Iran was the fourth-largest crude oil producer in OPEC in 2023 and the third-largest dry natural gas producer in the world in 2022.1 It holds some of the world’s largest deposits of proved oil and natural gas reserves, ranking as the world’s third-largest oil and second-largest natural gas reserve holder in 2023.
At the end of 2023, Iran accounted for 24% of oil reserves in the Middle East and 12% in the world.2 Despite its abundant reserves, Iran’s total liquids production is limited because the oil sector has been subject to underinvestment and international sanctions for several years.
Although Iran is a member of OPEC, it is exempt from the production cuts under the OPEC+ agreement because its crude oil production is constrained as a result of sanctions. Despite these sanctions, Iran increased shipments of crude oil, primarily to China, in 2022 and 2023. Iran raised crude oil output by about 1 million barrels per day (b/d) from 2020 to 2023 as its exports to China grew by almost 870 million b/d during this time.3In response, the United States expanded sanctions in April 2024 to cover ports, vessels, and refineries involved in the purchase of Iran’s oil. These new sanctions allow for 180-day waivers if sanctions interfere with U.S. national security.4 If all oil sanctions were lifted, Iran’s crude oil production could return to full capacity, which we assess at 3.8 million b/d.
Iran’s economy is relatively diversified compared with many other Middle Eastern countries, but petroleum and other liquids exports are a significant source of government revenue.5 In 2023, we estimate that Iran’s oil companies earned about $53 billion in net oil export revenues, similar to 2022 revenues and up from around $37 billion in 2021. Total export revenues grew in 2022 due to rising global oil prices and increasing total petroleum liquid exports from Iran.6 In contrast, although Iran’s oil exports rose at a faster pace in 2023 than in 2022, international oil prices fell, which resulted in flat oil export revenues. Our revenue estimates do not account for varying discounts that Iran places on its official selling prices and likely lowered overall oil revenues in 2023.7 Iran’s currency crisis that ensued after the re-imposition of sanctions in 2018 has put financial constraints on Iran’s energy companies and has slowed the progress of and even led to cancellation of certain projects over the past several years.8
Iran’s economy consumed an estimated 13.5 quadrillion British thermal units (quads) of primary energy in 2022, making it the highest energy consumer in the Middle East. Natural gas and oil accounted for almost all of Iran’s total primary energy consumption, and hydropower, coal, nuclear, and non-hydropower renewables accounted for the remaining shares.9
Petroleum and other liquids
Total petroleum and other liquids production in Iran rose from a recent annual low of less than 3.0 million b/d in 2020 to an average of 4.0 million b/d in 2023. Of this 4.0 million b/d, almost 2.9 million b/d was crude oil, and the remainder was condensate and hydrocarbon gas liquids. Iran’s crude oil exports and production have declined since the United States announced in May 2018 that it would withdraw from the Joint Comprehensive Plan of Action (JCPOA) and reinstate sanctions targeting Iran’s oil exports. In 2023, Iran increased crude oil production by about 915,000 b/d from 2020 after global oil demand recovered from the effects of the COVID-19 pandemic and China began to import more discounted crude oil from Iran.10 We assess that Iran’s crude oil production could increase to 3.8 million b/d within six months after the sanctions have been lifted.
