Iranian Commerce Overview

Iran, like many Middle Eastern nations, is a country marred by economic downturn as the state controls most trading and orchestrates price controls on many necessities. The Iranian government is believed to control approximately 60% of the economy. One of the central problems the Iranian government faces is retaining their talented youth who often travel overseas to find stable and higher paying occupations. With an unskilled labor force it is difficult for Iran to modernize their economic foundations. The vast majority of Iran’s economy is based upon agriculture and oil. Such a focused dependency on two industries can become detrimental to the growth and reconstruction of a country in dire need of revitalization to their economy.
After a decline through the 1980’s and 1990’s of oil production, Iran has recently resumed production to exploit their natural resources. Iran holds approximately 10% of the world’s proven oil reserves which allow them to exploit their natural resources for economic gains.
By 2004, Iran’s annual oil production was 1.4 billion barrels, creating a net profit of $50 billion. Iran manufactures 50-80% of its industrial equipments domestically, including refineries, oil tankers, oil rigs, offshore platforms and exploration instruments. In February 2008 the Iranian Oil Bourse was inaugurated in Kish Island to trade crude oil and petrochemical products.
Petroleum dominates 80% of Iran’s exports each year and was valued at $46.9 billion in 2006. Although profitable, this reliance upon a nonrenewable resource could prove to be even more problematic for the country which still remains in strained economic conditions.
The industrial sector of Iran’s economy contributes over 11% of the GNP and employees over a third of the work force. Although petroleum constitutes a large portion of Iran’s industrialization; 70% of miners work to produce minerals like: coal, iron ore, copper, lead, zinc, chromium, barite, salt, gypsum, molybdenum, strontium, silica, uranium, and gold. Like most other aspects of industry the Iranian government controls approximately 90% of all mines. Additionally, the government is currently seeking $1.1 billion in foreign direct investment to fully exploit these potential resources.
Agriculture contributes 11% of the GNP of Iran and employs over 30% of the country’s work force. Wheat and rice are two of the majorly produced crops; however farmers also grow barley, cotton, corn, tea, hemp and tobacco on the 20% of lands that are arable within Iran. By 2003, 25% of Iran’s non-oil exports were agricultural products.
Iran has also developed strong trading ties with other Asian entities since the early 1990’s. Its foremost trading partners include: China, India, Germany, South Korea, Japan, France, Russia and Italy. In 2007 Iran and India’s trade increased by 80% surpassing $13 billion in volume. The United States, who previously was Iran’s strongest trading partner, cut ties with Iran after the Iranian revolution in 1979. Iran has developed stronger trading ties with Turkey and Pakistan; all of whom share the common goal of developing a single economic market in West and Central Asia called the Economic Cooperation Organization (ECO). This organization is modeled after the very successful European Union which fosters a better trading and investment environment for member states.
As Iran and the United States have maintained polarizing policies since the revolution, it appears as this foreign policy stance will remain constant through the near future. As Iran continues to pursue a nuclear development program, the United States will keep sanctions in place.
Tensions between Iran and the West over the former's nuclear program are expected to persist, but the likelihood of military conflict over the issue has diminished. Despite the publication of a US national intelligence estimate in December 2007 that concluded that Iran stopped developing nuclear weapons in 2003, the degree of mistrust between Iran and the US, and the determination of Iran to press ahead with its nuclear program, is likely to complicate the search for an international agreement within the forecast period.
Iran and the United States currently have made little progress in coming to a mutual agreement which would substantially change policy from a trade perspective. However, the Economist states, “the slow pace of oil output growth, and consequent stagnation of oil revenue, will force the government to rein in its expansionary fiscal policy. We expect real GDP growth to average around 3.1% a year over the forecast period.” This would translate to a continuance of the economically strained standards for the citizens of Iran. Iranian conservatives, however, are frustrated with their country’s economic management which could result in changes within the hierarchy. Such changes could translate to a more moderate political position so that Iran would have the ability to have talks with other countries like the United States.
Iran appears to have a relatively firm commitment to its reliance on exhaustible resources as a central foundation for its economy. Additionally, the Iranian government maintains its stronghold of the economy with price controls. Assuming powerful conservative leaders do not successfully demand an economic reform, Iran will continue to fall behind in economic prosperity.