Conventional Wisdom vs. the Inside Scoop

Conventional Wisdom: Iran’s massive oil reserves give it a strategic advantage and drive the country’s economy.

View From the Inside: In reality, Iran still is one of the world's largest importers of gasoline. That's because many of its its refineries were damaged in the long Iran-Iraq war of the 1980s. Current facilities cannot adequately process Iran’s heavy crude. The government has invested in petrochemical industries instead.

“It makes more sense to import the petrol and export the crude,” says Kaveh Ehsani of the University of Illinois. “You make a lot of money; you don’t have to spend a lot to build the infrastructure.” Ehsani estimates the country took a hit of about $650 billion in lost oil revenue when prices fell to eight dollars a barrel during the Iran-Iraq war. Oil is now at about 15 to 20 percent of Iran’s GDP.

In addition to harboring the second largest oil reserves on the planet, Iran also boasts the second largest natural gas reserves—but that’s a problem, too, because Iran lacks the technology to fully exploit it.

“We had almost a month-long period where people were really suffering in the north,” recalls Babak Yektafar, editor of the Iranian affairs journal Washington Prism, referring to a period when Iran had to import gas at sky-high prices from Kyrgyzstan to make it through the winter. Foreign investment in Iran’s vast resources seems to be the answer, but the prospects don’t look good right now.

“Ahmadinejad’s comments about Israel and the Holocaust scared people away,” says Barbara Slavin, a longtime reporter and author of Bitter Friends, Bosom Enemies, about Iran-U.S. relations. Slavin says many memorandums of understanding were signed with the Iranian gas and oil industry, but very few have been implemented. “People are waiting to see what’s going to happen over the nuclear issue.”

Perceived mismanagement of oil revenue and an oil stabilization fund has frustrated Iranian citizens, many of whom have said they were better off when oil was $12 a barrel, says Slavin.

“The government is doling it out in dribs and drabs to the poor, and it’s not creating productive investment in Iran,” she says. “The immense infusion of cash into the economy because of the oil price increase has gone into real estate speculation,” and people are buying more cheap imported goods. With gasoline at the pump going for ten cents per liter, smugglers have been siphoning off a portion of the gas and diesel market to sell to Turkey, Pakistan and others.

A lack of transparency at the ministerial level of government has fueled suspicion among Iranians. Previously published line-item budgets have been “bundled,” says Ehsani. “You don’t know where the money is going.”

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