Role of Oil and Impact of Government Policies on Iranian Economy
Role of Oil and Impact of Government Policies
on Iranian Economy
Dr. Fereydoun Verdinejad
Yasaman Gorji, MBA Student, University of Tehran, Iran
Abstract:
Today, energy sector especially oil and gas, is of special importance in the Iranian economy. Iran enjoys the world’s second largest oil and gas resources and ranks the second in terms of supplying needed oil to the world according to OPEC rations. in addition ,Iran’s geopolitics situation gives the country a competitive and strategic advantages .
This paper attempts to present a historical review on the role of oil and the impacts of government policies on the country economy and social welfare. The historical review includes the Pahlavi dynasty and after the Islamic revolution and status quo.
Keyword: Economy, oil, Government politics , article 44, Iran
1. Introduction
The land of Iran dates back to ancient times. Although its borders may have changed, its nature has been more resistant to be touched by time. People who lived and still live in the country have gone through various experiences in the course of their history, though the Iranian soil has given birth to a different nation due to its natural bounties and resources.[1]
After discovery of oil and its many applications in social, industrial, and economic fields, Iran has undergone remarkable developments. Oil has been an effective factor in relations between people and government during the past 100 years and has been a major factor for creating economic and social welfare as well as injustice in our society. Therefore, oil has played a key role in causing cultural and social developments and composition of the Iranian government revenues because it has been provider of material resources and a determinant in political structures which have been the source of political and social incentives. Undoubtedly, oil will continue to play a similar role in economic, social, and cultural fields in the years to come.
2. Oil & Dependence
Every economic system yields some products and exports them. It also imports its needed commodities in return. Naturally, the more varied exports are, the less vulnerable a given economic system will be to fluctuations in world markets and will be more stable too.
Due to many reasons, most of which pertain to policymaking, the Iranian economy’s industrial and agriculture products for exports to the outside world have been meager and it is mostly dependent on crude oil exports in order to import needed commodities. More than 80 percent of the country’s foreign exchange resources and 70 percent of general budget come either directly or indirectly from oil.
Since many years ago, Iran’s dependence on oil revenues has been criticized. Perhaps the most important reasons behind that criticism include:
1. Vulnerability of the country’s moneymaker to international market fluctuations;
2. Uncontrollability of the country’s most important economic variable and, as a result, impossibility of setting targets for macroeconomic indexes;
3. Availability of an easy source for running the country and, as a result, inattention to activation of internal economic potentials;
4. When oil dependence is combined with government control over oil resources, it makes governments needless of people and, therefore, most oil exporting countries are not ruled by democratic systems.
5. Oil reserves in developing countries, especially in the past few years, have motivated the big powers to strengthen their control over those countries in order to have access to more inexpensive energy resources[2]
Due to such issues, the oil industry and its growth has been looked upon with some pessimism in the minds of decision-makers and politicians. Since Pahlavi regime planned to produce more crude oil and in order to maintain oil reserves for future generations, crude oil production greatly reduced after victory of the Islamic Revolution. Subsequently, investment in exploration projects greatly decreased too. Share of the Islamic Republic of Iran in OPEC production decreased to less than one-third and, on the opposite, countries like Saudi Arabia increased their output to more than 1.5 times the past thus earning a lot of foreign exchange as a result of sudden increase in international prices. Lack of investment in oil sector and absence of interaction with the outside world, because politicians were wary about colonialist goals, on the one side; and rapid growth of technology and technical know-how in industrial countries, on the other side caused Iran to lag behind other countries.
3. Iranian Oil & Gas Reserves and Their Importance
Today, energy sector, especially oil and gas, is of special importance in the Iranian economy. Iran enjoys the world’s second largest oil and gas resources and ranks the second in terms of supplying needed oil to the world according to OPEC rations. On the other hand, importance of natural gas in world energy markets is rapidly rising. Share of natural gas in primary energy demand of the world has increased from about 19 present in 1980 to about 23 percent in 2002. According to forecasts by the International Energy Agency (2004) natural gas demand in the world will increase by about 90 percent by 2030.[3]
Due to clean burning, gas is turning into fuel of choice for different purposes, especially power generation. According to figures, natural gas is expected to grow more rapidly among other major energy resources and its consumption will almost double by 2030. During the next few years, gas will overtake coal and will be introduced as the second most important energy source and it can also surpass crude oil by 2050.
