The State of the Iranian Oil and Gas Industry
Iran, a nation endowed with some of the world’s largest hydrocarbon reserves, stands as a pivotal player in the global energy landscape. With the second-largest natural gas reserves and the fourth-largest proven crude oil reserves globally, the Iranian oil and gas industry is a cornerstone of its economy and a focal point of international attention. Despite decades of economic sanctions, geopolitical tensions, and internal challenges, this sector has demonstrated remarkable resilience while continuing to shape Iran’s economic trajectory, employment landscape, and strategic ambitions. Today we’ll look into the current state of the Iranian oil and gas industry, exploring its resilience to sanctions, contributions to employment and the economy, recent developments, and the broader implications for Iran and the world.
A Resource-Rich Foundation
Iran’s oil and gas industry is built on a foundation of vast natural wealth. The country holds approximately 155.6 billion barrels of proven oil reserves and 33.9 trillion cubic meters of natural gas, positioning it as an energy superpower. The South Pars gas field, shared with Qatar in the Persian Gulf, is the world’s largest natural gas field and a critical asset for Iran’s energy ambitions. On the oil front, fields like Azadegan and Yadavaran underscore Iran’s capacity to sustain significant production levels. Historically, the industry traces its roots to 1908, when the discovery of oil at Masjed Soleyman by the Anglo-Persian Oil Company (now BP) marked the beginning of Iran’s modern petroleum era.
Before the imposition of stringent international sanctions, Iran was a leading exporter within the Organization of the Petroleum Exporting Countries (OPEC), with production peaking at over 4 million barrels per day (bpd) in the early 2000s. However, sanctions, particularly those intensified after 2011, disrupted this trajectory, targeting oil exports, foreign investment, and technology transfers. Despite these setbacks, the industry has adapted, and as of 2025, Iran’s oil production hovers around 3.6 to 3.8 million bpd, with gas production exceeding 1 billion cubic meters per day.
Resilience Amid Sanctions
Sanctions have been a defining feature of Iran’s oil and gas industry since the 1979 Islamic Revolution, with the United States and its allies imposing successive rounds to curb Iran’s nuclear program and regional influence. The most severe measures came in 2012, when the European Union banned Iranian oil imports, and the U.S. tightened financial and shipping restrictions. More recently, in February and March 2025, the U.S. imposed additional sanctions targeting entities involved in Iran’s petroleum trade, including Chinese refineries and shipping networks, as part of a “maximum pressure” campaign under the Trump administration.
Yet, Iran has shown remarkable resilience. One key strategy has been the development of a “dark pool” or “shadow fleet” of tankers—vessels that operate outside international norms, often using ship-to-ship transfers, falsified documentation, and AIS (Automatic Identification System) manipulation to obscure their activities. This fleet has enabled Iran to sustain exports, primarily to China, which accounts for 85-90% of its crude oil shipments, totaling around 1.5 million bpd in 2025. Independent Chinese “teapot” refineries, lured by discounted prices (e.g., Iranian Light crude at $5-$5.50 below ICE Brent), have become a lifeline for Iran’s oil revenues.
Iran has also pivoted to alternative markets and trade mechanisms. Exports to Russia, Turkey, and neighboring countries have grown, often facilitated by barter systems or bilateral currency exchanges to bypass U.S.-controlled financial networks. Domestically, Iran has invested in refining capacity and petrochemical production, converting crude oil into higher-value products like gasoline and plastics to offset export losses. The National Iranian Oil Company (NIOC) has spearheaded these efforts, signing billion-dollar contracts with local firms in 2024 to boost output by 350,000 bpd, demonstrating a shift toward self-reliance.
However, sanctions have not been without cost. They have limited access to cutting-edge technology and foreign investment, slowing the development of aging fields and reducing efficiency. Iran’s fiscal breakeven oil price—estimated at $112 per barrel in 2024—far exceeds current market rates (e.g., Dated Brent at $88/b in April 2024), straining government finances. Nevertheless, the industry’s ability to adapt underscores its strategic importance and Iran’s determination to maintain its energy clout.
Economic Contribution
The oil and gas sector remains the engine of Iran’s economy, despite efforts to diversify. Historically, it has accounted for 50-60% of government revenues, 80% of export earnings, and 18-20% of GDP. While sanctions and lower oil prices have reduced these figures—oil’s GDP share dipped to around 15% in recent years—the sector’s indirect impact is far greater, driving public investment, infrastructure projects, and foreign exchange reserves.
