a substantial increase in foreign investment.How Iran could double its oil output . CNN. Retrieved June 3, 2012.

Iran's long-term sustainable oil production rate is estimated at . According to the Iranian government, Iran has enough reserves to produce oil for the next 100 years while oil reserves of other Middle Eastern countries will be depleted in the next 60 years and most other oil-rich countries will lose their reserves within the next 30 years.

In 2006 Iran reported crude oil reserves of , accounting for about 15 percent of OPEC's proven reserves and 11.4 percent of world proven reserves. While the estimate of world crude oil reserves remained nearly steady between 2001 and 2006, at , the estimate of Iran's oil reserves was revised upward by 32 percent when a new field was discovered near Bushehr. Market value of Iran's total oil reserves at international crude price of $75 per barrel stands at ~US$10 trillion.

In the early 2000s, leading international oil firms from China, France, India, Italy, the Netherlands, Norway, Russia, Spain, and the United Kingdom had agreements to develop Iran's oil and gas fields. In 2004 China signed a major agreement to buy oil and gas from Iran, as well as to develop Iran's Yadavaran oil field. The value of this contract was estimated at US$150 billion to US$200 billion over 25 years.

In 2009, China National Petroleum Corp (CNPC) signed a deal with the National Iranian Oil Company with CNPC taking ownership of