Table 1- Iranian oil & gas reserves
Oil & Gas | Reserves | Share in Total World Reserves | Rank in the World |
Oil | 137.5 billion barrels | 11.5 percent | Second after Saudi Arabia |
Natural gas | 27 trillion cubic meters | 15 percent | Second after Russia |
Source: BP, 2006 [4]
In oil economy, the power of Iran depends on the following factors:
1. Global oil prices;
2. Future demand for the Iranian oil in international market;
3. Iran’s crude oil output and production capacity in the coming years;
4. Domestic consumption of oil products and what remains for exports;
5. Estimated production and export of natural gas.
From 2000 onward, national income and international power of Iran has been tied to high international oil prices. Since crude oil production capacity of the country has remained constant in the past decade while consumption has rapidly increased, the Islamic Republic of Iran is expected to lose its role as an important player in world oil prices. Therefore, Iranian oil industry is facing major concerns which necessitate revision of main policies related to the oil industry.
4. Role of Oil in Generating National Wealth and Social Security under Pahlavi Regime (1919-1979)
Cossack units led by Reza Khan, which had been posted in Qazvin to fight Mirza Kouchak Khan’s movement, were instigated by General Iron Side, commander of the British forces to enter Tehran on February 21, 1921. Seyed Ziaoddin was dismissed as prime minister and Reza Khan rapidly grew through political ranks from minister of war to prime minister and then to kingdom.[6] After differences broke out between Iran and Britain over Darsi contract, a British advisor had been assigned by Iran to calculate 16-percent royalty. After a year of studies, he calculated one million liras as compensation to Iran and the sum increased Reza Khan’s power and enabled him to develop his army.
Under the first Pahlavi monarch, the royal court was awash with oil revenues and not only made the king and royalty richer, but also enabled the government to purchase more weapons for the army. However, no attention was paid to development of the country. Even the money needed to build the south–north railroad was supplied by levying tax on sugar.[8] Obviously, those revenues had no positive effect on elimination of deprivation and injustice, but increased the gap between rich courtiers and ordinary people.
After the end of World War II, Russians had a claim to Iran’s oil resources and they even started drilling in where Qaem Shahr and Gorgan cities currently stand. Afterward, the Americans dispatched specialists from Standard Vacuum and Sigler companies to accompany the British Royal-Dutch Shell Company and obtain new concessions outside the area of 1933 contract. Of course, parliamentarians at the National Consultative Assembly forbade any contract and concession beneficial to foreign governments.
The government of Dr. Mosaddeq, which was supported by people, first nationalized the Iranian oil industry to evict the British engineers and then established the National Iranian Oil Company.[8] When Mosaddeq lost hope in selling oil, he presented his theory of economy without oil. Government efforts to encourage non-oil exports multiplied oil revenues. According to an economic estimation, real economic growth rate under his government stood at an amazing figure of 3.7 percent.
In the course of the oil nationalization movement, although they did not purchase Iran’s oil and Iran was under sanctions and its people suffered a lot, new hope budded in production structures of the country and oil sanctions raised hopes about self-sufficiency and national development. Those hopes, however, were dashed through the military coup d’état in August 19, 1953.
In 1954, the Consortium Contract was replaced by the 1933 contract with British and American governments respectively accounting for 40 percent and 40 percent of consortium’s stocks. Six percent of its stocks were owned by the Royal-Dutch Shell Company. During the last five years of the Shah regime, Iran produced a total of 11 billion barrels of oil. Also, the country produced 16.6 billion barrels of oil in 1977 and 11 billion barrels of crude oil were exported during the last five years of Mohammad Reza Shah’s rule.[9] Revenues earned through export of crude oil and its products amounted to 83.4 billion dollars during the last five years of the Shah’s rule due to the unprecedented increase in oil prices. However, instead of being spent on national development and public welfare that money served to increase Iran’s dependence on other countries.
