OIL INDUSTRY IN IRAN SINCE 1973 A GENERAL SURVEY DISSERTATION SUBMITTED FOR THE AWARD OF THE DEGREE OF MASTER OF PHILOSOPHY IN West Asian Studies (Economics) BY Dehqan Tafd Mohd Ali Amroullah Under the Supervision of Mr. Arif Husain Rizvi CENTRE OF WEST ASIAN STUDIES ALiGARH MUSLIM UNIVERSITY ALIGARH (INDIA) 1992 2 9 APR 139^ I DS2141 r External : 26982 Phones I , . , _,, L Internal : 311 Univ.Telex: 564-230 AMU IN CENTRE OF WEST ASIAN STUDIES ALIGARH MUSLIM UNIVERSITY ALIGARH—202 002 (INDIA) ARIF HUSAIN RIZVI Reader (Economic) 31 fc 9i- Certificate This is to certify that the dissertation entitled "Oil Industry in Iran Since 1973: A General Survey" was prepared by Mr. Dehqan Tafti Mohd . Ali Atnroullah under my supervision. This is his original work which is now being submitted for examination in partial fulfilment for the award of the degree of M.Phil in West Asian Studies (Economi cs) . % (ARIF HUSAIN RIZVI) Supervi sor CONTENTS ?aae No. List of Tables III Oil Map of Iran Preface '^"^ CHAPTER I IRAN: A GEO-ECONOMIC PROFILE CHAPTER II A BRIEF HISTORY OF THE IRANIAN OIL 46 INDUSTRY CHAPTER III OIL INDUSTRY IN IRAN:1973-1978 31 CHAPTER IV THE IRANIN OIL INDUSTRY AFTER 144 REVOLUTION Summary and Conclusions 202 Bibliography -,Q LIST OF TABLES TABLES Page Nos. 1.1 Land Use in Iran 1988-89 15 1.2 Population of Iran by Age Group 21 1.3 Employment in Different Sectors of 23 Economy 1986 1.4 Population: 6 Years of Age and Over By 25 Literacy Status 1986 Census 1.5 Students of Universities and High 26 Education Institutes by Field of Study and Degree: Academic Year 1986-87 1.6 Total Fixed Investment in Different 29 Sectors 1973-78 1.7 Fixed Investment During the Five Year 34 Plan (1989-83) 1.8 GDP: Sectorial Growth Rates for the =ive 37 Year Plan (1989-1993). 1.9 Gross National Income and Product by 39 Economic Sectors: Different years 2.1 Oil Production, Profits of APOC, ana 53 Payments to Persia 1913-31 2.2 Persian Oil Production, Profits of 56 AIOC, British Tax and Payments to Persian Government 1931-51 2.3 Interrelationship between the Msijor Oil 69 Companies in 1966 2.4 Nonconcessionary Joint-Venture Agreements 77 (1957-1971) 2.5 Nonconcessionary Service Contracts 73 3.1 Proven Oil Reserves: World, OPEC ana 108 Iran (1969. 1973-1979) III 3.2 Oil Production: World, OPEC and Iran 115 (1970-1978) 3.3 Crude Production In Iran: Annual 116 Chanages (1970-1978) 3.4 Iranian Oil Production by (Operators) 118 (1969, 1973-78) 3.5 Iran Production of Crude Oil by Fields 119 (1972-78) 3.6 Iran's Export of Crude Oil 122 3.7 Geographical Distribution of Exports of 123 Crude Oil by the Trading Companies Affiliated with the Consortium (1970, 1973-1978). 3.8 Value of Crude and Petroleum Export 128 (1973-1978) 3.9 Rates of Growth in the Value of Crude 130 Export 3.10 Value of Total Exports, Oil Exports and 133 Non-Oil Exports (1973-1978) 3.11 Revenue, Expenditures and Deficit of the 134 Government of Iran (1973-1978) 3.12 Foreign Exchange Receipts and Payments 136 (1973-1978) 3.13 Composition of 1977 Primary Energy 140 Consumption by type of Fuel 4.1 No. of Enemy Attacks on Iranian Oil 162 Installations During the War 4.2 Estimation of Potential Oil Export and 167 Revenue, Iran, 1980-1986 4.3 GNP and the Value of Petroleum Exports 168 (1975, 1979-87) 4.4 Crude Oil Production, World, OPEC and 172 Iran (1979-1987) 4.5 Iran's Production of Crude Oil by Major 174 Fields (1979-1988) IV 4.6 Crude Oil Export:World, OPEC and Iran 176 (1979-1987) 4.7 Posted or Tax Reference Price of Iranian 178 Crude Oil: Main Varieties (1979-1987) 4.8 Iran's Oil Revenue and Their Relative 179 Importance (1979-1987) 4.9 Refining Capacity in Iran by Location 184 4.10 Percentage Contribution to GDP by Main 194 Economic Groups at Current Price During (1979-1988) 4.11 Share of Oil Revenue in the Iranian 196 Government Ordinary Budget 1979-1988. PREFACE The Islamic Republic of Iran is a very important oil producing country. It owns nearly 9.5 per cent of the total proven oil reserves of the world and well over 13.5 percent of the OPEC holdings. In a world where oil still constitutes nearly one-fourth of the total primary energy consumption and the economic development of both the industrially develooed emd less developed countries is so critically dependent on the hydrocarbons, the oil industry of the size of Iran will continue to be very important. In Irem's domestic context, the oil industry has even greater importance. Despite ruthless and unmindfull exploitation of the oil resources by foreign