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Analysis: Iran's Dire Oil Straits

Council on Foreign Relations

February 19, 2007
Prepared by: Lionel Beehner

Among the parties with a keen interest in the nuclear standoff between Iran and the UN Security Council are foreign investors. Iran is an energy bonanza (NYT) in their eyes: Its underdeveloped oil and gas fields, the world’s second largest, need outside expertise, capital, and technology. A number of development projects are under way, but investors remain skittish over Iran’s uncertain political prospects. Royal Dutch/Shell, for example, has its sights on Iran’s South Pars natural gas field but has held off from sealing a projected $10 billion deal (RFE/RL) for fear of compromising its stake in U.S. markets. As this Backgrounder explains, the U.S. Treasury has put a financial squeeze on foreign companies like Shell that invest in Iranian energy projects. A fresh round of UN sanctions could also be forthcoming in response to Iran’s ongoing rejection of calls for freezing its uranium enrichment program.

Iranian leaders, of course, also have good reason to be jittery, as this new Backgrounder outlines. Iran’s economy relies heavily on oil revenues but energy exports are down. Production is not keeping pace with demand, requiring Iran to import 170,000 barrels of gas per day—a third of its energy needs. Domestic demand, spurred on by subsidized prices at the pump and a swelling population, has skyrocketed. Iran’s energy prospects look so grim that the government rolled out an unpopular new rationing plan (Weekly Standard) for consumers to curb their gasoline intake. That may be a tough pill to swallow for Iranians already struggling with double-digit inflation and unemployment.

Read the rest of this article on the cfr.org website.

Copyright 2007 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.