Yes, the modern technical and scientific initiation of the oil and gas industry in Iran, and indeed the Middle East, commenced in 1908 with the extraction of oil in Masjed Suleyman, located in southwestern Iran.

Subsequently, through various contracts—including concessions, production sharing, and later on different types of service contracts concluded with international oil companies (IOCs)— and the dedicated efforts of Iranian experts, numerous fields were discovered and developed, thereby establishing the industry.

Oil and Gas Reserve Levels: Iran possesses some of the world’s largest deposits of proven crude oil and natural gas reserves. As of 2023, Iran ranked as the world’s third-largest holder of conventional oil reserves (after Venezuela and Saudi Arabia, and with approximately 208 billion barrels of proven oil reserves) and the second-largest holder of natural gas reserves (after Russia, and with approximately 34 trillion cubic meters). By the end of 2023, Iran accounted for 24% of oil reserves in the Middle East and 12% globally. Moreover, Iran holds the highest rank in total oil and gas reserves worldwide.

Oil and Gas Production Levels: Iran produced over 3 million barrels of crude oil per day in 2023, and despite being affected by the sanctions, it produced 292 billion cubic meters of natural gas in 2023, making it the third-largest natural gas producer in the world, following the United States and Russia.

According to Principle 45 of the Iranian Constitution and Article 2 of the Oil Act, oil and gas are classified as public wealth (Anfal). Consequently, the decision-making and management responsibilities for these resources rest with the Iranian government, specifically the Ministry of Petroleum (MOP). As a result, private ownership is neither accepted nor recognized in the exploration and exploitation of oil and gas resources.

Under current laws, the private sector, after successfully passing complex tendering processes -overseen by the Ministry of Petroleum and its subsidiaries, primarily the National Iranian Oil Company (NIOC)-, is only permitted to participate in Iran’s upstream oil and gas sector as contractor. Rights to explore and exploit oil and gas resources are granted through a structured regulatory regime, referred to as IPC approved by the Iranian Parliament in 2016 which combines elements of Production Sharing Contracts (PSCs) with Iran’s previous Buy-Back contracts. IPCs are mainly used for exploration and production (E&P), development of discovered fields (D&P), and improvement of recovery rates (IOR/EOR).

Onshore vs. Offshore: The above regulatory regime is uniformly applicable to both onshore and offshore sectors; however, offshore projects may involve additional complexities due to the maritime environment and the need for specialized equipment and technology.

Buyback Contract: Service contracts form the primary contractual framework adopted by the Iranian government after the Islamic Revolution of 1979, specifically for the upstream oil and gas industry. Over a span of approximately 20 years, three generations of Buyback Contracts (short-term risk Service Contracts) were developed and utilized.

In general terms, under a Buyback Contract, an international oil company (IOC) invests in an Iranian oil or gas field financing and developing it. Ownership of the developed field remains with the Iranian government and upon the commencement of production, the field is handed over to the National Iranian Oil Company (NIOC) or one of its representatives. The IOC recovers its costs and earns an agreed-upon profit from the gross profits of the oil and/or gas, contingent upon the field meeting production targets and international energy prices being sufficiently high.

Iranian Petroleum Contract (IPC): Buyback framework had certain flaws and in order to address them and to attract investors, the Iranian Petroleum Contract (IPC) was introduced in 2016. The IPC is also a risk service contract that upholds the right of sovereignty and public ownership of all oil and gas reserves. However, key changes were made to it as follows:

1. Partnership Requirement: IOCs are obligated to form partnerships with Iranian exploration and production companies to enhance local capabilities.
2. Extended Contract Term: The contract term is extended to 20 years, with the possibility of a further 5-year extension.
3. IOC Involvement in Production: In addition to their involvement in the exploration and production phases, the IOCs will also maintain their participation during the production phase.
4. Minimum Production Levels: IOC operations must achieve certain minimum production levels.
5. Cost Recovery and Remuneration: IOCs are permitted to recover their costs and receive a remuneration fee during the production phase. Cost recovery and remuneration payments may be made “in kind” through the allocation of a portion of the field’s production or “in cash” as revenues from production, based on NIOC’s decision.
6. Payment Limits: Cost recovery and remuneration fee payments are capped at a maximum of 50% of crude or condensate production and up to 75% of gas production.
7. No Government Guarantees: No guarantees are provided by the Iranian Government or Iranian banks for any commitments made by NIOC under the IPC.
8. Local Content Requirements: The IPC mandates the use of local labor and services to promote domestic economic development and create jobs.
9. Environmental and Safety Standards: Contractors must comply with environmental and safety regulations to minimize the impact on the environment and ensure safe operations. Environmental Impact Assessments (EIAs) need to be conducted before starting any exploration or production activities to evaluate potential environmental impacts and contractors must propose mitigation measures.

