Overview | Government

This series of profiles of foreign nations is part of the Country Studies Program, formerly the Army Area Handbook Program. The profiles offer brief, summarized information on a country's historical background, geography, society, economy, transportation and telecommunications, government and politics, and national security. Derived from The Library of Congress.


March 2006


Formal Name: Islamic Republic of Iran (Jomhuri-ye Eslami-ye Iran).

Short Form: Iran.

Term for Citizen(s): Iranian(s).

Capital: Tehran.

Other Major Cities (in order of population): Mashhad, Esfahan, Tabriz, Shiraz, Karaj, Ahvaz, Qom, and Kermanshah.

Independence: In the modern era, Iran always has existed as an independent country.

Public Holidays: The national holiday, Islamic Revolution Day, celebrates the victory of the Islamic Revolution on February 11, 1979. Other official holidays are Dawn (the return of Ayatollah Khomeini from 14 years of foreign exile on February 1, 1979), Noruz (Iranian New Year, March 21), Islamic Republic Day (April 1), Thirteenth Day of New Year (April 2), and several Islamic religious holidays that are reckoned in accordance with the lunar calendar and thus do not re-occur on the same dates each year.

Flag: The flag, adopted after the 1978–79 Revolution, features three

horizontal bars, green (on top), white, and red, representing, respectively,

Islam, peace, and courage. The bars are divided by stylized script. The

white bar features a centered, red, abstract representation of the name

Allah in the shape of a tulip.


Early History: The first Iranian state was the Achaemenian Empire, which was established by Cyrus the Great in 546 B.C. Alexander the Great conquered the empire in 330 B.C. The Greek rule was followed by the Parthians, who ruled from 247 B.C. until A.D. 224, and the Sassanians, who ruled from A.D. 224 until the Arabs conquered Iran in A.D. 651. The Arabs brought with them Islam, which eventually became the predominant religion. In the centuries that followed, Iran was ruled by a succession of Arab, Iranian, and Turkic dynasties. In the thirteenth century, the Mongol leader Genghis Khan invaded the disunified territory of Iran, and Mongol dynasties subsequently ruled Iran for nearly two centuries. In 1501 the Iranian Safavis created a strong centralized empire under Ismael I and also established Shia Islam as the official religion. In the eighteenth century, Iran was weakened by civil wars, new dynasties came to rule, and a new regional rival, Russia, arose.

The Qajars and Pahlavis: In 1794 the Qajar family established a dynasty that would rule Iran until 1925. In the nineteenth century, Iran, under the Qajars, lost much of its territory in the Caucasus and Central Asia to Russia. During this period, influence in Iran was divided between Russia and Britain, Russia’s chief Western rival in the region. Both powers interfered in local politics and forced Iran to make trade concessions. A popular desire for accountable government and resentment of intrusion by foreign interests led to the Constitutional Revolution of 1905–6 and the formation of a parliament. In 1909 the Anglo-Persian Oil Company was formed and assumed control of Iran’s newly discovered oil deposits.

In 1921 army officer Reza Khan provided military support for a coup against the government; he was named minister of defense, then prime minister. Following parliament’s deposition of the Qajar dynasty in 1925, he became shah of Iran, adopting the surname of Pahlavi. As Reza Shah Pahlavi, he restored order and sought to modernize the economy and society and to forge cultural links abroad. However, in World War II his failure to cooperate with the Allied powers caused Britain and the Soviet Union to invade Iran and force him to abdicate in favor of his son, Mohammed Reza Shah Pahlavi. In 1951 Mohammad Mossadeq, a deputy in the parliament, rode strong Iranian sentiment for nationalization of the oil industry to a position as prime minister. However, in 1953 Britain and the United States, which opposed the principle of oil nationalization at the time, forced the nationalist Mossadeq from power.

In the 1960s, Iran recovered from the economic disruption of the oil nationalization period, but the authoritarian rule of the shah provoked political discontent. It was during this period that Ayatollah Ruhollah Khomeini developed a following as an antigovernment leader and was sent into exile (1964), first to Turkey and subsequently to Iraq. Between 1965 and 1977, Iran enjoyed improved prosperity, expanded regional influence, and relative stability. However, there was no liberalization of the political system, and repression coupled with resentment of an increased Western presence fueled a series of antigovernment protests in 1977 and early 1978 that developed into a nationwide revolutionary movement. From his exile base in Iraq, Khomeini emerged as the leader of an increasingly strong opposition movement, which organized nationwide strikes and effectively paralyzed the economy by late 1978. The military, experiencing mass desertions and the refusal of junior officers to act against strikers and demonstrations, was unable to protect the regime, and the shah decided to leave the country, ostensibly for medical treatment. After the shah’s departure, his government was unable to stem what had become a revolutionary tide. Khomeini returned from exile on February 1, 1979, refused to recognize the authority of the shah’s prime minister, and appointed a provisional government. When the military announced its neutrality in the power struggle between the two governments, the monarchy effectively ended.