Iran plans to sustain production capacity at fields with high decline rates through development of new wells and redevelopment of existing wells.11 The lack of foreign investment during the past few years due to sanctions prompted Iran to turn to local companies to develop its oil projects. However, local firms are limited in the capital and technology they need to maintain production at mature fields, and projects awarded contracts in 2019 and beyond have progressed very slowly.12 Between 2019 and 2022, Iran awarded several contracts to domestic companies to add about 550,000 b/d of crude oil production capacity from existing fields located in the country’s southwestern region.13 Iran intends to develop the West Karun oil fields located along the border with Iraq (including Azadegan, Yadavaran, and Yaran), but these projects have made limited progress over the past several years. In March 2024, Iran’s national oil company (NIOC) awarded more contracts to local energy companies to increase oil production capacity at six oil fields along the border with Iraq, including one of Iran’s largest fields, Azadegan.14
Iranian energy firm Pasargad Energy Development Company began production from two new oil fields located in the West Karun oil region in March 2024—Jufair and Sepehr. Iran estimates that current production from the fields is 50,000 b/d, and production capacity will reach 110,000 b/d, with no specific deadline.15
In 2022, Iran signed a preliminary agreement with Russia, in part, to help finance and develop its oil and natural gas sectors. This agreement must overcome several challenges related to negotiating details and implementing projects. 16
Iran was the 10th-largest oil consumer in the world and the second largest in the Middle East after Saudi Arabia in 2023.17 After Iran’s oil consumption returned to pre-COVID pandemic levels in 2021, it reached a record high of 2.2 million b/d in 2023 because of significantly subsidized gasoline prices and higher vehicle sales that boosted gasoline demand and because of growing petrochemical production that uses petroleum products and natural gas as feedstocks. Use of petroleum and petroleum products will likely face competition from natural gas, particularly in the electric power, residential, and commercial sectors, during the next several years, especially if exports of petroleum and petroleum products continue to increase.18
As of the beginning of 2024, Iran’s total crude oil distillation capacity was an estimated 2.1 million b/d, and its condensate splitter capacity was 0.6 million b/d. The Persian Gulf Star condensate refinery, which processes condensates from Iran’s South Pars natural gas field and is Iran’s largest condensate refinery, came online in phases from 2017 through 2020 and has a crude oil processing capacity of 420,000 b/d.19 More processing capacity to produce lighter petroleum products, such as gasoline and diesel, allowed Iran to substantially increase its gasoline output to meet its rising demand in the transportation sector. Despite this growing processing capacity, Iran still relies on gasoline imports due to the country’s increasing oil demand and largely outdated and inefficient refineries that produce mostly lower-valued fuel oil.20
Although Iran has proposed several refinery projects that are in various stages of planning and development to replace some of its older units, international sanctions on Iran have hindered some of the investment needed to complete these facilities within the next few years.21 Despite sanctions, Iran has made some progress in increasing its refining capacity to help boost production of middle distillates, such as gasoline and diesel fuel. Iran added a 210,000-b/d crude oil distillation unit to its existing Abadan refinery in March 2023 to be able to eventually replace one of the older units and alleviate some of the demand for lighter oil products. Operations will continue at the old unit at Abadan while sanctions remain in place. Upcoming projects under construction are another 120,000-b/d unit of Persian Gulf Star and the 60,000-b/d South Adish condensate refinery. Iran’s oil ministry expects these facilities to fully come online by 2027, although parts of the refineries could be operational by late 2025.22 At its Isfahan refinery, Iran intends to revive a 45,000-b/d retired secondary unit as a crude oil distillation unit in 2024.23
Although Iran’s total oil-loading capacity for exports (more than 8.0 million b/d)24 is significantly higher than its oil production capacity, Iran is building the Jask oil export facility, located east of the Strait of Hormuz. This new facility allows Iran’s exports to bypass any disruption that may occur within the Persian Gulf or the Strait. Contractors completed the first phase of the Goureh-Jask pipeline, which began transporting crude oil from fields in Goureh, Iran, to the Jask terminal in 2021. Although the pipeline’s nameplate capacity is 1.0 million b/d, it can transport only 300,000 b/d as of mid-2024.25 Iran exported a single cargo in July 2021, but it has not used the pipeline for crude oil exports since then, according to data from the tanker tracking company Vortexa.26 The project’s pumping stations, storage tanks, loading points, and power generation facility are all under construction and could enter service at the earliest in 2025.27
Data source: World Bank, National Energy Technology Laboratory Global Oil and Gas Features Database, and U.S. Energy Information Administration
