GENERAL BACKGROUND (more)
In September 1999, President Khatami announced an ambitious program to privatize several major industries, including communications, post, rail, petrochemicals, and even upstream oil and natural gas to an extent, as part of the "total restructuring" of the Iranian economy called for in the country's latest five-year economic plan (which began in March 2000). The five-year plan also targets the creation of 750,000 new jobs per year, average annual real GDP growth of 6% over the period, reduction in subsidies for basic commodities (bread, rice, sugar, vegetable oil, wheat, fuels), plus a wide range of fiscal and structural reforms. Implementation of these plans, however, has been delayed by lack of domestic political consensus (as well as the Iranian constitution). In November 1999, the powerful (and conservative) "Council of Guardians" rejected a bill which would have exempted foreign companies in an offshore free-trade zone from threats of nationalization. More recently, the Council of Guardians vetoed planned reforms to Iran's mining sector. In August 2001, Iran's new Economy Minister, Tahmasb Mazaheri, called for the creation of a privatization organization, and said that unemployment was unacceptably high. Despite all this, Iran's privatization process continues to move along only slowly.

To cope with its economic (and social) problems, Iran's government has proposed a variety of privatization and other restructuring and diversification measures, although these remain politically contentious. Iran also has set up a "stabilization fund" for above-budget oil revenues, which totals around $8 billion.  Iran has unified its two major exchange rates, official and "floating," under a "managed float" system, and the currency has been stable for two years or so at around 8,000 rials per $U.S. Finally, Iran has expressed interest in joining the World Trade Organization (WTO), although this would require that significant, and politically problematic, economic reforms be carried out by Iran (in February 2002, the United States blocked Iran's application from moving ahead).

On February 18, 2000, Iran held its sixth parliamentary elections since the 1978/79 revolution, with an overwhelming victory for the reformist coalition. Presidential elections were held in June 2001, and President Khatami won reelection by a wide margin. In July 2001, Iran's cabinet approved formation of a "Supreme Energy Council" (SEC), which would consist of ministers from the oil, energy, economy, commerce, mines and industries ministries, among others. The SEC would play a strategic role in overseeing Iranian energy projects.

OIL (more)
NIOC also would like to develop five oil and natural gas fields in the Hormuz region: Henjam A (known as West Bukha by Oman; the two countries are discussing possible joint development); the A field near Lavan Island; the Esfandir field near Kharg Island; and two structures near the South Pars natural gas field. According to NIOC, the five Henjam fields hold an estimated 400 million barrels of oil and have a production potential of 80,000 bbl/d. Other Iranian oil fields slated for increases include Doroud, Nosrat, Farzam, and Salman.

In February 2001, NIOC announced the discovery of a very large offshore oil field, named Dasht-e Abadan, in shallow waters near the port city of Abadan. According to a top NIOC official, Dasht-e Abadan could contain reserves "comparable" in size to Azadegan.

In response, U.S.-based Conoco was forced to abrogate a $550 million contract to develop Iran's offshore Sirri A and E oil and natural gas fields. Following this, France's Total and Malaysia's Petronas were awarded the contract. On August 19, 1997, Executive Order 13059 reaffirmed that virtually all trade and investment activities by U.S. citizens in Iran are prohibited. In March 2000, U.S. Secretary of State Albright announced that the United States would lift certain sanctions against Iranian luxury goods. Other sanctions remain in effect, however.

Crude Swaps (more)
Under a 1996 agreement, up to 120,000 bbl/d of Kazakh oil was to be delivered by tanker via the Caspian Sea to the Iranian port of Neka, where it would travel by pipeline to a refinery at Tabriz to be refined and consumed locally. In exchange, Kazakhstan would receive a similar volume of crude ready for export at an Iranian port in the Persian Gulf. Kazakhstan and Iran have been trying to negotiate a supply deal for years, but previously Kazakh crude has proved incompatible with Iranian refineries and there have been disagreements over price. Volumes also have been limited by contract and technical issues, including problems by Iranian refineries in processing Kazakh crude oil. In the first quarter of 2002, Kazakhstan began making test deliveries to Neka of about 1,600 bbl/d. Kazakh officials hoped to increase the swaps to 20,000 bbl/d or so, and this appears to be occurring. Meanwhile, a Chinese consortium is upgrading Iran's two northern refineries -- Tehran and Tabriz -- to handle more Caspian crude oil, whose high sulfur content (specifically, a substance known as "mercaptans") makes it challenging to refine.

NATURAL GAS (more)
Iran has been involved in a border dispute with Kuwait and Saudi Arabia over demarcation of the border through the northern Gulf continental shelf.  This region contains the 7-13-Tcf Dorra natural gas field, which Iran had begun drilling in early 2000 but stopped after complaints by Kuwait. Saudi Arabia and Kuwait (which do not recognize Iran's claims to Dorra) signed a bilateral agreement in July 2000 on dividing up the field equally between the two countries.   In early 2002, there were reports that Saudi Arabia and Kuwait were planning to develop Dorra even without an agreement with Iran.