The Islamic Republic of Iran: Following a national plebiscite, an Islamic republic was proclaimed officially on April 1, 1979. The provisional government was composed of a coalition of nationalist and religious leaders who had moderate views with respect to social and economic changes. They were opposed by young militants who advocated radical changes in both domestic and foreign policies. In particular, the latter group wanted to end all ties with the United States. In November 1979, students affiliated with the latter group occupied the U.S. Embassy in Tehran and held 53 U.S. diplomats hostage for the next 14 months. This incident led to the collapse of the provisional government and a decisive break in U.S.-Iranian relations. Between 1980 and 1988, serious differences between the moderate and militant factions of the revolutionary government were held in check by the need to maintain internal unity during an indecisive war with Iraq that resulted in more than 200,000 Iranian deaths.

In 1989 the death of Khomeini removed the one figure with authority to arbitrate between the two mutually antagonistic political factions of the postrevolutionary elite. Neither of the two factions constituted a homogeneous political group; rather, each comprised multiple ideological tendencies. In general, those whom the Western press labeled “reformers” advocated a liberal interpretation of the constitution and Islamic law but disagreed among themselves with respect to economic, political, and social policies. By contrast, those who came to be known as “conservatives” advocated the strict and literal interpretation of the constitution and Islamic law.

During the presidency of Ali Akbar Hashemi Rafsanjani (1989–97), reformers controlled a majority of seats in parliament until 1992 and supported Rafsanjani’s policies for economic reform and the normalization of relations with neighboring countries. The conservatives won a majority of seats in both the 1992 and 1996 parliamentary elections and subsequently used their position in the legislature to weaken or stop outright many reforms proposed by the Rafsanjani government. The administrations of Rafsanjani’s successor, Mohammad Khatami (in office 1997–2005), encountered the same resistance. Reformers won a majority of seats in the 2000 parliamentary elections and then enacted several notable pieces of reform legislation in the ensuing term. Having lost control of the parliament, conservatives tried to use their influence in the judiciary and bureaucracy to impede reforms they perceived as threatening their positions. Conservatives regained control of the parliament in the February 2004 elections.

Although Iran’s foreign relations had improved under Khatami, in the early 2000s earlier progress was eroded by Iran’s ostensible support of terrorist groups in the Middle East and conflict with the European Union and the United States over Iran’s nuclear program. Iran’s international position was jeopardized by the construction of nuclear processing plants to provide fuel for its nuclear energy generating facility at Bushehr, which was being built with significant technical input from Russia. In mid-2005 the surprise election of conservative Mahmoud Ahmadinejad as president led Iran to adopt more confrontational international positions, especially vis-à-vis limitations on its nuclear fuel processing program and its attitude toward Israel. Within Iran, moderate and conservative factions concurred in defending the nuclear program against international interference.


Location: Iran is located in the Middle East, between Turkey and

Iraq on the west and Afghanistan and Pakistan on the east; it borders

the Persian Gulf and Gulf of Oman in the south and Armenia, Azerbaijan,

the Caspian Sea, and Turkmenistan in the north.

Size: Iran’s total area is 1.65 million square kilometers, of which 1.64 million square kilometers—an area slightly larger than Alaska—is land mass.

Land Boundaries: Iran is bounded by Afghanistan (936 kilometers), Armenia (35 kilometers), Azerbaijan proper (432 kilometers), Azerbaijan’s Nakhichevan enclave (179 kilometers), Iraq (1,458 kilometers), Pakistan (909 kilometers), Turkey (499 kilometers), and Turkmenistan (992 kilometers).

Disputed Territory: Iran and the United Arab Emirates (UAE) dispute sovereignty over three islands in the Persian Gulf that are occupied by Iran.

Length of Coastline: Iran’s coastline includes 2,440 kilometers on the Persian Gulf and Gulf of Oman and 740 kilometers on the Caspian Sea.

Maritime Claims: Iran’s territorial sea extends 12 nautical miles and its contiguous zone, 24 nautical miles. The exclusive economic zone claimed by Iran is determined by bilateral treaties or median lines in the Persian Gulf. The maritime border with Iraq along the Shatt al Arab waterway was established by treaty in 1975 as the median line of the deep-water channel, but the final status of the treaty awaits the conclusion of a peace treaty to replace the 1988 cease-fire agreement between Iran and Iraq. In opposition to at least two of the other four littoral states, Iran advocates a division of the bed of the Caspian Sea that would give Iran control of an area about 20 percent greater than the area it would control under a division based on the actual length of each littoral state’s coastline.

Topography: Iran has rugged mountain chains surrounding several basins collectively known as the Central Plateau. These basins vary in elevation from 900 to 1,525 meters. East of the Central Plateau are two large desert regions, a salt desert in the north and a rock and sand desert in the south. There are lowland areas along the Caspian coast, in Khuzestan Province at the head of the Persian Gulf, and at several dispersed locations along the Persian Gulf and Gulf of Oman coasts.

Principal Rivers: The main rivers are the Karun, which is 830 kilometers long; the Safid Rud, which is 1,000 kilometers long; the Kharkeh, which is 700 kilometers long; and the Zayandeh Rud, which is 400 kilometers long.