Natural gas
Iran’s estimated proved natural gas reserves were 1,200 trillion cubic feet (Tcf) as of December 2023, second only to Russia, according to Oil & Gas Journal. Iran holds 16% of the world’s proved natural gas reserves and about 45% of OPEC’s reserves.28
Iran was the world’s third-largest dry natural gas producer after the United States and Russia in 2022.29 Dry natural gas production rose by 64% between 2013 and 2023, expanding to 9.4 Tcf.30 Iran produces most of its natural gas from fields not associated with oil production, and Iran has brought online several phases of the offshore South Pars natural gas field, the country’s largest non-associated gas field, since 2014. Iran’s increased crude oil production in 2022 and 2023 drove its associated gas output higher. In addition, Iran further raised production at the most recently developed phases of the South Pars field. Natural gas fields that yield condensate liquids as by-products were able to produce at higher levels after mid-2022 because the condensate storage capacity constraints that followed the re-imposition of sanctions eased as Iran’s oil companies were able to sell more condensates held in storage.31
After 2018, primarily domestic companies have developed Iran’s natural gas fields. However, the country’s natural gas production growth will remain limited because of insufficient investment and technology in field and upstream infrastructure development.32
NIOC and PetroPars, a privately owned oil company in Iran, partially brought online the last phase (SP11) of the 24-phase South Pars project in August 2023. Production at SP11 is expected to rise to an estimated plateau of 730 billion cubic feet per year (Bcf/y) by 2028.33
Iran plans to invest $20 billion to build compression stations to stem pressure drops and production declines from some of the older phases of the South Pars field. Iran estimates that natural gas production from South Pars could lose about 350 Bcf/y before 2030 without sufficient investment in managing the pressure of these fields.34 Iran’s local companies are attempting to develop other natural gas fields and stem declines from existing non-associated gas fields.35 Without additional investment from foreign firms, Iran’s domestic production of natural gas will face challenges to meet domestic natural gas demand and fulfill export agreements.
In 2023, NIOC reinjected 0.6 Tcf of natural gas into oil wells for enhanced oil recovery (EOR), which plays a central role in Iran’s oil production. Reinjected natural gas volumes have recovered in the past two years because of Iran’s higher oil and natural gas production, although insufficient natural gas supply to meet domestic demand and exports will likely restrain the amounts of reinjected volumes.36
In addition to the natural gas used for EOR, Iran vented or flared approximately 721 Bcf of natural gas in 2023, up 19% from 608 Bcf in 2022, because of higher oil production and associated natural gas production. In 2023, Iran flared more natural gas than any country except Russia.37 Plans are underway to capture more flared natural gas for use in power plants, refineries, and petrochemical plants. Iran brought online the South Pars Phase 14 gas processing plant and the natural gas liquids (NGL) 3200 plant in 2023. NIOC is developing several other natural gas processing facilities, which will reduce natural gas flaring.38 The oil ministry plans to eliminate natural gas flaring by 2026;39 however, eliminating flaring will depend on whether sufficient markets exist for natural gas liquids (petrochemical plants in Iran or exports) and whether sufficient natural gas liquids processing capacity is added. Sanctions have significantly slowed natural gas infrastructure development in Iran.40
In 2022, Iran was the world’s fourth-highest consumer of natural gas after the United States, Russia, and China.41 Most of Iran’s natural gas production is consumed domestically. Over the past decade through 2023, Iran’s natural gas consumption grew by 60% because of highly subsidized prices, an extensive natural gas pipeline system, domestic production increases, greater industrial and petrochemical development, and government attempts to substitute the use of oil with natural gas in the residential, commercial, and electric power sectors.42
Iran’s natural gas consumption averaged 8.9 Tcf in 2023, about 3% higher than in 2022.43 Growth in natural gas consumption accelerated in 2023 because of greater natural gas production; increased oil exports, which allowed more natural gas to replace oil in the electric power sector; higher than normal temperatures in the summer; and greater industrial use, mostly from the growth of Iran’s petrochemical sector.44
In 2022, residential and commercial customers used the most natural gas (33%), followed by the industrial (including petrochemicals) sector (27%) and the electric power sector (28%).45 The petrochemical industry is slated to grow in Iran over the next several years and will require more natural gas for feedstock. The residential and commercial sectors use more natural gas in the winter, and the electric power sector consumes more in the summer months. Iran lacks sufficient storage to meet variable seasonal demand, so in addition to its plans to increase natural gas production, Iran is working to expand storage capacity at existing facilities.