Shale oil and shale gas have been discovered in several locations across the country which can add more than 2.5 billion barrels of oil to the country’s natural gas and crude oil reserves. However, due to the high risks and costs associated with drilling, these resources have not yet been developed. As of current, there is no separate regulatory regime for unconventional resources in Iran, and regulation and oversight of unconventional hydrocarbon resources fall under the same comprehensive framework as that governing conventional resources. The Ministry of Petroleum and the NIOC play pivotal roles in this regulatory and supervisory process.

Ministry of Petroleum (MOP): This government entity is tasked with asserting Iran’s ownership and national sovereignty over its oil and gas resources. It supervises the advancement of the oil and gas industry through its four subsidiaries, namely:

National Iranian Oil Company (NIOC): This fully state-owned entity operates in the upstream level (exploration and production of oil and gas), and in general, handles the exploration, development, and production of oil and natural gas resources in Iran.

National Iranian Gas Company (NIGC): This state-owned company was established by NIOC operating in the midstream level and is responsible for the refinement, transportation, and distribution of natural gas.

National Iranian Petrochemical Company (NIPC): This state-owned company was established by NIOC and operates in the midstream level managing and developing the country’s petrochemical industries through production, sale, distribution, and export of chemicals and petrochemicals.

National Iranian Oil Refining and Distribution Company (NIORDC): This state-owned company oversees transfer of crude oil and petroleum products, refining, export, import, and distribution of petroleum products in the country.

Yes, Under Iran’s Constitution, oil and gas resources are considered national assets, and so the government has full control over directly oversees these resources and their exploitation. The government performs this task primarily through the Ministry of Petroleum which serves as the regulatory body overseeing the oil and gas sector, formulating policies, managing resource allocation, and controlling contracts with companies, whether foreign or domestic. Moreover, and through its state-owned entities, government control over exploration, production, and resource management is ensured. The main four state-owned companies active in the oil industry have been named in the previous question (i.e., NIOC, NIGC, NIPC, and NIORDC) and each of them holds several subsidiaries; for example, some of NIOC’s subsidiaries are: the  National Iranian South Oil Company (NISOC) which focuses on onshore oil production in southern Iran; the Iranian Offshore Oil Company (IOOC) which handles offshore oil and gas production; and Pars Oil and Gas Company (POGC) which manages the South Pars gas field, one of the largest natural gas reserves in the world.

Yes, there are; the most significant of which are as follows:

i) Constitutional Provisions: According to the Iranian Constitution, mines and reserves are considered public property, which must be managed by the state. Foreign entities are prohibited from owning such resources, including oil and gas. Consequently, they are not permitted to engage in concessions or production-sharing agreements (PSAs). Instead, foreign investors may participate in risk service contracts with NIOC for oil and gas projects.

ii) Iran Petroleum Contract (IPC): The IPC represents the current legal framework governing upstream oil and gas activities in Iran. It integrates aspects of Iran’s previous Buy-back contracts with some elements of PSAs, enabling foreign companies to participate while upholding Iran’s sovereignty and constitutional principles. With some exceptions that may be granted with prior approval and justification, oil and gas contracts are also subject to the Iranian Tender Act of 2005, which mandates a competitive bidding process. Foreign companies must satisfy stringent prequalification criteria, including technical proficiency, financial capability, and compliance with Iran’s legal and regulatory framework. In addition to the above, foreign entities are often required to form joint ventures with Iranian companies to operate within the sector.

iii) Compliance with the Sanctions and National Laws: Foreign companies must comply with Iranian labor laws, taxation policies, and environmental regulations. They must also adhere to local content requirements, and to standards for technology transfer and knowledge sharing. This includes involving Iranian partners (in the form of joint ventures) or subcontractors, employing Iranian nationals, and ensuring the transfer of knowledge through training programs. Furthermore, the sanctions, particularly those imposed by the United States, pose significant legal and financial challenges for foreign companies operating in Iran’s oil and gas sector.

iv) Promotion of Investment in Upstream Oil and Gas Sector: Based on our own experience in the last 4 decades, NIOC promotes and welcomes foreign investment in upstream oil and gas sector. IOCs which have shown interest in investment in this field, have usually had positive experience both in the negotiations phase and the execution phase. Although current contractual model (IPC) is a risk service contract, the investor IOC would be entitled to book its share of oil in stock markets. This is since IPC has an attachment under the name of Long-Term Crude Oil Sales Agreement according to which, the investor will be entitled to the crude oil productions from the field. Even now, this contractual model (IPC) is attractive for foreign investors. However, the sanctions are the biggest obstacle.

