The Foreign Policy of the Islamic Republic of Iran towards the Organization of Petroleum Exporting Countries (OPEC)
By Nassef M. Adiong
OPEC member states play a crucial role as the major exporters of crude oil, the largest single internationally traded commodity, both in volume and value. They hold 77% of the world's proven oil reserves, with a production capacity of 27 million barrels a day, and a production level of 25 million barrels a day (bpd). (C.B. 1990:2476)
Oil Industry and the Economy
The Islamic Republic of Iran, one of the founding members of Organization of Petroleum Exporting Countries (OPEC), holds 11% of the world’s proven oil reserves and around 15% of its gas and as the second biggest producer within the organization (Ghezelbash 2005:20). Iran both affects the international petroleum market, and is widely affected by it.
Some 75% of the state’s hard currency income comes from crude exports, while the sale of oil (and to a lesser extent gas) amounts to around 20% of Iran’s gross domestic product (Ghezelbash 2005:22). No doubt, Oil revenues constitute over 80% of its total export earnings and 50% of its GDP. The country earned more than $40 billion from oil exports this year, an increase of 25% over last 2007. (Luft 2005) Denying revenues to Iran would no doubt hurt its economy and might even spark social discontent.
Primal Vision in OPEC, Mission to the Economy
Iran’s objective is to raise quotas, output, and increase the oil price to produce more revenues and avoid high inflation risks because it wants to import various types of goods and services, primarily military and industrial goods, and construction services (Heal & Chichilnisky 1991:39). The Ministry of Petroleum has announced that in order to reach the objectives of the 20-Year Outlook, and to maintain its OPEC production share, Iran’s crude production must reach 5.5 million bpd in 2010 and 7 million bpd in 2015 (Ghezelbash 2005:25).
The state has sought to promote the development of non-oil industries to diversify its sources of income and also reduce the shocks to the economy from oil price fluctuations. Iran’s government earned $44.6 billion from oil and spent $25 billion on subsidies – for housing, jobs, food and cheap gasoline – to buy off interest groups (Ghezelbash 2005:26).
But the overall impact of an oil price and crude production increase on Iran’s real GDP cannot be determined a priori because increased oil export revenues transferred to OPEC are in part returned to her industrial economy. The impact on GDP depends on whether this takes place in the form of respending, direct investment, portfolio investment or loans. (Fabritius & Petersen 1981:225) Though Iran’s own policy at the moment is to maintain its share of 14% of OPEC production.
- Quote paper
- Nassef M. Adiong (Author), 2008, The Foreign Policy of the Islamic Republic of Iran towards the Organization of Petroleum Exporting Countries (OPEC), Munich, GRIN Verlag, https://www.grin.com/document/139271