4.1. Impact of Oil Revenues on Economy in Later Years of Pahlavi Rule
The following points are noteworthy as to the impact of huge oil revenues on Iranian economy in the concluding years of Pahlavi regime.
A) Those that were related to royalty used oil revenues to establish assembly plants on the outskirts of big cities and while promoting consumerism in cities, encouraged rural people to immigrate to cities. The number of commercial and private banks increased to 36 and they granted loans outside the framework of monetary policies, thus institutionalizing structural inflation in the Iranian economy. [11] Unemployment was soaring and inequality of incomes was very striking, so that 20 percent of wealthy people accounted for more than 63 percent of income and the share of 40 percent of population did not exceed 9.7 percent.[12]
B) Consumerism in the society and over-reliance on imports to meet the existing demand led to severe economic dependence and backwardness of agriculture sector due to immigration of villagers to cities the result of which was a mono-cultural economy and high imports of agricultural products and foodstuff. In this way, oil not only failed to bring about needed grounds for national wealth generation, but also pushed national economy toward bankruptcy.[11] Direct dependence of the general budget on oil revenues amounted to 60 percent in 1979.[13]
4.2. Role of Oil in National Wealth Generation and Social Justice in Iran after Islamic Revolution
Many factors have been mentioned as influential in causing victory of the Islamic Revolution. Some maintain that it was a result of international conditions while others put more emphasis on domestic circumstances. A group insists on the role of political factors while another group stresses on cultural reasons. Economic factors are considered the main cause by another group. Anyway, persistence of economic woes despite high oil revenues, the Shah’s dependence on foreign powers, corruption, and dictatorship were major factors that led to the Islamic Revolution.[6]
The Islamic Revolution was a response to various problems caused by the Pahlavi regime such as economic underdevelopment, injustice, widespread poverty and economic gap between urban and rural regions.
5. Government Investment and Oil Revenues
Oil revenues have been a major asset for governments in Iran and its use to cover current expenses has elicited criticism from intellectuals and politicians. Dr. Hassan Mosharraf Nafisi, deputy prime minister in 1947, justified allocation of oil revenues to implementation of the first development plan as follows: “Basically, oil revenues cannot be used for current affairs because they are earned in return for a wealth which is on the fall and oil resources will be depleted some day. That money should be spent in such a way as to produce another wealth in place of the existing wealth which is being depleted.” [3]
On the whole, Iranian planning system which was established six decades ago was based on the idea that oil is not renewable and resultant revenue should be used to invest in other areas which will not only be beneficial to the current generation, but also provide next generations with livelihood and occupation. This approach to oil as an intergenerational wealth was the main axis of development plans up to early 1970s. Using oil revenues to cover government’s current budget deficit was institutionalized after that date and infrastructural affairs were overshadowed by the current budget. However, “investor, not solely consumer state” has been a dominant paradigm in economic and budget planning during the past 60 years. According to that paradigm, governments both before and after Islamic Revolution appropriated part of their annual projects (about 30 percent) to infrastructural and production plans. However, a large portion of that budget was practically channeled to current expenses of governments.
6. Background and Legal and Economic Fundaments of Oil Stabilization Fund in Iran
Using oil revenues to fund infrastructural and developmental projects and avoidance to use them to cover current expenses characterized the first economic development plan of Iran. In later plans, oil revenues were considered a national wealth which should not be consumed. However, as governments grew in size, that cause was gradually forgotten. During the first and second development plans, most funds needed to implement those plans came through oil revenues. [5]
A major problem with the Iranian economy is its severe dependence on oil revues and a major challenge it faces is fluctuations in oil prices. When oil revenues dwindle, developmental projects grind to a halt or slow down and when revenues rise, petrodollars are rapidly spent and sometimes squandered.
To stop this trend and its untoward consequences and in order to assure a constant flow of foreign exchange revenues, the Third Economic Development Plan (2000-2005) established a system to stabilize government budget and protect it against fluctuations in oil prices.