Climate: Iran’s climate is mostly arid and semi-arid, with a humid rain-forest zone along the Caspian coast. Temperatures average between 10° and 25° C in the winter and between 19° and 38° C in the summer.

Natural Resources: About 40 percent of Iran’s territory is considered cultivable if irrigation is available, but because of the lack of water, less than 30 percent of that territory is cultivated. Iran has enormous reserves of oil and natural gas. Oil reserves are estimated at about 130 billion barrels (third in the world behind Saudi Arabia and Iraq), and natural gas reserves are estimated at 20 trillion cubic meters (second in the world to Russia). Mineral resources currently exploited include bauxite, chromium, coal, copper, gold, iron ore, red oxide, salt, strontium, sulfur, turquoise, and uranium.

Land Use: Of Iran’s land surface, 27 percent is classified as meadows and pastures, 11 percent forest and woodland, and 8 percent arable land. The remaining 54 percent is desert or mountains.

Environmental Factors: Especially in urban areas, vehicle emissions, refinery operations, and industrial effluents contribute to poor air quality. Between 1985 and 2005, huge increases in energy consumption tripled carbon emissions. Most cars use leaded gas and lack emissions control equipment. Tehran is rated as one of the world’s most polluted cities. The abundance of fossil fuels has discouraged use of alternative fuels. Much of Iran’s territory suffers from desertification and/or deforestation. Industrial and urban wastewater runoff has contaminated rivers and coastal waters and threatened drinking water supplies. Wetlands and bodies of freshwater increasingly are being destroyed as industry and agriculture expand, and oil and chemical spills have harmed aquatic life in the Persian Gulf and the Caspian Sea. Iran contends that the international rush to develop oil and gas reserves in the Caspian Sea presents that region with a new set of environmental threats. Although a Department of Environment has existed since 1971, Iran has not developed a policy of sustainable development because short-term economic goals, particularly support of the oil and gas industries, have taken precedence.

Time Zone: Iran lies in one time zone, which is three and one-half hours ahead of Greenwich Mean Time.


Population: In mid-2005 Iran’s population was estimated at 68 million, approximately one-third of which lived in rural settlements and two-thirds in urban population centers. Population density was 41.8 people per square kilometer. Urbanization has been steady; in 1976 only 47 percent of the population lived in urban areas. In 2005 the annual population growth rate was 0.86 percent. Net migration in 2005 was –2.64 persons per 1,000 population. In 2004 Iran hosted an estimated 2.1 million refugees, 1.85 million of whom were from Afghanistan and 220,000 from Iraq. Under repatriation agreements, an estimated 1 million Afghan and 107,000 Iraqi refugees had returned home by 2005.

Demography: According to a 2005 estimate, 27.1 percent of Iran’s population was younger than 15, and only 4.9 percent was older than 64; the population was 51 percent male. In 2005 the overall life expectancy was 70.0 years: 68.6 years for men, 71.4 years for women. The birthrate was 16.8 per 1,000 population; the death rate, 5.6 per 1,000 population; and the infant mortality rate, 41.6 per 1,000 live births. Between 1979 and 2005, the fertility rate decreased from about 7 to 1.8 children born per woman.

Ethnic Groups and Languages: The main ethnic groups in Iran are Persian (60 percent), Azeri (20 percent), Kurdish (7 percent), Lur (3 percent), Arab (2 percent), Baloch (2 percent), Turkmen (2 percent), Turkish tribal groups, such as the Qashqai (2 percent), and non-Persian, non-Turkic groups such as Armenians, Assyrians, and Georgians (2 percent). Persian, the official language, is spoken as a mother tongue by 60 percent of the population and as a second language by an additional 15 percent. Other languages in use are Azeri Turkish and Turkic dialects (24 percent), Kurdish (7 percent), Luri (3 percent), Arabic (2 percent), and Balochi (2 percent). Azeri and Kurdish autonomy movements arose in the 1940s, and a Kurdish autonomy movement was active in the period 1979–83.

Religion: The constitution declares Shia Islam as the official religion of Iran. At least 90 percent of Iranians are Shia Muslims, up to 7 percent are Sunni Muslims, and 2 percent adhere to various other Islamic sects such as the Ahl-e Haqq. Other religions are Christianity (mainly Armenians and Assyrians, about 300,000 followers), Bahaism (250,000 to 300,000), Zoroastrianism (30,000 to 60,000), and Judaism (20,000 to 30,000). The constitution recognizes Christianity, Judaism, and Zoroastrianism as legitimate minority religions. Bahaism is not recognized as a legitimate minority religion, and since 1979 Baha’is have experienced periodic bouts of persecution. Individuals of all religions are required to observe Islamic codes on dress and gender segregation in public. Individuals of minority religions are prohibited from serving in senior administrative positions in many government ministries. In the early 2000s, Christians have been emigrating from Iran at the rate of 15,000 to 20,000 per year.

