Iran's oil reserves, estimated at 89.7 billion barrels at the start of 2002, constituted 9% of the world's known reserves and were exceeded only by those of Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait. Iran was the second-largest oil producer among Organization of the Petroleum Exporting Countries (OPEC) countries in 1999.
The first oil concessions were granted by government of Iran (then Persia) in 1872 and 1901, and the first recorded crude oil production began in 1913. Production was carried out by the Anglo-Iranian Oil Co. until the petroleum industry was nationalized in 1951, when the country's oil resources were placed under the management of the National Iranian Oil Co. (NIOC). Late in 1954, active oil properties and facilities were awarded to a consortium of eight foreign companies, later joined by nine others, with US, British, Dutch, and French interests represented. The following year, a joint Italo-Iranian exloration and production company (SIRIP) was formed. The Pan American Oil Co. acquired concession rights in the Persian Gulf in 1958, joining with the NIOC in a new mixed company, IPAC. By 1962, both SIRIP and IPAC were producing from wells in the Persian Gulf. Additional fields were explored, and production grew rapidly.
During the early 1970s, tremendous changes took place in the Iranian oil industry. The 1954 oil participation agreement was terminated, and on 31 July 1973 a new agreement was signed that replaced the concessionary arrangements with a buyer-seller relationship, the major Western oil companies agreeing to purchase crude petroleum under long-term contracts with the NIOC, which was given full control over the industry. In 1980, the revolutionary government ended joint-venture operations with Western oil companies and regrouped them under the Iranian Offshore Oil Co. of the Islamic Republic.
Meanwhile, largely through the concerted action of OPEC, world oil prices rose rapidly; the posted price of Iranian light crude oil increased from $1.36 a barrel in 1970 to $37 in 1981 before declining to $12.75 a barrel in 1989. The Gulf War caused prices to jump to $23.65 a barrel in 1991; by 1993, the price had declined to $16.70. In order to stabilize the price of oil, OPEC imposed quotas on its members. Iran consistently criticized the quota system and asked for a larger quota. Despite an OPEC-imposed production ceiling for Iran of 3,359,000 barrels per day (a 9% reduction agreed to in February 1992), petroleum production reached 3,705,000 barrels per day in 1995. However, daily production fluctuated by as much as 350,000 barrels. In 2001, production was 3.8 million barrels per day. More than half of Iran's 40 producing fields contain over 1 billion barrels of oil. Most of the reserves are located in onshore fields in the Khuzestan region. The onshore Ahwaz, Marun, Gachsaran, Agha Jari, Bibi Hakimeh, and Pars fields alone account for half of annual oil production. In 1999 Iran announced its largest oil discovery in 30 years, at the Azadegan field in Khuzestan. It is thought to have reserves totaling as much as 24 billion barrels. Oil revenues rose from $5.1 billion in 1986 to an estimated $16.4 billion in 2002, when they accounted for about 90% of total export revenues.
In early 2002, Iran's natural gas reserves were estimated at 22.9 trillion cu m (812 trillion cu ft), or 15% of the world's total reserves. Only Russia possesses larger natural gas reserves. Iran's output declined from 19,869 million cu m in 1973 to 7,300 million cu m in 1982 before climbing back to 59,400 million cu m in 2000. More than one-quarter of Iran's natural gas reserves have been discovered since 1992. Exploitation of natural gas is controlled by the National Iranian Gas Co. In the mid-1990s, Iran began developing extensive gas export plans. Inside Iran, a network of pipelines connects Tehran, Qazvin, Esfahan, Abadan, Shiraz, and Mashhad to Ahvaz and the gas fields. In 1995, Iran played an important role in regional talks concerning the construction of a 3,200 km (2,000 mi) pipeline that would carry gas from Turkmenistan to European markets via Iran, Turkey, and possibly Ukraine. Also in 1995, Iran and Pakistan signed an agreement to ship up to 450 million cu m per day via a 1,600 km (1,000 mi) overland pipeline to Pakistan. At the end of 2001, Iran signed an agreement to build a pipeline to natural transmit gas to Azerbaijan from Khoi in the northwestern part of the country.
Although Iran is one of the world's leading oil-producing countries, Iranian industry formerly depended on other energy sources, such as electricity, coal, and charcoal. Recently, however, oil and especially gas have been used increasingly in manufacturing. In 2000, hydroelectric power plants generated about 6% and conventional thermal facilities 94% of the total electricity production of 114.3 billion kWh. Consumption of electricity in 2000 was 111.9 billion kWh. Iran plans to construct ten nuclear power plants by 2015 in order to provide about 20% of the country's power needs. As of 2000, there were five small nuclear reactors in operation.