The following conditions were practical fundaments and principles of the new system:
a. Principle of preventing irregularities resulting from surplus oil revenues
b. Principle of increasing productivity of foreign exchange reserves kept at Oil Stabilization Fund (OSF)
c. Principle of differentiating between surplus reserves and total foreign exchange reserves
d. Principle of liquidation of reserves in time of need
e. Principle of law abidance and respect for development plans
Establishment of an oil stabilization fund is a good way for management of oil revenues in oil-rich countries. Experiences of different countries (save for a few exceptions) show that instead of solving financial and developmental problems of respective countries, such funds have turned into a major problem. When oil revenues fall, governments should either reduce their current expenses or developmental expenditures, both of which will be detrimental in the long run.
As a result, instead of reducing expenses, governments decide to compensate budget deficit in another way and when they lack needed assets, they get loans from banks. When oil revenues resurge or when deposits exist, they will be better off. However, governments usually spend the money in a short time which indicates mismanagement of financial resources. A sign of that mismanagement is accepting just any plan which is offered when oil prices are high and stopping those plans when revenues fall. [6]
The Oil Stabilization Fund has been established at the Central Bank of Iran according to amended Article 60 of the Third Economic, Social, and Cultural Development Plan to achieve the following goals:
Ø a. Stabilizing oil revenues during the Third Economic Development Plan
Ø b. Converting assets gained through oil sales to other forms of assets
Ø c. Developing investment by nongovernmental sectors and paving the way for achievement of development plan goals
The government was obligated according to Article 60 of the Third Economic Development Plan and its amendment (dated October 11, 2000) to deposit surplus oil revenues at the Oil Stabilization Fund which was run by the Central Bank of Iran. A maximum of 50 percent of the reserves were to be spent on industrial, mineral, agricultural, transportation as well as engineering and technical services projects by nongovernmental sector after feasibility studies. The credits were to be allocated through banks.
According to Article 60 of the Third Economic Development Plan, the government was only allowed to withdraw from the reserves if oil revenues decreased. Performance of the Oil Stabilization Fund shows that the industrial sector has accounted for 95 percent of credits disbursed through OSF because both the private sector is willing to invest there and the sector is capital-intensive. Investment plans in the sector were not restricted to the non-oil industries, but also included investment plans in petrochemical sector as well as downstream oil and petrochemical industries (where more than 746 million dollars has been invested). Other plans were also approved for investment, but due to different reasons were not made operational by the end of the Third Economic Development Plan and this showed how complicated the oil industry is.[5]
7. Situation of Energy Investment in Iran
Perhaps oil-rich countries think they are endowed with a major privilege, but in case of mismanagement, oil will prove to be a black curse for them. Countries whose economies depend on oil do not pay attention to other revenue sources and there is mismanagement in the field.
Out of oil-rich countries, few of them make considerable investments in their oil and gas reserves and Iran is no exception. Government extracts and consumes oil, but does not invest in highly profitable fields. [7]
During the past 10 years, the following investments have been made in oil, gas, and petrochemical industries.
Table 2- Investments in oil, gas, and petrochemical industries
Sector | Investment (in billion USD) |
National Iranian Oil Company | 62 |
National Petrochemical Company | 20 |
National Iranian Gas Company | 5 |
National Iranian Oil Refining and Distribution Company | 1.5 |
National Iranian Oil Company, National Iranian Gas Company, National Iranian Oil Refining and Distribution Company, and National Petrochemical Company will respectively need 180 billion dollars, 100 billion dollars, 15 billion dollars, and 50 billion dollars investments by 2025.[1]
Anyway, it is quite clear that the oil industry needs hefty investments in its technology transfer plans. All governments and corporations need resources for investments in all fields, especially in oil and gas and they try to attract foreign funds through loans, foreign direct investment and capital market. Investment in oil production, especially in exploration, is risky and may be highly profitable or lead to heavy losses. Other sectors like extraction are so profitable that governments try to keep even foreign banks and capital markets away from them. [2]
Although oil sector accounts for less than 20 percent of Iran’s gross domestic product, its role in foreign exchange revenues stands above 80 percent and it accounts for about 98 percent of the country’s needed energy.