Education and Literacy: In 2003 the literacy rate of the population was 79.4 percent. The rate for males was 85.6 percent and the rate for females, 73 percent. Under the constitution, primary education (between ages six and 10) is compulsory. The government reports that 95 percent of children receive primary and secondary education. Primary, secondary, and higher education is free, although private schools and universities charge tuition. The majority of Iran’s 113,000 pre-collegiate public schools are single-sex beyond kindergarten. Universities are coeducational. Minority religions except Bahaism maintain private schools, but supervisors must be Muslim, and one hour per week of Islam is a required subject, as in public schools. Iran has 107 public universities, where entry is very competitive; more than 550,000 students, 57 percent of them female, were enrolled in 2004. The largest public university is the University of Tehran, which has enrolled about 32,000 graduate and undergraduate students annually since 1998. All of the other major cities in Iran also have public universities. In 2004 the largest private university, the Islamic Free University, had 110 branches all over Iran and a total enrollment of 700,000. Some 33 other private universities enrolled a total of 23,000 students.

Health: The overall quality of public health care improved dramatically after the 1978–79 Revolution because public health has been a top priority of the government. The constitution entitles Iranians to basic health care, and most receive subsidized prescription drugs and vaccination programs. An extensive network of public clinics offers basic care at low cost, and general and specialty hospitals operated by the Ministry of Health provide higher levels of care. In most large cities, well-to-do persons use private clinics and hospitals that charge high fees. Specialized medical facilities are concentrated in urban areas, but rural communities have relatively good access to primary care physicians at clinics in villages, where the government-sponsored primary health care system has raised the level of health education and prenatal care since the late 1990s. Immunization of children is accessible to most of the urban and rural population. In the early 2000s, estimates of the number of physicians varied from 8.5 to 11 per 10,000 population. About 46 percent of physicians were women. There were about seven nurses and 11 hospital beds per 10,000 population. Some 650 hospitals were in operation. In the early 2000s, about 65 percent of the population was covered by the voluntary national health insurance system. More expensive private health insurance plans also were available.

As Iran’s health system has improved, the role of communicable diseases as causes of death has diminished relative to that of noncommunicable diseases. Therefore, in the early 2000s the main natural causes of death have been cardiovascular disease and cancer. Opium and other drug addictions constitute a major and growing health problem; in 2005 estimates of the number of drug addicts ranged from 2 to 4 million. Increased drug use has driven up the incidence of human immunodeficiency virus (HIV). In 2005 two-thirds of the official total of 9,800 HIV cases were attributed to drug use. Iran has established a national HIV treatment system, including 150 testing sites and a free needle exchange program. Earthquakes regularly take several thousand lives in Iran. The Bam earthquake of December 2003 killed nearly 28,000 people.

Welfare: Iran’s Ministry of Social Affairs supervises public programs for pensions, disability benefits, and income for minor children of deceased workers. Welfare programs for the needy are managed by more than 30 individual public agencies and semi-state organizations, as well as by several private non-governmental organizations. In 2003 the government began to consolidate its welfare organizations in an effort to eliminate redundancy and inefficiency. The largest welfare organization is the Bonyad-e Mostazafin (Foundation of the Underprivileged), a semi-public foundation originally founded in 1979 with the assets of the last shah’s family; it operates a wide variety of charitable activities. In late 2005, President Ahmadinejad formed the Reza Love Fund to provide financial assistance to young couples seeking financial stability. Initial capitalization was US$1.3 billion, raised from state oil revenue and donations. In the late 1990s, the extension of pensions to farming household heads over 60 effectively doubled the number of Iranians eligible for government pensions to more than 60 percent of the workforce. Self-employed persons in urban areas are the major group not covered. Civil servants, the regular military, law enforcement agencies, and the Islamic Revolutionary Guard Corps, Iran’s second major military organization, have their own pension systems. In 2003 the minimum standard pension was 50 percent of the worker’s earnings but not less than the amount of the minimum wage. Iran spent 22.5 percent of its 2003 national budget on social welfare programs. More than 50 percent of that amount covered pensions. Considering all social welfare programs available, urban residents benefit more than the rural population. Government workers are eligible for sickness, maternity, and work injury benefits, but few private employers provide these benefits. The Imam Khomeini Social Assistance Committee and other semi-public foundations supply such benefits to some workers.


Overview: Iran’s economy is dominated by the oil industry, which is part of the state sector. The state also owns and administers several large industries. The private sector includes automobile, textile, metal manufacturing, and food-processing factories as well as thousands of small-scale enterprises such as workshops and farms. Smuggling and other illegal economic activities occupy an increasingly large part of the overall economy. The economic reform programs of presidents Ali Akbar Hashemi Rafsanjani (in office 1989–97) and Mohammad Khatami (in office 1997–2005) aimed at making Iranian industry more competitive internationally. Measures included selling off government enterprises, reducing subsidies, creating an equitable income tax system, and cutting high tariffs that protect local manufacturing from foreign imports. Private business interests strongly opposed many reforms and were able to block their enactment. A dominant share of Iran’s non-petroleum industrial output is controlled by semi-private charitable organizations called bonyads, which exert considerable influence on economic policy through their close links to powerful politicians. Traditional import-export merchants, collectively known as the bazaar, also occupy an influential place in economic policy making. Because 80 percent of export earnings come from oil and gas and accrue to the government as revenue, world prices for those commodities have a major impact on Iran’s budget. Government economic planning is done in five-year development plans, the fourth of which began in 2005. Although economic diversification has been a goal in the early 2000s, little progress has been made in that direction.

