V.

Economy

Although agriculture historically was the most important sector of Iran’s economy, its share of the gross domestic product (GDP) has been declining since the 1930s due to the rise of manufacturing. Meanwhile, the mining sector, which is dominated by the production of oil, has grown rapidly since Iran nationalized its oil fields in the 1950s. Factory manufacturing has experienced periods of both rapid growth and stagnation. Trade and commerce activities have expanded with the country's increasing urbanization. During the late 1970s the Iranian economy appeared ready to grow to a level on par with the world’s developed countries, but the 1979 revolution and the subsequent eight-year war with Iraq strained all economic sectors. However, the need to produce for the war effort actually spurred industrialization, as did government spending on infrastructure development.

In the early 21st century the service sector contributed the largest percentage of the GDP, followed by industry (mining and manufacturing) and agriculture. About 45 percent of the government's budget came from oil and natural gas revenues, and 31 percent came from taxes and fees. Government spending contributed to an average annual inflation rate of 12 percent in the period 2006-2006. In 2006 the GDP was estimated at $218 billion, or $3,108.50 per capita. Because of these figures and the country’s diversified but small industrial base, the United Nations classifies Iran's economy as semideveloped.

A.

Government Role in the Economy

Government planning plays an important role in Iran’s economy. Since the late 1940s the government has designed and implemented multiyear planning programs with the goal of industrial diversification. After the 1979 revolution, the government continued the industrialization that the shah had pursued but emphasized economic self-sufficiency, which required greater investment in agriculture. However, the flight abroad in 1978 and 1979 of most of the social and political elite, along with their capital (estimated at more than $28 billion), combined with the costly war with Iraq in the 1980s, left Iran’s economy severely damaged.

After the war, the Iranian government declared its intention to privatize most state industries in an effort to stimulate the ailing economy. The sale of state-owned factories and companies proceeded slowly, however, and most industries remained state-owned in the early 21st century. The majority of heavy industry—including steel, petrochemicals, copper, automobiles, and machine tools—was in the public sector, while most light industry was privately owned.

B.

Labor

In 2006 Iran’s labor force was estimated at 29.1 million, of which women accounted for 34 percent. Unemployment stood at about 15 percent. The agriculture and service sectors employed the greatest number of workers. Although there are numerous government-affiliated trade associations, there are no independent labor unions in Iran.

C.

Services

Urbanization has contributed to significant growth in the service sector. In 2006 the sector ranked as the largest contributor to the GDP (45 percent) and employed 45 percent of workers. Important service industries include public services (including education), commerce, personal services, professional services (including health care), and tourism. The tourist industry declined dramatically during the war with Iraq in the 1980s but has subsequently revived. About 1,659,000 foreign tourists visited Iran in 2004; most came from Asian countries, including the republics of Central Asia, while a small share came from the countries of the European Union and North America. The most popular tourist destinations are Eşfahān, Mashhad, and Shīrāz.

D.

Agriculture

Iran’s agricultural sector contributed 10 percent of the GDP in 2006 and employed 25 percent (2005) of the labor force. Since 1979 commercial farming has replaced subsistence farming as the dominant mode of agricultural production. Some northern and western areas support rain-fed agriculture, while other areas require irrigation for successful crop production. Wheat, rice, and barley are the country’s major crops. Total wheat and rice production fails to meet domestic food requirements, however, making substantial imports necessary. Other principal crops include potatoes, legumes (beans and lentils), vegetables, fruits, sugar beets, sugarcane, fodder plants (alfalfa and clover), nuts (pistachios, almonds, and walnuts), spices (including cumin, sumac, and saffron), and tea. Honey is collected from beehives, and silk is harvested from silkworm cocoons. Livestock products include lamb, goat meat, beef, poultry, milk, eggs, butter, cheese, wool, and leather. Major agricultural exports include fresh and dried fruits, nuts, animal hides, processed foods, and spices.

E.

Mining and Manufacturing

The industrial sector—including mining, manufacturing, and construction—contributed 45 percent of the GDP and employed 30 percent of the labor force in 2006. Mineral products, notably petroleum, dominate Iran’s exports, but mining employs less than 1 percent of the country’s labor force. Since 1913 Iran has been a major oil exporting country. In the late 1970s it ranked as the fourth largest oil producer and the second largest oil exporter in the world. Following the 1979 revolution, however, the government reduced daily oil production in accordance with an oil conservation policy. Further production declines occurred as result of damage to oil facilities during the war with Iraq. Oil production began increasing in the late 1980s due to the repair of damaged pipelines and the exploitation of newly discovered offshore oil fields in the Persian Gulf. By 2004 Iran’s annual oil production was 1.4 billion barrels. Iran also has the world's second largest reserves of natural gas; these are exploited primarily for domestic use.

Although the petroleum industry provides the majority of economic revenues, about 75 percent of all mining sector employees work in mines producing minerals other than oil and natural gas. These include coal, iron ore, copper, lead, zinc, chromium, barite, salt, gypsum, molybdenum, strontium, silica, uranium, and gold. The mines at Sar Cheshmeh in Kermān Province contain the world's second largest lode of copper ore. Large iron ore deposits lie in central Iran, near Bafq, Yazd, and Kermān.