Another important role of oil is that it has covered about 54 percent of government’s general expenses during the past 20 years. Indirect impact of oil on tax revenues and other state revenues cannot be denied.
Oil sector is also important at international level because it supplies a large part of the world’s needed energy. Special position of this sector in procuring country’s needed foreign exchange and its role in making other industries, such as power plants and transportation, work and also its role in job creation and providing the government with needed funds for investments and public service has added to its importance.
During the past 20 years, growth in oil and gas investments has paralleled general growth in the Iranian economy. Average growth of investment in Iranian oil and gas industry during 1971-1975 stood at 44 percent when the whole Iranian economy was booming. Average investment rate in oil and gas industry in 1978-1989 was negative at -10 percent and the country’s economy was not faring properly too. In the period, 1982-1998, annual investment rate in the Iranian oil and gas sector stood between 5 percent and 15 percent and it was associated with similar fluctuations in economic growth rate.
To ensure a minimum livelihood for a population that grows at an annual rate of 2 percent, Iran will need an annual economic growth rate of, at least, 6 percent and this goal can be achieved only through required investments in oil and other economic sectors.
During recent years, the cost of investment in global oil industry has increased, putting more pressure on oil producing countries. Qatari oil minister announced in April 2000 that costs of oil exploration and production have grown by about 3 times. Upstream costs have greatly risen. A main feature of oil and gas projects is the long time it takes to finish them because governments have always faced budget deficits resulting from incorrect revenue forecasts in annual budget bills and the resultant decrease in appropriation of investment credits. The reason for this situation is hefty profit earned through oil and gas sector which gives government more incentive to find oil and gas projects through domestic resources. In other words, companies and governments fund upstream oil investments through domestic resources to avoid sharing profits. Investment in oil and gas industries in the Middle East and North Africa will greatly increase in the coming years.[8]
8. Private Sector and Its Necessity
Investment in Iran is much less than what is needed for job creation. Foreign investment is actually absent and state-run sector is facing great hurdles for investment. Therefore, everything depends on the private sector which needs investment security before funding any project.
Investment security does not simply mean profitability of economic activities. Under a healthy economic system, there are always some economic corporations facing bankruptcy due to inefficiency, lack of competitive advantages, and emergence of new technologies. On the opposite, new economic entities come into being. The important issue, however, is that elimination of an economic activity or creation of a new one will depend on efficiency, creativity, and innovation. It does not necessarily mean a change in legal rules. Requisites for investment security include a clear definition of private and public rights and differentiation between them as well as guarantees to respect private rights.
Statistics show that state-run corporations in Iran are much bigger than private ones. This shows that contrary to other countries, private companies grow cautiously because capital owners hide their assets and keep them awayfrom different economic activities. [1]
9. Constitutional Solution for Structural Problems in Society
The sudden rise in global oil prices following the Islamic Revolution provided the revolutionary government with good revenues. However, the country was caught in an eight-year war with the neighboring Iraq. Therefore, after the Islamic Revolution, oil affected the Iranian economy: firstly, nationalization of industries and plants on the basis of oil revenues and, secondly, current revenues earned through selling oil and oil products. Since these two developments should have led to increased national wealth and social justice according to Article 44 of Constitution, an assessment of the past three decades will be a touchstone against which realization of target goals can be evaluated.[1]
The need to change government structure from owning economic corporations to policymaking and supervision has been a focus of attention for experts, economists, and managers of state-run bodies and it entered a new phase after notification of general policies related to Article 44 of Constitution in June 2005. [11]
About 80 percent of the Iranian economy is state-run. The government is trying to put an end to this by amending one of the most important constitutional articles. Implementation of Article 44 policies will greatly promote privatization. The Article has divided the Iranian economy into state-run, cooperative, and private sectors.[7]
10. Oil Revenues and National Economy
Table 2 shows that between 1979 and 2003, Iran’s revenues through oil sales have exceeded 390 billion dollars while imports have amounted to 375 billion dollars.