Gross Domestic Product (GDP): In 2005 Iran’s GDP was estimated at US$182.5 billion, an increase of 5.6 percent over the 2004 figure, yielding about US$2,680 per capita. In 2004 GDP increased by 4.8 percent. For 2006, GDP growth was projected to be 4.8 percent. In 2005 services contributed 45 percent, industry 43 percent, and agriculture 12 percent of GDP.

Government Budget: Budget deficits, largely caused by extensive state subsidies of commodities such as food and fuel, have been a major problem. Iran’s 2005 budget included a deficit of US$11.6 billion based on revenues of US$48.8 billion and expenditures of US$60.4 billion, including US$7.6 billion of capital expenditures. Backed by increased oil prices, announced outlays in the 2006 budget were about 50 percent more than those in 2005.

Inflation: The government’s anti-inflationary policies have reduced inflation from the 1999 rate of 30 percent. The rate for 2003 was 17.6 percent. The rates for 2004 and 2005 were 16.8 and 16.0 percent, respectively.

Agriculture: Iran’s diversity of terrain and climate enable cultivation of a variety of crops, but in 1998–2000 severe droughts cut agricultural production. Output has recovered slowly since, although many villages in eastern Iran have been abandoned, and consequently the area under cultivation has decreased since 2000. In the early 2000s, about 20 percent of Iran’s arable land remained uncultivated. Iran is a net importer of grains, especially rice and wheat, and a net exporter of fruits, nuts, and various specialty crops. Iranians grow a variety of crops: wheat; rice; barley; pistachio nuts, almonds, hazelnuts, walnuts, and other nuts; oilseeds; legumes; dates; citrus and other tree fruits; grapes; melons; vegetables; saffron; sugar beets; tea; cotton; and tobacco. About one-third of agricultural income comes from livestock; with the exception of sheep and goats, which graze on open rangeland, most livestock is raised in fenced pastures.

Forestry: Iran has only about 1 percent forest cover. The major commercially useful forests are located in the Alborz Mountains in the north, especially on the southern slopes above the Caspian Sea coast. Smaller forests, principally of oak and other deciduous trees, are scattered throughout the western and central Zagros Mountains. Iran is a net importer of timber products. Illegal clear-cutting and clearing for agriculture have depleted forests in the Alborz, and government replanting programs have been hindered by illegal harvesting of trees. In 2003 the timber industry produced about 13 million cubic meters of wood products, of which about 37 percent was pulpwood and 24 percent logs.

Fishing: Iran has a long tradition of fishing in the Caspian Sea, in the Persian Gulf, and on inland rivers. The government company, Shilat, establishes fishing quotas and buys fish for processing. Most of the actual fishing is undertaken by small-scale, private fishermen. The most economically important product of the fishing industry is caviar from Caspian Sea sturgeon. In the 1990s, the sturgeon catch declined as a result of over-fishing and poaching. Iran has an aggressive fish nurseries program aimed at reversing the decline in Caspian fish stocks. Other products of the fishing industry are tuna, the sardine-like kilka, trout, and shrimp. In 2002 some 325,000 tons of fish, mainly tuna and shad, were caught, and 77,000 tons were raised by aquaculture.

Mining and Minerals: In 2001 Iran’s already sizable oil reserves were bolstered by the discovery of a large new offshore field near Abadan at the head of the Persian Gulf. However, oil recovery percentages in existing fields lagged in the early 2000s. The largest natural gas field is South Pars, discovered in 1988 in southern Iran and under intensive development in the early 2000s. The centers of copper extraction are Kerman and Bafq. Iran has an estimated 5 percent of the world total of copper, and production of that metal has increased rapidly since 1993. Some 128,500 tons were extracted in 2000–2001, and plans called for substantial expansion in the early 2000s. Other major metal ores are aluminum, uranium, and zinc.

Industry and Manufacturing: Iran’s manufacturing output was reduced during the 1978–79 Revolution, but the 1980–88 war with Iraq had the indirect consequence of increasing industrial production. In the 1990s, growth was hindered by low private investment levels, although government expenditures based on revenues from high world oil prices stimulated public investment and also directly stimulated consumer demand and the petrochemicals industry. That industry, dominated by the state-owned National Petrochemicals Company, has grown rapidly, with output in 2002 worth US$1.4 billion. The Fourth Economic Development Plan (2005–9) calls for a fourfold expansion of petrochemical output, to 56 million tons per year. The industry has received substantial foreign investment. The steel industry, centered in Ahvaz, Esfahan, and Mobarakeh, also has grown rapidly since 1990. The output goal for 2004 was 8.5 million tons. Automobile manufacture has benefited from licensing agreements with European and Asian manufacturers. In 2002 the largest plant, Iran Khodro, built about 260,000 units, and several smaller facilities produced a total of about 240,000 vehicles. Processing of agricultural products also is an important industry and is dominated by domestic private firms. Among the major subsectors are grain processing and fruit and vegetable canning. The textile industry, based on domestic cotton and wool, employed about 400,000 people in 2000. The construction industry has grown rapidly since 2000 because of government investment in infrastructure projects and increased demand for private housing.

