According to Oil and Gas Journal, as of January 2010, Iran has an estimated 137.6 billion barrels of proven oil reserves, or roughly 10 percent of the world's total reserves. Iran has 40 producing fields (27 onshore and 13 offshore) with the majority of crude oil reserves located in the southwestern Khuzestan region near the Iraqi border. Iran's crude oil is generally medium in sulfur content and in the 28°-35° API range. In 2008, Iran exported about 2.4 million bbl/d of oil, primarily to Asia and OECD Europe countries, making it the fourth largest exporter in the world.

The state-owned National Iranian Oil Company (NIOC), under the supervision of the Ministry of Petroleum, is responsible for oil and natural gas production and exploration. The National Iranian South Oil Company (NISOC), a subsidiary of NIOC, accounts for 80 percent of oil production covering the provinces of Khuzestan, Bushehr, Fars, and Kohkiluyeh and BoyerAhamd. Though private ownership of upstream functions is prohibited under the Iranian constitution, the government permits buyback contracts which allow international oil companies (IOCs) to enter into exploration and development contracts through an Iranian affiliate. The contractor receives a remuneration fee, usually an entitlement to oil or gas from the developed operation.

Iran is OPEC’s second-largest producer after Saudi Arabia. In 2008, Iran produced approximately 4.2 million barrels of oil per day (bbl/d) of total liquids, of which roughly 3.9 million bbl/d was crude oil, equal to about 5 percent of global production. For most of 2009, it is estimated that Iran’s crude production was approximately 3.8 million bbl/d, almost 500,000 bbl/d above Iran’s estimated 3.3 million bbl/d OPEC quota. Iran’s 2009 crude oil production capacity is estimated to be 3.9 million bbl/d.

Iran produced over 5 million bbl/d of oil in 1978, but since the 1979 revolution a combination of war, limited investment, sanctions, and a high rate of natural decline in Iran’s mature oil fields have prevented a return to such production levels. Iran’s fields have a natural annual decline rate estimated at 8 percent onshore and 11 percent offshore, with recovery rates at 20-25 percent. An estimated 400,000-700,000 bbl/d of crude production is lost annually due to declines in the mature oil fields. To offset natural decline rates, Iran’s oil fields require structural upgrades including enhanced oil recovery efforts such as natural gas injection.

The Azadegan field, managed by Petroiran, contains 26 billion barrels of proven crude oil reserves, but its geologic complexity makes extraction difficult. Since 2008, production from the southern part of the field has been approximately 20,000 bbl/d. In November 2009, southern Azadegan produced 35,000 bbl/d, and is expected to reach 45,000 bbl/d in 2010. In January 2009, China National Petroleum Corporation signed a buyback contract with NIOC to develop northern Azadegan in two phases. Phase one, expected to be completed in 48 months, will add approximately 30,000 bbl/d of production. Phase two is expected to take 42 months to complete upon phase one’s completion, and will add 75,000 bbl/d, bringing Azadegan’s total production to 150,000 bbl/d.

In June 2009, the world’s largest gas-reinjection project began on Iran’s Agha-Jari oil field. Approximately 3.6 billion cubic feet (Bcf) of gas is planned to be injected into Agha-Jari, though technical difficulties have limited the amount to around 3 Bcf. In operation for approximately 70 years, Agha-Jari production is planned to rise from 140,000 bbl/d to 200,000 bbl/d when the full injection amount is realized. The gas is supplied by Iran’s South Pars phases 6, 7, and 8 via the IGAT-5 Pipeline (see the Natural Gas section for more information on South Pars and the IGAT pipelines).

According to a 5-year development plan submitted to the Majles (Iran’s Parliament) in January 2010, Iran plans to increase oil production capacity to 5.1 million bbl/d by 2015, but foreign assistance will likely be necessary.

Iran’s oil consumption was approximately 1.7 million bbl/d in 2008. Iran has limited refinery capacity for the production of light fuels, and consequently imports a sizeable share of its gasoline supply. Iranian domestic oil demand is mainly for diesel and gasoline [see below for more detailed information on the gasoline market in Iran]. According to FACTS Global Energy, diesel consumption was roughly 570,000 bbl/d in 2008, nearly 90 percent of which was produced domestically. Domestic demand for other oil products is declining as natural gas is further integrated into Iran’s energy consumption makeup. The Iranian government subsidizes the price of refined oil products, but in January 2010 Iran’s Guardian Council approved measures with the aim of eliminating energy subsidies by 2015. However, Iran is an overall net petroleum products exporter due to large exports of residual fuel oil.