oil companies, what ever development is seen in Iran today is largely because of the oil industry. It has tyeen described as "the leading sector" and the "engine of growth" by most of the experts of the Iranian economy. Until the extra-ordinary conditions created by the early days of revolution and later by the Iraq-Iran war, the oil exports constituted nearly 97 per cent of the total Iranian exports, 80 per cent of the total foreign exchange receipts and almost 74 per cent of the total revenues of the government. The main objective of the present study is to evolve a general understanding of the oil industry in Iran since VI 1973 in the context of the Iranian economy. In doing so an effort has been made to study a) the historical background of the oil industry b) the structural changes at various points of time c) the oil policy of Iran oil in the pre- and post-revolution period d) trends in production, exports and revenues and, e) the importance oil sector for the economy of Iran. The study is based mainly on the available secondary sources and the official publication of the government of Iran, OPEC and the UN. Keeping in view the above objective chapter I seeks to present a geo-economic profile of Iran. Besides the geographical setting of the country, some aspects of natural resources endowment, population and the manpower develooment have been studied to provide the necessary backdroo to the pattern of economic development. The purpose of this exercises is to provide a proper context to the study of the oil industry which is the our main theme. Chapter II provides a historical background of the Iranian oil industry from 1901 to 1973. Chemge is continuous process and without an understanding of the past it would be difficult to understanding the nature and the functioning of the industry in the recent times. Concession agreements granted to foreign oil companies, the structural changes in the industry and the financial implications of the oil VII agreements constitute various parts of the historical background. Chapter III, deals with the nature and developments of oil industry in Iran from 1973-1978. It covers the era of the monarchic rule and also coincides with the period of the oil boom. Various changes concerning the structure of the industry, the pattern oil production, exports and income besides the linkages that the oil sector has with the rest of the Iranian economy have been studies in it his chapter. In chapter IV the focus is on the developments in the oil industry since the Islamic revolution of 1979. In this part an effort has been made to examine the new oil nolicy of Iran and the structural change that the oil industry has undergone due to the social amd economic philosophy of the revolution. Since a large part of the reference oerioa of this chapter is covered by the Iraq-Iran war, the war dasiage to the oil industry, both upstream and downstream, has also been studied. Lastly the role of the oil industry in sustaining the Iranian economy and the war efforts have been briefly discussed. In the end an over all summary and some of the main conclusion emerging out of the study have been recorded. For the completion of this work I am very grateful to the former Director of the Centre of West Asian Studies, VIII Prof. Mahmudul Haq and the present Director, Prof. M.R.K. Nadvi , both of whom very kindly provided all the encouragement and help that I needed. I am also equally grateful to Prof. Akhtar Majeed and Dr. Hasan Askari Kazami for their kind encouragement and help during the course of my work. I am extremely thankful to my supervisor Mr. Arif Husain Rizvi for his able guidance throughout my work. Without his constamt help and supervision it would have been very difficult for me complete this study. My sincere thanks are also due to the Embassy of the Islamic Republic of Iran in India for providing me some government publications which proved very crucial for my work. My fellow research scholars Mr. Abbas Parsayan, and Mr. Mojtaba Almasi helped me in providing some important Iranian statistical sources and went through the memuscript. I am very thankful to them. I have received maximum help from the staff of the library of the Centre of West Asian studies and the Maul ana Azad Library, A.M.U. I am very grateful to them all. I would specially like to mention the constamt help given to me by Mr. Alimulla, Documentation officer at the Centre, Mr.Ahmad Saeed Khan and Mr. Shamim Haider Zaidi. I am also IX very thankful to Mr.