Table 2- Annual average of oil revenues and imports during 1979-2003 (in billion dollars)
Year | Oil Revenues | Imports | Inflation (%) |
1379-88 | 14.6 | 11.7 | 7 |
1989-93 | 15.5 | 23.2 | 18.4 |
1995-99 | 15.4 | 13.7 | 25.1 |
2000-03 | 22.6 | 20.1 | 13.8 |
Source [12]
As the table shows, after the war with Iraq (1980-88), inflation has been constantly a two-digit figure. On the other hand, according to figures released by Ministry of Economic Affairs and Finance, unemployment rate has paralleled growth in population in early post-revolution year at an average rate of 3.5 percent per annum, increasing from 997,000 in 1976 to 1.819 million in 1986. In 1996, it decreased to 1.465 million only to increase to 3.2 million by 2006.
As for structure of government’s general budget and role of oil revenues, statistics show that more than 60 percent of total budget came from oil prior to 1978, which decreased to 47 percent although hefty sums were paid as various subsidies. Official figures indicate that there is a remarkable gap between upper and lower income deciles as well as between cities and villages.[12]
A study of government’s size and quality during the past three decades will show that the number of state-run companies and their economic activities has greatly expanded compared to early post-revolution years. Although privatization has been emphasized by Note 32 of the First Economic Development Plan Act and subsequently in Second Economic Development Plan Act (Note 41), Third Economic Development Plan Act (Article 15 and elsewhere) and some articles of the Fourth Economic Development Plan, the government has not been downsized to provide more room for private sector’s economic activities.[12]
Analysis of the above economic indexes, which delineate a general picture of economic developments in the past three decades, show that despite hefty investments that have been directly or indirectly made by the government in infrastructural projects, generation of national wealth and promotion of social justice has not been realized in a suitable way.
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Policies Ratified for Privatization
In addition to changing government’s role from ownership to policymaking, Article 44 also stresses on empowerment of the private sector and transferring 80 percent of state-run companies’ stocks to the private sector including those companies which are active in mines and parent industries such as major downstream oil and gas industries, excluding the National Iranian Oil Company and other companies involved in extracting and producing crude oil and gas. The article reads as such, “In view of the need to speed up economic growth of the country based on social justice and elimination of poverty as delineated by 20-Year Vision Plan, privatization policies which aim at increasing efficiency and competitiveness and expanding public ownership as proposed by the State Expediency Council, Clause J of general policies under Article 44 of the Islamic Republic of Iran’s Constitution are notified according to Clause 1 of Article 110:
• Changing government’s role from ownership to direct management of corporations to policymaking and supervision
• Empowerment of private and cooperative sectors in economy and supporting them to boost competitiveness of commodities in international markets
• Preparing domestic corporations to intelligently handle international trade rules through a gradual and purposeful process
• Developing basic and specialized human assets
• Developing and promoting national standards and adapting quality control systems to international standards.”
- Importance of Article 44 for Oil Industry
Notification of Clause J of Article 44 policies has been a very great step taken in recent years. At present, the government has a big monopoly over the economy, an especially state-run company, which has led to emergence of an oversized government, low productivity and many other obstacles on the way of economic growth and development. This research project aims to review impact of Article 44 of the Constitution on realization of the Fourth Economic Development Plan’s goals and 20-Year Vision Plan in terms of technological development of oil industry.
Outlook of the Islamic Republic of Iran’s oil industry to 2024 includes the following components:
ü First producer of petrochemical materials and commodities in the region in terms of value
ü Second producer of crude oil in OPEC accounting for 7 percent of market demand
ü Third producer of gas in the world accounting for 8-10 percent of global gas trade
ü Ranking first in oil and gas production in the region13. Impact of Article 44 on Technological Development
Studies show that if part of government activities is transferred to the private sector, the way will be paved for technology transfer. Correct implementation of privatization will create links among active players in scientific and technological areas. This process will also be introduced to policymaking and management procedures and will lead to more cooperation from scholars, industrialists, policymakers and academic canters.