Iran has a long tradition of producing artisan goods, including carpets, ceramics, copperware and brassware, glass, leather goods, textiles, and woodwork. Iran’s rich carpet-weaving tradition dates from pre-Islamic times, and it remains an important industry. Large-scale manufacturing in factories began in the 1920s and developed gradually. During the Iran-Iraq War, Iraq bombed many of Iran’s petrochemical plants, and the large oil refinery at Ābādān was badly damaged and forced to halt production. Reconstruction of the refinery began in 1988 and production resumed in 1993. However, the war also stimulated the growth of many small factories producing import-substitution goods and materials needed by the military. The country’s major manufactured products are petrochemicals, steel, and copper products. Other important manufactures include automobiles, processed foods (including refined sugar), carpets and textiles, pharmaceuticals, and cement.

F.

Forestry and Fishing

Although they contribute very little to the GDP and employ a small percentage of workers, fishing and logging are important industries in specific regions. Logging takes place primarily in the forests of the Elburz Mountains, where various deciduous and conifer trees are harvested for construction, furniture, pulp, industrial uses, and fuel. Fishing fleets operate out of several ports on the Caspian Sea, the Persian Gulf, and the Gulf of Oman. Caviar harvested from Caspian Sea sturgeon is an important export item. Grouper, shrimp, and tuna caught in the Persian Gulf are important for the domestic and export markets. Various species of rock lobsters are caught in the Gulf of Oman.

G.

Energy

In the 1980s and 1990s Iran built several new natural gas, combined cycle (using both gas and steam), and hydroelectric power stations, dramatically increasing electric power output. Thermal plants supply 93 percent of the country’s electricity, and hydroelectric facilities provide most of the rest. In 1975 the government began building a nuclear power plant at Būshehr, on the Persian Gulf coast. The partially completed plant was bombed during the war with Iraq. In 1995 Russia signed an agreement to finish construction of the plant.

H.

Transportation

Iran has an extensive paved road system linking most of its towns and all of its cities. In 2003 the country had 179,388 km (111,000 mi) of roads, of which 67 percent were paved. There were 30 passenger cars for every 1,000 inhabitants. Trains operated on 7,131 km (4,431 mi) of railroad track. The country’s major port of entry is Bandar-e ‘Abbās on the Strait of Hormuz. After arriving in Iran, imported goods are distributed throughout the country by trucks and freight trains. The Tehrān-Bandar-e ‘Abbās railroad, opened in 1995, connects Bandar-e ‘Abbās to the railroad system of Central Asia via Tehrān and Mashhad. Other major ports include Bandar-e Anzalī and Bandar-e Torkeman on the Caspian Sea and Korramshahr and Bandar-e Khomeynī on the Persian Gulf. Dozens of cities have airports that serve passenger and cargo planes. Iran Air, the national airline, was founded in 1962 and operates domestic and international flights. All large cities have mass transit systems using buses, and several private companies provide bus service between cities. Tehrān and Eşfahān are in the process of constructing underground mass transit rail lines.

I.

Communications

The press in Iran is privately owned and reflects a diversity of political and social views. A special court has authority to monitor the print media and may suspend publication or revoke the licenses of papers or journals that a jury finds guilty of publishing antireligious material, slander, or information detrimental to the national interest. Since the late 1990s the court has shut down many pro-reform newspapers and other periodicals. Most Iranian newspapers are published in Persian, but newspapers in English and other languages also exist. The most widely circulated periodicals are based in Tehrān. Popular daily and weekly newspapers include Ettela’at, Kayhan, Resalat, and the Tehran Times (an English-language paper).

The government runs the broadcast media, which includes three national radio stations and two national television networks, as well as dozens of local radio and television stations. In 2000 there were 252 radios and 158 television sets in use for every 1,000 residents. There were 278 telephone lines and 109 personal computers for every 1,000 residents. Computers for home use became more affordable in the mid-1990s, and since then demand for access to the Internet has increased. In 1998 the Ministry of Posts and Telecommunications began selling Internet accounts to the general public.

J.

Foreign Trade

Petroleum dominates Iran’s exports, making up 85 percent of export earnings. In 2002 Iran exported 765 million barrels of crude oil per day. Major nonoil exports include carpets, chemicals, steel, fresh and dried fruits, nuts, and animal hides. The country’s leading purchasers are Japan, South Korea, the United Arab Emirates (UAE), Italy, and China. Since the value of Iran's imports generally is less than the value of its exports, the country maintained a favorable balance of trade for most years since the 1980s. Principal imports include machinery, transport equipment, chemicals, iron and steel, and food products. Primary suppliers of imports are Germany, South Korea, UAE, Italy, and France.

Iran has had no direct trade with the United States since 1995, when the U.S. government banned all commercial and financial transactions between U.S. companies and Iranian public and private entities. The United States took this action because it believed Iran was planning to develop weapons of mass destruction and was supporting international terrorism. Iran is a member of the World Bank, the International Monetary Fund, and the Economic Cooperation Organization (an organization promoting economic and cultural cooperation among Islamic states).

K.

Currency and Banking

Iran’s unit of currency is the rial. The official exchange rate averaged 9,171 rials to the U.S. dollar in 2006. However, rials are exchanged on the unofficial market at a much higher rate. In 1979 the government nationalized all private banks and announced the establishment of a banking system whereby, in accordance with Islamic law, interest on loans was replaced with handling fees; the system went into effect in the mid-1980s. The banking system consists of the central bank, which issues currency; several commercial banks that are headquartered in Tehrān but have branches throughout the country; two development banks; and a housing bank that specializes in home mortgages. The government began to privatize the banking sector in 2001, when it issued licenses to two new privately owned banks. The Tehrān Stock Exchange trades the shares of more than 400 registered companies.