The dual Aghar-Dalan field development has been one of National Iranian Gas Company's recent successful natural gas utilization projects. Since coming online in mid-1995, the Aghar and Dalan fields have produced approximately 600 Mmcf/d and 800 Mmcf/d, respectively. Natural gas from both fields is processed at a $300 million facility at the Dalan field, which is also the location of a 40-MW, natural-gas-fired power plant. Most of the treated natural gas from the Dalan processing plant is carried through a 212-mile pipeline for re-injection in the Marun field and other oil fields in Khuzestan province.

Natural Gas Trade (more)
Although India and Iran in 1993 signed an MOU on an overland natural gas pipeline, regional political and security concerns to date have blocked completion of a feasibility study.  Meanwhile, in February 2002, Iran and Pakistan signed an MOU on a pre-feasibility study for a possible 1,600-mile, $4 billion gas pipeline from southern Iran to southeastern Pakistan and on to India. An offshore route bypassing Pakistan is under study by Snamprogetti of Italy, but this could prove to be far too expensive to be feasible.  Another possibility would involve LNG exports to India. In January 2003, the leaders of Iran and India signed an MOU on energy cooperation, including the LNG option.

Besides natural gas exports, Iran also has discussed importing natural gas from Azerbaijan, and already imports some natural gas from Turkmenistan. This natural gas is for use in Iran's northern areas, far from the country's main natural gas reserves in the south. In December 1997, Turkmenistan launched the $190 million Korpezhe-Kurt Kui pipeline to Iran, the first natural gas export pipeline in Central Asia to bypass Russia. ccording to terms of the 25-year contract between the two countries, Iran will take between 177 Bcf and 212 Bcf of natural gas from Turkmenistan annually, with 35% of Turkmen supplies allocated as payment for Iran's contribution to building the pipeline.

In December 2001, the presidents of Turkmenistan and Armenia reached an agreement by which Turkmenistan will supply up to 70.6 Bcf per year of natural gas to Armenia via the Korpezhe-Kurt Kui pipeline and across Iran.  Implementation of this deal is contingent on the construction of a long-delayed Iran-Armenia natural gas pipeline (in December 2001, Iran and Armenia signed a deal to build this line at a cost of around $120 million).

ELECTRICITY (more)
Iran has received offers for investment in the form of loans and build-operate-transfer (BOT) contracts. BOT contracts allow the investing company to build and operate the generating facility for a period of 15-20 years, after which time the plant is turned over to the Energy Ministry. Negotiations have taken place with international energy firms on expansion plans for power plants at Bandar Abbas, Shaid Rajai, Alborz, Ramin, and Kerman.

Although the government has considered privatization, at present Iran's power sector is run by the state-controlled Tavanir organization. Eventually, Tavanir may be broken up into smaller companies as part of a privatization package. In addition to power generation, Tavanir also is responsible for transmission. Iran has main power distribution networks: 1) The Interconnected Network, which serves all of Iran except for remote eastern and southern areas, using 440-kV and 230-kV transmission lines; 2) the Khorassan Network, which serves the eastern Khorossan province; and 3) the Sistan and Baluchistan Network, which serves the remote southeastern provinces of Sistan and Baluchistan. The government goal is to join these three networks into one national grid. Currently, around 94% of Iranians are connected to one of Iran's power grids. ran also has power links to neighboring countries, including Azerbaijan, Turkmenistan (started August 2002), and Turkey.

Iran exports electricity to western Afghanistan as part of an economic assistance package. In early September 2003, Iran and Turkmenistan signed a deal for long-term Turkmen power exports to Iran. In April 2003, Iran said that it would be willing to supply Iraqi cities with electricity as well.

NUCLEAR (more)
In February 2003, Iran announced that it had begun mining uranium deposits at Saghand near the central Iranian city of Yazd, and was constructing a uranium enrichment facility at Natanz, located 200 miles southeast of Tehran. In March 2003, International Atomic Energy Agency (IAEA) inspectors examined Natanz and described it as "impressive." Other news reports indicated that Natanz was "extremely advanced" and involved "hundreds" of gas centrifugres for producing enriched uranium. Some analysts believe that Yazd and Natanz are part of an Iranian effort to attain self-sufficiency in the entire nuclear fuel cycle. Besides Natanz, the IAEA also has expressed interest in inspecting a heavy-water plant at Arak.

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File last modified: November 17, 2003

Contact: Lowell Feld
charles.esser@eia.doe.gov
Phone: (202)586-6120
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