Therefore, the best links will also be established with state-run decision-making centres which will be beneficial for technology transfer, promotion of the best experiences, and establishment of suitable infrastructures for growth and development of technology.
If Article 44 policies are realized for oil, gas and petrochemical industries, the private sector will have great demand for procurement of needed funds both in foreign exchange and local currency in order to own and develop government industries and to build new oil, gas, and petrochemical plants.
To meet that demand, we should have great capacities in domestic capital market, on the on hand, and keep a lot of money in the Oil Stabilization Fund to acquire existing industrial units and invest in procurement of machinery and equipment.14. Oil Industry, Article 44, Wealth Generation, and Social Justice
Undoubtedly, oil can play an important part in the process which has been delineated by Article 44 to generate national wealth and establish social justice in the country. However, the following questions should be answered first:
A. Through what mechanism and to whom the downstream oil industry will be transferred, especially taking into account that the sector will have a total value of 205 billion dollars by 2025?[14]
B. Will the mechanism chosen to privatize downstream oil industry be able to eliminate poverty and deprivation, on the one hand, while generating national wealth and promoting social justice, on the other?
C. Cost price for production of every barrel of crude oil will increase from 2 dollars in 2006 to 17 dollars in 2025. In that case, will global oil prices allow the government to invest foreign exchange revenues in infrastructural projects as it was done three decades ago?[14]
D. Since head of Article 44 Headquarters at the National Iranian Oil Company has announced that 34 percent of new investments will be made in cooperation with the private sector by 2015; will the rest of needed credits be supplied by the government?
In view of the past experiences, it should be admitted that the current trend of privatization of downstream industries, which is a result of 100 years of efforts made in oil industry, will not be able to realize goals of Article 44 and its related policies. Efforts made by officials to empower people and enable them to play their part in development of oil industry by establishing financial and economic institutions and suitable mechanisms, and taking advantage of this unique economic advantage to develop employment and reduce unemployment will clear the way for wealth generation and promotion of social justice.15. Conclusion
This paper initiated with a question about the role of oil in generating national wealth and realizing social justice during 100 years that have passed since its discovery.
As said before, since its discovery under the Qajar rule, the Black Gold was used to meet the needs of the Shah and courtiers and increased their wealth. However, it did not play an important role in increasing national health and eliminating poverty in the Iranian society.
That situation continued under Reza Shah and his son, but dependence of Pahlavi regime on neo-colonialism triggered changes such as equipping the army and establishing a bureaucratic system in order to maintain the government. In fact, petrodollars were spent in the interest of colonialist powers. After he World War II and nationalization of the Iranian oil industry, new hopes were raised about changing the role of oil in the national economy, but those hopes were dashed through the military coup of August 19, 1953. Increased oil revenues in 1973-74 also helped the Shah to speed up the process of equipping the army and meeting the needs of those close to him, so that, upon the victory of the Islamic Revolution, class divide and economic woes were at their peak. Therefore, billions of dollars in oil revenues were squandered under the second Pahlavi king, domestic economy did not develop in a true sense and social justice was not realized.
After the victory of the Islamic Revolution great investments were made in infrastructures. A lot of production and industrial units were established by state-run entities and huge subsidies were paid. However, due to the nature of economic policies and presence of an oversized government, private economic activities were almost absent and social justice was not realized. Therefore, notification of general policies under Article 44 of the Constitution was aimed at speeding up national wealth generation and promotion of social justice.
Oil plays the most important role in this regard and adoption of this approach proves that all capacities of oil and gas industry can be used to generate national wealth and promote social justice. Therefore, extension of privatization policies to the oil sector without attention to its role for achieving the above goals will further deprive people from social justice and economic development. Oil and gas industry needs specially engineered policies before general policies under Article 44 are applied to them. This huge asset should be used to establish and develop a sustainable structure for production and a productive economic system and to create jobs in the country. Also, breaking the climate of imitation and opting for a realistic inculcation about the need of the national economy for oil industry and its revenues within framework of general policies of Article 44 of the Constitution are requisites for achieving ultimate objectives of policies related to the said article.References:
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