Energy: Iran possesses abundant fuels from which to generate energy, ranking second in the world in natural gas reserves and third in oil reserves. Nevertheless, in 2005 Iran spent US$4 billion dollars on fuel imports, mainly because of inefficient domestic use. Oil industry output averaged 4 million barrels per day in 2005, compared with the peak output of 6 million barrels per day reached in 1974. In the early 2000s, industry infrastructure was increasingly inefficient because of technological lags. Few exploratory wells were drilled in 2005.

In 2005 a large share of Iran’s natural gas reserves were believed to remain untapped, although gas already accounted for nearly one-half of energy consumption. With massive government investments planned, the share of gas in energy production was expected to rise quickly in ensuing years.

By 2004 the addition of new hydroelectric stations and the streamlining of conventional coal- and oil-fired stations increased installed capacity to 33,000 megawatts. Of that amount, about 75 percent was based on natural gas, 18 percent on oil, and 7 percent on hydroelectric power. In 2004 Iran opened its first wind-powered and geothermal plants, and the first solar thermal plant was to come online in 2009. Demographic trends and intensified industrialization have caused electric power demand to grow by 8 percent per year. The government’s goal of 53,000 megawatts of installed capacity by 2010 is to be reached by bringing on line new gas-fired plants financed by independent power producers, including those with foreign investment backing, and by adding hydroelectric and nuclear power generating capacity. Iran’s first nuclear power plant at Bushehr, scheduled to come on line in 2002 but not completed as of early 2006, has received international criticism because of concerns that its enriched uranium and spent fuel can be diverted for the production of nuclear weapons. In 2005 Iran’s electricity imports were greater than its exports by about 500 million kilowatt-hours; exchanges were made with all neighboring countries except Iraq.

Services: In the financial sector, Iran’s banking system was nationalized in 1979. Private banks were not authorized to re-open until the early 2000s, when some small private credit institutions appeared. All state and private banks are strictly overseen by the Central Bank of Iran, also known as Bank Markazi. Accounts of the state-owned commercial banks are dominated by loans to state and bonyad enterprises and to large-scale private firms. Wealthy Iranians use foreign banks, especially for savings accounts. The Fourth Five-Year Economic Development Plan (2005–9) calls for the introduction of foreign banks, but such a move has met with substantial resistance.

The trading of shares on the Tehran Stock Exchange was limited between 1979 and 1986, but activity has increased sharply since 2002. The tourism industry was disrupted by the 1978–79 Revolution and the Iran-Iraq War (1980–88) but began to revive in the 1990s.The majority of the 300,000 tourist visas granted in 2003 were obtained by Asian Muslims, who presumably intended to visit important pilgrimage sites in Mashhad and Qom. Several organized tours from Germany, France, and other European countries come to Iran annually to visit archaeological sites and monuments. The government reported that in 2004 some 4 million tourists spent nearly US$2 billion in Iran, an increase of 10 percent over 2003. However, in the early 2000s the industry still faced serious limitations in infrastructure, communications, regulatory norms, and personnel training.

Labor: In 2005 an estimated 14 percent of Iran’s labor force of 23.7 million were unemployed; the unemployment rate was much higher among younger workers, and underemployment was common. The Fourth Economic Development Plan, which began in 2005, aimed to create 700,000 new jobs per year, but unemployment remained unchanged during the first year of that plan. Skilled labor has been in short supply. In 2001 some 45 percent of the labor force was employed in services, 30 percent in agriculture, and 20 percent in industry. In 2005 the minimum wage, determined by the Supreme Labor Council, was about US$120 per month. That level provoked substantial labor unrest in 2005.

Foreign Economic Relations: Since 1996 the United States has maintained the Iran-Libya Sanctions Act, which is a full trade and financial transactions embargo against Iran, although the embargo was relaxed in 2000 to permit U.S. companies to import Iranian carpets, caviar, and pistachio nuts. Other countries, including members of the European Union (EU), have continued trade with Iran, but Western countries have blocked the export to Iran of dual-use items, such as computer equipment, with potential military applications. In the early 2000s, China emerged as an important trade partner both in imports and exports. Japan retained the position that it assumed in the mid-1990s as Iran’s best export customer. In order of volume, the main purchasers of Iran’s exports in 2004 were Japan, China, Italy, South Africa, and South Korea. In order of volume, the main source countries for Iran’s imports in 2004 were Germany, France, Italy, China, and the United Arab Emirates. The main commodities imported are basic manufactures, chemicals, food (chiefly rice and wheat), and machinery and transport equipment. The main commodities exported are petroleum, carpets, chemical products, fruit and nuts, iron and steel, natural gas, and copper.

