The Necessity of Establishing Petroleum Fund in Iran

Optimal utilization of hydrocarbon resources has always been the most challenging issue for Iranian senior policy-makers. Empirical evidences in a number of oil-based economies during the past 3 decades imply the necessity of establishing petroleum funds, which aim at protecting the transfer of direct positive and negative shocks resulting from the international oil price volatility to the domestic economy as well as taking into account the security of inter-generational interests and structural reforms. In this regard, setting up the foreign exchange reserves account has been the most important experience in Iran. Research works show that despite controlling the effect of oil price variations in international markets, at least on the flow of treasury fund, the other prime expected objectives of setting up the petroleum fund have not been achieved due to a numbers of reasons. The author believes that the existing legal shortcomings in establishing the fund and the lack of a general understanding in the Iranian system of management regarding the objectives of the fund are among the prime factors involved in the failure of achieving the expected objectives. The prevailing conditions in the international oil market implies that any delay in proper decision-making to save the petroleum revenues and controlling its spending pattern would result in loosing the existing historical opportunities.