The environmental and health and safety (HSE) framework governing Iran’s upstream oil and gas activities is a blend of national legislation, industry standards, and regulatory frameworks. HSE policies are integral to all phases of upstream operations, from exploration to decommissioning.

The Environmental Protection and Enhancement Act (1974) is the basis for environmental legislation in Iran, mandating environmental assessments and pollution control in industrial activities, including oil and gas. However, the Ministry of Petroleum and its subsidiaries, such as the NIOC, also have detailed HSE guidelines tailored to these activities, and projects cannot proceed without approval of the Department of Environment, based on Environmental Impact Assessment (EIA) findings conducted by contractors.

Regulations aim to reduce greenhouse gas (GHG) emissions, flaring, and other pollutants, and require environmentally responsible management and disposal of waste, including hazardous drilling fluids and produced water. Operators must engage with local communities and address concerns regarding environmental and safety impacts while adhering to workplace safety standards enforced by the Ministry of Labor and Social Affairs. Moreover, operators are required to conduct comprehensive risk assessments, plan emergency response measures, and maintain a Safety Management System (SMS) for all upstream activities, and noncompliance with regulations can lead to fines, suspension of operations, or criminal liability.

It is worth noting that Iran is a signatory to international agreements such as the Convention on Biological Diversity (CBD), which requires the protection of ecosystems impacted by industrial operations. Additionally, international standards, including elements of the International Organization for Standardization (ISO), are incorporated into this regime.

In Iran, the government derives value from its oil and gas resources through:

i) direct and full ownership and control of these resources (mostly through NIOC) disallowing foreign or domestic private companies to enjoy ownership of these resources, and selling crude oil and natural gas directly to international and domestic markets.

ii) specific contractual arrangements (i.e., the use of service contracts such as Buyback and IPC instead of using concessions and PSAs which provide investors with ownership of the oil and gas), and

iii) taxation mechanisms such as corporate income tax (CIT), which rate is currently 25%, although certain exemptions or reductions may apply depending on the activity or region, withholding taxes, and customs duties and value-added tax (VAT) on imported equipment and material, with some exemptions or reductions being applied for some goods in certain cases. Furthermore, the double taxation treaties with some countries may reduce foreign investors’ tax burdens.

Indeed, Iran imposes restrictions on exports, local content obligations, and domestic supply obligations in the oil and gas sector; here’s a brief overview:

1. Export Restrictions: Iran has faced significant export restrictions due to the sanctions. These sanctions have limited the country’s ability to export oil and gas, impacting its revenue and economic stability. Moreover, Iran prioritizes gas exports to neighboring countries (such as Turkey and Iraq) under long-term agreements.
2. Local Content Obligations: Iran has implemented local content requirements to boost domestic production and employment. The “Maximum Utilization of Production and Services Potency in Providing Country’s Needs and Promotion of Exports” law mandates that at least 51% of the cost of every project must be executed through domestic labor and services. This encourages the use of local services and locally-produced goods in oil and gas projects. In addition, foreign companies are required to partner with Iranian companies or to subcontract a significant portion of their activities to local companies, and their contracts should include provisions for technology transfer to Iranian companies, enabling the development of domestic technical capabilities in exploration, production, and refining.
3. Domestic Supply: Iran prioritizes meeting its domestic energy needs before exporting to ensure that a significant portion of the produced oil and gas is used (at heavily subsidized rates) to meet local demand, especially for power generation and industrial use and during shortage periods.

Yes, but the framework is somewhat less detailed and standardized compared to those in some developed countries. The obligations primarily focus on environmental protection, safety, and restoring affected areas to their original state to the extent possible. In general, the Ministry of Petroleum provides overarching policies and guidance, including obligations for abandoning wells (e.g., plugging and securing walls) and dismantling facilities, and NIOC oversees the decommissioning obligations for the upstream projects, while the Department of Environment ensures environmental compliance during the decommissioning phase. The contractors must adhere to them as outlined in their contracts, and the costs of decommissioning are generally borne by the contractors.

As a general rule, the dismantled installations and material must be removed or disposed of and the site must be restored to its original state, unless otherwise agreed upon with the authorities, and if restoration is not possible, and some equipment will be left in place, it must occur in a manner that does not cause hazard, or interfere with ecosystems or navigation. In order to make sure dismantling is properly done, post-decommissioning monitoring is usually required.

