The looming oil crisis in Iran

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.

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.

Financial Express