In 2025, Iran’s oil and gas revenues are projected to rebound, supported by higher production and sustained exports. The International Monetary Fund (IMF) has noted that even under sanctions, the sector generates billions annually, with petrochemical exports alone reaching nearly $20 billion in 2020 and likely growing since. These funds are critical for a government facing high inflation (around 40% in recent years) and a devalued rial, enabling cash transfers and subsidies to mitigate economic hardship for citizens.
The industry’s economic role extends beyond revenue. It supports a vast ecosystem of related sectors—petrochemicals, manufacturing, and logistics—amplifying its influence. However, over-reliance on hydrocarbons has exposed Iran to global price volatility and sanctions-related disruptions, prompting calls for economic diversification under successive development plans, such as the 2016-2022 Five-Year Plan, which aimed for 8% annual growth but fell short due to external pressures.
Employment Landscape
The oil and gas industry is a significant employer in Iran, though its labor dynamics are complex. Direct employment in the sector is relatively modest—estimated at 100,000 to 150,000 workers—due to its capital-intensive nature. However, indirect jobs in refining, petrochemicals, transportation, and construction push the total figure much higher, potentially supporting 500,000 to 1 million livelihoods when supply chains are considered.
Sanctions have had a mixed impact on employment. On one hand, reduced foreign investment and production capacity have constrained job growth in upstream activities like exploration and drilling. A 2022 study found a 16.4% contraction in manufacturing employment growth due to sanctions, with import-dependent sub-sectors hit hardest. On the other hand, the shift toward domestic production and import substitution has spurred job creation in downstream industries. For instance, the $11.5 billion Azadegan field development contract signed in 2024 is expected to create 60,000 jobs, while petrochemical plants in the Pars Special Economic Energy Zone employ thousands.
Gender dynamics also play a role. Sanctions may have reduced opportunities for women in manufacturing but boosted service-sector jobs, where female participation is higher. Overall, the industry’s resilience has preserved employment levels, albeit with slower growth than pre-sanctions eras, as firms adapt to local resource constraints and market shifts.
Recent Developments and Strategic Shifts
Several developments highlight the industry’s evolution. The NIOC’s push to increase oil output by 400,000 bpd through domestic contracts reflects a focus on self-sufficiency, with fields like Azar and Masjed Soleyman targeted for expansion. Gas production is also a priority, with ambitions to reach 1.3 billion cubic meters per day by 2030, driven by South Pars and new discoveries in southern Iran.
Internationally, Iran has deepened energy ties with Russia, signing a $40 billion memorandum of understanding with Gazprom in 2022 to develop fields like Kish and North Pars. This partnership, bolstered by shared sanction pressures, aims to enhance gas exports and domestic supply. Meanwhile, exports to China have intensified, with Iran offering favorable pricing to circumvent U.S. sanctions, a trend likely to persist given China’s growing energy demand.
Regulatory changes have also shaped the sector. The government has prioritized local firms over foreign investors, constrained by sanctions, while modernizing infrastructure like the Kharg Island Oil Terminal, through which most oil exports flow. However, delays in South Pars development—partly due to sanctions—have allowed gas migration to Qatar, costing Iran billions and underscoring the need for technological upgrades.
Challenges and Future Outlook
Despite its resilience, the Iranian oil and gas industry faces significant hurdles. Aging infrastructure and limited access to advanced technology threaten long-term production capacity, with an estimated $500 billion investment needed by 2025—a target unlikely to be met under current conditions. Geopolitical tensions, including stalled nuclear talks and U.S. sanctions, continue to isolate Iran from global markets, while domestic mismanagement and corruption exacerbate inefficiencies.
Looking ahead, the industry’s future hinges on several factors. A potential easing of sanctions could unlock foreign investment and boost output to pre-2012 levels, though this seems unlikely in the near term given U.S. policy. Alternatively, sustained reliance on shadow fleets and Asian markets could maintain revenues but limit growth. Climate pressures also loom, as global demand shifts toward renewables, though Iran’s gas reserves position it well for a transitional role.
The Iranian oil and gas industry remains a paradox—a sector battered by sanctions yet buoyed by resource wealth and adaptability. It underpins Iran’s economy, employs a significant workforce, and navigates a hostile geopolitical landscape with ingenuity. Its resilience is evident, but so are its vulnerabilities. Whether Iran can leverage its hydrocarbon assets to overcome external and internal challenges will shape not only its own future but also the dynamics of global energy markets for years to come.