Iran's economy relies heavily on Oil export revenues - around 80-90 percent of total export earnings and 40-50 percent of the government budget.  Strong oil prices the past few years have boosted Iran's oil export revenues and helped Iran's economic situation. 

For 2004, Iran's real GDP increased by around 4.8 percent. For 2005 and 2006, real GDP is expected to grow by around 5.6 percent and 4.8 percent, respectively. Inflation is running at around 15 percent per year.

Despite higher oil revenues, Iranian budget deficits remain a chronic problem, in part due to large-scale state subsidies on foodstuffs, Gasoline, etc. Expenditures on fuels were estimated at $4.7 billion in 2004, and the country's parliament (the Majlis) has rejected measures to raise consumer prices.

To the contrary, in January 2005, the Majlis decided to freeze domestic prices for gasoline and other fuels at 2003 levels. Currently, gasoline costs less than 40 cents per Gallon in Iran, far below market cost, contributing to a rapid (8-10 percent per year) growth rate in gasoline consumption. In addition, the country imports around one-third of its gasoline.

To pay for sharply increased subsidy expenditures, the Majlis voted in mid-November 2005 to spend an extra $3 billion during the 2005/2006 fiscal year. Of this, $2.6 billion is to be withdrawn from the country's oil stabilization fund (OSF), which was established in 2000 primarily as a tool for protecting the Iranian economy in the event of an oil price collapse. In total, Iran is expected to spend around $4 billion on fuel imports - largely gasoline - this year, up from about $2.8 billion last year.

In addition, Iran is talking about instituting a rationing system, whereby low prices would apply up to a certain point, but beyond that the full price would kick in. The two-tier pricing system, using "smart cards," could kick in as early as April 2006. As of late November 2005, however, the Majlis had not yet taken action on the issue.

Another problem for Iran is lack of job opportunities for the country's young and rapidly growing population. Unemployment in Iran averages around 14 percent, but is significantly higher among young people.

In addition, Iran is attempting to diversify its economy by investing some of its oil revenues in other areas, including Petrochemicals. In 2004, non-oil exports rose by a reported 9 percent.

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