Trade Balance: In 2005 Iran’s estimated income from exports was US$55.4 billion, 85 percent of which came from petroleum and natural gas. The estimated payment for imports in 2005 was US$42.5 billion, yielding a trade surplus of US$12.9 billion. Between 2003 and 2005, the value of Iran’s exports, chiefly oil, increased faster than the value of its imports, expanding the 2003 trade surplus of US$4.4 billion.

Balance of Payments: In 2005 Iran’s current account balance, determined mainly by its merchandise trade surplus and its smaller services trade deficit, was US$8.2 billion. Its foreign exchange reserves, determined primarily by oil prices, were estimated at US$40.0 billion in 2005. Records on portfolio investment are not available, and foreign direct investment has remained relatively small. In 2004 the overall balance of payments was US$3.5 billion.

External Debt: In 1991 Iran’s external debt was estimated at US$23 billion. During the next decade, Iran paid the debt down, reaching US$7.8 billion in 2001. Subsequently, the debt has risen as international borrowing has increased. The 2005 estimate was US$16.9 billion, compared with US$10.2 billion in 2003.

Foreign Investment: Foreign investment has been hindered by unfavorable or complex operating requirements in Iran and by international sanctions, although in the early 2000s the Iranian government liberalized investment regulations. In the early 2000s, foreign investors have concentrated their activity in a few sectors of the economy: the oil and gas industries, vehicle manufacture, copper mining, petrochemicals, foods, and pharmaceuticals. The most active investors have been British, French, Japanese, South Korean, Swedish, and Swiss companies. The Swedish Svedala Industri has played a major role in developing Iran’s copper mines since the late 1990s. The Kia, Nissan, Peugeot, and Renault auto companies have licensing agreements with Iranian auto manufacturers. Nestlé of Switzerland and Coca-Cola and Pepsi-Cola of the United States have joint ventures with Iranian companies. Total, Shell, and Lucky Goldstar of South Korea have been active in Iran’s natural gas industry. Iran’s constitution prohibits direct concession of petroleum rights to foreign investors. In the 1990s and early 2000s, some indirect oilfield development agreements were made with foreign firms. French and South African firms gained major telecommunications contracts in 2004 and 2005, respectively.

Currency and Exchange Rate: The value of the rial, Iran’s unit of currency, declined substantially between 2002 and 2005. In 2002 a multiple exchange rate was replaced by a single floating rate. In late March 2006, the exchange rate was approximately 9,140 rials to the U.S. dollar. The tuman, which is worth 10 rials, is the preferred unit of currency in commerce.

Fiscal Year: Established by the Iranian calendar, the fiscal year begins March 21.


Overview: Constant construction and expansion of the road and rail networks, even during the Iran-Iraq War (1980–88), have resulted in an overland transportation system that is adequate for freight and passenger demands in the early 2000s. Ports destroyed during the war have been rebuilt, and new ones on the Caspian Sea and Persian Gulf have been developed. Air transportation is relatively inexpensive, and all large cities and many smaller ones have airports with regularly scheduled daily flights.

Roads: Under Reza Shah Pahlavi (ruled 1925–41), a construction program provided Iran with a national system of roads. The road system was expanded in the 1960s and 1970s. After the 1978–79 Revolution, road construction programs focused on connecting rural areas to provincial cities. Since 1989, road construction has stressed ring roads around large cities and multi-lane highways between major metropolitan areas. The three national auto routes are the A–1 across northern Iran from the Turkish border in the west to the Afghan border in the east, and connecting Tabriz, Tehran, and Mashhad; the A–2 across southern Iran from the Iraqi border in the west to the Pakistani border in the east; and the Tehran-Qom-Esfahan-Shiraz highway, which traverses central Iran from north to south. In 2003 Iran had a total of 103,000 kilometers of paved roads and 79,000 kilometers of graded, unpaved roads. Beginning in the mid-1990s, subsidized gasoline supplies and increased domestic automobile manufactures have spurred overcrowding of the road system.

Railroads: The rail system, which originally was constructed in the 1920s and 1930s, has been undergoing constant expansion since 1989. In 2002 Iran had a total of 7,201 kilometers of rail line, 146 kilometers of which were electrified and 94 kilometers at the borders of Azerbaijan and Turkmenistan were broad rather than standard gauge. Only 13 of Iran’s 30 provinces had railroad service in the early 2000s. The five main lines of the national system radiate from Tehran: one runs south to Khorramshahr and Abadan at the head of the Persian Gulf; one runs south to the Strait of Hormuz at Bandar-e Abbas; one runs southeast to Kerman, with a route under construction farther east to Zahedan, which already is connected to the Pakistan State Railways; one runs east to Mashhad and connects with the Central Asian system on the Turkmenistan border, and includes a spur to the eastern side of the Caspian Sea; and the fifth line runs northwest to Tabriz and the border with Turkey, where it connects to the Turkish State Railroad and includes a spur north of Tabriz to Azerbaijan’s Nakhichevan enclave. In 2005 connections between Central Asia and the Persian Gulf were improved by a new line connecting Mashhad with Baqf in central Iran. Tehran also has a combined underground and surface rail commuter system, and in 2005 metro rail systems were under construction in Esfahan and Shiraz.