The regulatory regime in this regard has several key features, and while in line with the Petroleum Act and Principles 44 and 45 of the Constitution and the Law Enacting Principle 44, oil and gas pipelines in Iran are predominantly state-owned, it can be said that less stringent rules govern the downstream oil and gas pipelines as compared to pipelines in the upstream level. Local content requirements must be adhered in this sector as well.

The main role players with regard to pipelines are:

i) the Ministry of Petroleum responsible for setting policies and regulations (such as the Iranian Petroleum Standards (IPS) developed to ensure that construction and operation meet specific technical and safety requirements including with regard to offshore pipelines), and in fact all pipeline projects require approval from the Ministry of Petroleum.

ii) NIOC which oversees the planning, construction, and operation of oil and gas pipelines including through its subsidiaries (e.g. the Iranian Offshore Oil Company (IOOC) which is a subsidiary of NIOC focused on offshore oil and gas production, including associated pipeline infrastructure).

iii) The Department of Environment which ensures compliance with environmental laws (including marine protection laws and emergency responses), during the construction and operation of pipelines, and reviews and approves environmental impact assessments (EIAs) which are mandatory before the commencement of construction of any pipeline. It is worth noting that the Ministry of Labor and Social Welfare which collaborates with the Department of Environment to enforce occupational health and safety standards for workers, and that Iran is a signatory to several international conventions, such as the UNCLOS (United Nations Convention on the Law of the Sea) and MARPOL (International Convention for the Prevention of Pollution from Ships), which influence offshore pipeline operations.

The regulatory regime governing liquefied natural gas (LNG) liquefaction plants and LNG import terminals in Iran is basically based on domestic laws, policies established by the Ministry of Petroleum, and oversight by entities such as the NIGC (National Iranian Gas Company), NIOC and the Department of Environment. LNG facilities are state-owned, and projects must abide the local content rules and be in compliance with the country’s strategic goals for resource utilization and export.

Iran does not have any LNG import terminals, primarily because of its vast natural gas reserves. Domestic production exceeds demand, and there is no current need for LNG imports. When it comes to export, as of current, most natural gas is exported via pipelines or used domestically, and there is no third-party access regime applicable. However, Iran does have several LNG projects, the most significant being the LNG project at Tombak Port, which is approximately 50 kilometers north of Assaluyeh Port and 15 kilometers southeast of Kangan. This project, is managed by the Iran LNG company, a subsidiary of the Iranian Gas Exporting Company (IGEC), and involves two LNG trains, each with a capacity of 5.4 million tons of LNG per annum. The construction of the LNG plant began in 2007, with an initial estimated completion date of 2011, and the LNG plant is to be supplied from the Phase 12 of the South Pars gas field. However, the project has faced delays and is currently only partially completed due to the sanctions and other challenges, but the Iranian government plans to have the project operational by the middle of 2025. The project is aimed at not only producing LNG but also other products such as LPG, gas condensate, C3, C4, and sulfur.

The regulatory regime for gas storage, specifically underground gas storage (UGS), is governed by the Ministry of Petroleum and its relevant subsidiaries, and its regulations may require gas storage facilities to provide access to third parties to promote competition and ensure fair market practices. In addition, the By-Law on Protecting, Transmitting, Storing, and Distributing Natural Gas (1969) sets the framework for gas storage activities, including safety and environmental standards. EIAs are overseen and safety standards must also be obtained. Build, Operate, and Transfer (BOT) contracts can be authorized for developing gas storage projects, allowing private sector participation while retaining governmental ownership. The notable gas storage facilities in Iran include Shourijeh Gas Storage Facility with a storage capacity of around 4.6 billion cubic meters, and Sarajeh Gas Storage Facility with a storage capacity of approximately 3.1 billion cubic meters.

Yes, Iran has both gas transmission system (high pressure pipelines transporting natural gas from production fields to various regions across the country and for export purposes) and gas distribution system (low pressure pipelines for delivering gas to end-users, including residential, commercial, industrial, and power generation sectors). The gas infrastructure is owned and regulated by state-owned entities, primarily the Ministry of Petroleum and its subsidiaries, specially the NIGC, and only certain operational and maintenance services may be outsourced to private entities under specific contracts. Tariffs for gas transmission and distribution, as well as pricing for end-users, are determined by the government.

Regarding third-party access (TPA), while there have been negotiations for foreign access to upstream infrastructure, the regulatory framework here is still evolving and private companies need to enter into specific agreements with the government or its subsidiaries to use the infrastructure for transporting their gas.