Iran’s total refinery capacity in 2009 was about 1.5 million bbl/d, with its nine refineries operated by the National Iranian Oil Refining and Distribution Company (NIORDC), a NIOC subsidiary. Iranian refineries are unable to keep pace with domestic demand, but Iran plans to increase refining capacity to around 3 million bbl/d by 2013. Increases through expansions at existing refineries as well as planned grass-root refinery construction, could eliminate the need for imports by 2013. In addition, Iran has discussed joint ventures in Asia, including China, Indonesia, Malaysia, and Singapore to expand refining capacity.

In 2008, Iran consumed around 400,000 bbl/d of gasoline, roughly the same amount as in 2007. Iran does not currently have sufficient refining capacity to meets its domestic gasoline and other light fuel needs. However, according to FACTS Global Energy, government targets for domestic gasoline refinery projects combined with the elimination of gasoline subsidies could make Iran a gasoline exporter by 2013. FACTS Global Energy forecasts approximately 2% demand growth in 2010, increasing to 3% through 2015.

In late December 2009, private motorist gasoline quotas at the subsidized price of $0.38 per gallon ($0.10 per liter) was reduced from 26 gallons per month (g/m; 100 liters per month) to 21 g/m (80 liters per month). Part-time taxis, commercial vehicles, and government vehicles have special allowances. Iranian officials have publicly discussed the possibility of reducing the subsidized quota to around 16 g/m (60 liters per month).

Iran gasoline imports approximated 130,000 bbld/ in 2009, nearly 80 percent of total product imports. Over the course of the year, Iran’s gasoline import sources and volumes may change. For example, a company trading gasoline volumes in March may raise, lower, or not supply volumes in April, or any other month of the year. According to industry sources, some large, multinational wholesalers such as Glencore, Trafigura, and Vitol regularly provided Iran with gasoline in 2009.

In 2008, Iran exported approximately 2.9 million bbl/d of oil, 2.6 million bbl/d of crude and 300,000 bbl/d of products. Iranian Heavy Crude Oil is Iran’s largest crude export followed by Iranian Light. In 2008, Iran’s net oil export revenues amounted to approximately $73 billion. Oil exports provide approximately half of Iran’s government revenues, while crude oil and its derivatives account for nearly 80% of Iran’s total exports.

Iran suffers from budget deficits due to a growing population and large government subsidies on gasoline and food products. According to Iranian press, for the first half of the Iranian year, the government paid nearly $18 billion in subsidies for gasoline.

Iran has the largest oil tanker fleet in the Middle East. The National Iranian Tanker Company holds 29 ships, including Very Large Crude Carriers. There have been reports that Iran uses its oil tanker fleet to store oil when its export terminals are full.

Kharg Island, the site of the vast majority of Iran’s exports, has a crude storage capacity of 20.2 million barrels of oil and a loading capacity of 5 million bbl/d, followed by Lavan Island with capacity to store 5 million barrels and loading capacity of 200,000 bbl/d. Other important terminals include Kish Island, Abadan, Bandar Mahshar, and Neka, which helps facilitate imports from the Caspian region. The Strait of Hormuz, on the southeastern coast of Iran, is an important route for oil exports from Iran and other Persian Gulf countries (see Persian Gulf Analysis Brief). At its narrowest point the Strait of Hormuz is 21 miles wide, yet an estimated 17 million barrels in the first half of 2008 or roughly two-fifths of all seaborne traded oil, flows through the Strait daily.

As per the Iran Transactions Regulations, administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), U.S. persons may not directly or indirectly trade, finance, or facilitate any goods, services or technology going to or from Iran, including goods, services or technology that would benefit the Iranian oil industry. U.S. persons are also prohibited from entering into or approving any contract that includes the supervision, management or financing of the development of petroleum resources located in Iran. See OFAC’s Iran Transactions Regulations page for more information.

Iran has an expansive domestic oil network including 5 pipelines, and multiple international pipeline projects under consideration. Iran has invested in its import capacity at the Caspian port to handle increased product shipments from Russia and Azerbaijan, and enable crude swaps with Turkmenistan and Kazakhstan. In the case of crude swaps, the oil from the Caspian is consumed domestically in Iran, and an equivalent amount of oil is produced for export through the Persian Gulf with a Swiss-trading arm of NIOC for a swap fee.