Ports: In 2003 about 20 million tons of cargo passed through Iran’s ports. About 75 percent of that amount went through Bandar-e Abbas on the Strait of Hormuz. In the Iran-Iraq War (1980–88), destruction and Iraqi occupation of Khorramshahr on the Iraq border caused that city to lose its status as Iran’s busiest port, giving greater importance to Bushehr and Bandar-e Lengeh on the Persian Gulf and Chabahar on the Gulf of Oman, as well as to Bandar-e Abbas. The main oil terminal is Khark Island, located 25 kilometers offshore in the northeastern Persian Gulf. Since 1992, Caspian ports have handled more trade as commerce with the Central Asian countries has increased. Modernization projects are underway in Bandar-e Anzeli on the Caspian Sea and Chabahar. The national Islamic Republic of Iran Shipping Lines (IRISL) has routes in the Persian Gulf and Caspian Sea and carries cargo to Europe and the Far East. In the early 2000s, IRISL had 84 vessels with a total tonnage of 2.5 million.

Inland Waterways: In 2004 Iran had 850 kilometers of inland waterways. The most important is the 193-kilometer-long Shatt al Arab (Arvanrud in Persian), which is formed in Iraq by the confluence of the Tigris and Euphrates rivers and then forms the Iran-Iraq border until it flows into the Persian Gulf. The ports of Abadan and Khorramshahr are located along the Shatt al Arab.

Civil Aviation and Airports: In 2004 Iran had 305 commercial airports, 129 of which had paved runways. Of those, 40 had runways longer than 3,000 meters. International airports are located at Tehran, Tabriz, Mashhad, Bandar-e Abbas, Bushehr, Esfahan, and Shiraz, and on the islands of Kish in the Persian Gulf and Qeshm in the Strait of Hormuz. In 2004 Iran’s airports served about 4.3 million international passengers, about two-thirds of whom flew on domestic airlines. Because of security concerns, the military closed the newly opened Imam Khomeini International Airport in Tehran from mid-2004 until mid-2005, even though it was expected to be a major regional air hub. When it reopened in May 2005, its annual capacity was 6.5 million passengers, but its final design capacity is 40 million passengers and 700,000 tons of cargo. Plans called for gradual expansion of services. In 2004 the national airline, Iran Air, served 15 cities in Iran with connections to the Persian Gulf and European and Asian cities; it used a fleet of 36 aircraft and employed about 12,000 workers. The second-largest carrier, the private Asseman Airlines, connects the largest domestic cities with destinations on the Persian Gulf and elsewhere in Asia. In 2005 some 15 heliports were in operation.

Pipelines: In 2004 Iran had 16,998 kilometers of natural gas pipeline, 8,256 kilometers of oil pipeline, 7,808 kilometers of pipeline for refined products, 570 kilometers of pipeline for liquid petroleum gas, and 212 kilometers of pipeline for gas condensate. Iran’s central pipeline infrastructure is designed for the distribution of natural gas for domestic use and for the domestic transit of oil, including from offshore oil fields to processing centers. That structure has been supplemented as the natural gas industry and the fuel export industry expanded. Since 2000 several new natural gas pipelines have been planned; some have failed because of geopolitical considerations (for example, U.S. opposition to a key Iranian role in delivering Central Asian oil and gas to the West), and some, such as the gas export line from Iran to Turkey, function at reduced capacity. In 2006 plans call for new pipelines to exploit markets in Armenia and Pakistan. The 160-kilometer line to Armenia is scheduled for completion in late 2006. The 2,600-kilometer line to Pakistan, which potentially also could supply India, remains in the planning stage in 2006.

Telecommunications: Most phases of telecommunications services are controlled by the state Telecommunications Company of Iran (TCI). Between 1995 and 2003, the number of telephone land lines increased from 86 to 146 per 1,000 population. In 2003 the ratio of telephone subscribers was 271 per 1,000 population. A large-scale modernization program, backed by heavy state investment, has aimed at improving and expanding urban service and reaching rural areas that lack telephone service. In 2005 an estimated 10 percent of Iran’s population (68 million) had mobile telephone service through one mobile network, which was heavily congested and had a long waiting list. Despite the need for another network, in 2005 the Iranian parliament forced the Turkish company Turkcell to withdraw from a potential mobile phone consortium, in the process damaging Iranian-Turkish relations. Mobile Telephones Network of South Africa then accepted Iran’s stringent licensing conditions and replaced Turkcell in late 2005. Internet use expanded rapidly in the early 2000s from an estimated 250,000 users in 1999 to an estimated 7 million users in 2004. The Telecommunications Company of Iran estimated that Iran will have 25 million Internet users by 2009. In 2005 some 12 major certified Internet service providers (ISPs) were in operation. However, the state filtered Internet content intensively.

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