Although the potential for market liberalization and privatization in downstream gas has been considered, yet it is still predominantly controlled by state-owned entities, with limited competition and privatization (being mainly in regard to operational and maintenance tasks which might be contracted to private entities). The state-owned NIGC or its affiliated regional and provincial distribution companies are the major role player here which control the entire supply chain from transmission to retail distribution mainly with the aim to ensure stability and meet domestic demand. End-users, whether residential, industrial, or commercial, cannot choose their gas supplier, and gas prices are set and subsidized by the government based on social and economic policies rather than market competition.

Much like the upstream sector, Iran’s downstream gas market is regulated by the Ministry of Petroleum and its subsidiaries, particularly the National Iranian Gas Company (NIGC) and its associated entities, under the oversight of the Department of Environment and other relevant authorities. The NIGC handles the distribution and supply of natural gas to end consumers, and licenses for gas distribution are generally issued by the Ministry of Petroleum through the NIGC. The regulatory framework is designed to ensure stable and affordable energy access, uphold subsidies (as approved by the Parliament), and align with national energy policy objectives. Currently, there is no third-party access regime in place, although endeavors for market liberalization and the adoption of international regulatory frameworks to enhance efficiency and competitiveness are ongoing. Private sector involvement is restricted to non-core activities, such as pipeline construction and maintenance contracting.

Recently, there has been a renewed focus on mitigating the impacts of the sanctions, through measures such as enhancing renewable energy sources and diversifying the energy mix in order to reduce reliance on oil revenues and diversify the economy.

In addition, greater emphasis has been placed on expanding domestic refining capacity and petrochemical production to reduce reliance on raw exports. The government is also emphasizing technological advancements in the oil and gas sector and pursuing privatization within the downstream sectors, particularly in the petrochemical and refining sectors, as well as in gas, diesel, and CNG stations, with the aim to enhance efficiency and attract investment. The government has even allocated resources from the National Development Fund to upgrade infrastructure and increase production, and a turn of focus on developing gas fields like the South Pars and Farzad gas fields is among the other notable changes in the recent years.

It is also promoting energy efficiency and reducing wastage, and is gradually increasing energy prices to decrease excessive domestic consumption.

At the same time, efforts are being made to circumvent the sanctions by expanding exports to new markets like Syria and Venezuela, and attracting foreign investors (especially from China and Russia), whether by means of intermediaries, barter arrangements, or else.

As already mentioned before, sanctions have heavily impacted Iran’s ability to sell its oil and gas products, and to attract foreign investment and technology, thus hindering the development of its oil and gas fields. Moreover, Due to underinvestment and infrastructure issues, the gas distribution network suffers from inefficiencies and gas flaring, leading to significant wastage and environmental damage. In fact, Iran experiences gas shortages, and even power cuts especially during peak demand periods in winter and summer, and has been forced to import gas (e.g. from Turkmenistan and Russia). Challenges for private sector in participating in oil and gas projects due to complex regulatory system must also be considered alongside the above complexities.

Due to Western sanctions following the Russia-Ukraine war, Russia has redirected its oil and gas exports to markets like China and India offering significant discounts on its crude oil, which has in turn tightened competition for Iran in these key markets, forcing Iran to adjust its pricing strategy to remain competitive. Despite the above effect caused by Russia, Iran has strengthened its cooperation with this country and with China (e.g., via oil swaps and shared infrastructure development), while looking for alternative markets and increasing production in the petrochemical sector, in order to mitigate the impact of this war and its own ongoing sanctions.

Yes, but the country’s progress in this area is limited due to various economic, political, and technical constraints, and although Iran is a signatory to the Paris Agreement, its effective cooperation depends on the removal of sanctions.

Nevertheless, Iran is taking steps to reduce greenhouse gas emissions in the oil and gas sector. For instance, it has implemented measures to decrease gas flaring (such as in the South Pars Gas Field), and the government requires the NIOC to implement projects to capture and utilize associated gas from oil fields. The petrochemical sector is also encouraged to use flared gas as feedstock for production instead of releasing it into the atmosphere. Efforts to increase the share of renewable energy and reduce reliance on fossil fuels are also underway. Indeed currently, all governmental bodies, including state companies like NIOC, must procure at least 5% of their power from renewable energy sources, with this obligation rising to 20% over the next three years.

Regarding hydrogen production, Iran is exploring the production of blue hydrogen (hydrogen produced using natural gas with carbon capture) from its vast natural gas reserves, and the Ministry of Petroleum aims to position Iran as a regional hub for hydrogen export, particularly to neighboring countries, though these efforts are still in the early stages. In addition, Iran has recognized the potential of Carbon Capture, Utilization, and Storage (CCUS) technologies to address carbon emissions from oil and gas operations, and the country is engaging with national and international research organizations to explore cost-effective CCUS solutions, but significant progress has yet to be made.