Pre-revolutionary Iran's economic development was rapid. Traditionally an agricultural society, by the 1970s Iran had achieved significant industrialization and economic modernization, largely helped by the growing worldwide demand for oil. However, the pace of growth had slowed dramatically by 1978, just before the Islamic Revolution. Since the fall of the Shah, economic recovery has proven elusive due to a combination of factors, including state interference in the economy and fluctuations in the global energy market. Economic activity was further disrupted by years of domestic political upheaval immediately following the revolution. These conditions were worsened by the war with Iraq and the decline in world oil prices beginning in late 1985. After the Iran-Iraq war, Iran’s economic situation began to improve: GDP grew for two consecutive years, partly from an oil windfall in 1990, and there was a substantial increase in imports. Iran's social policies during the Iran-Iraq war additionally resulted in a baby boom, which has left Iran with a large, underemployed youth population today. As a result, Iran suffers from a "brain drain" as its educated youth leave the country to pursue better economic opportunities abroad.

In March 1989, the government instituted a new 5-year plan for economic development, which loosened state control and allowed Iranians greater latitude in accessing foreign capital. However, mismanagement and inefficient bureaucracy, as well as political and ideological infighting, hampered the formulation and execution of a consolidated economic policy, and Iran fell short of the plan's goals. Economic growth was further hindered by a decrease in oil revenues in 1991 and growing external debt. Former president Khatami followed the market reform plans of his predecessor, President Rafsanjani, and indicated that he would pursue diversification of Iran's oil-reliant economy, although he made little progress; high inflation and expansive public transfer programs, as well as powerful economic and political vested interests, posed obstacles for rapid reform during the Khatami era.

Unemployment, a major problem even before the revolution, has continued to plague Iran. However, unemployment statistics only tell part of the story--underemployment continues to affect a large portion of Iran’s young, educated workforce. Although Iran’s poorer, rural population initially enjoyed a psychological boost from the attention given them by the new Islamic government, they are only marginally better off in economic terms. The government has made some progress on rural development, including electrification, road building, and increased access to education, but Iran still suffers from inefficiencies related to agricultural land usage that are politically difficult to reconcile. The agriculture sector still suffers from shortages of capital, raw materials, and equipment--problems that date back to the 1980-1988 Iran-Iraq war.

Although Islam guarantees the right to private ownership, banks and some industries--including the petroleum, transportation, utilities, and mining sectors--were nationalized after the revolution. Under President Rafsanjani, Iran first began to pursue some privatization through its nascent equities markets. However, the industrial sector, plagued by low labor productivity and shortages of raw materials and spare parts, remains uncompetitive against foreign imports.

Today, Iran's economy is struggling as a result of a bloated and inefficient state sector and an overdependence on the oil sector (which provides over 85% of government revenues). Although the Supreme Leader issued a decree in July 2006 to privatize 80% of the shares of most government-owned companies, private sector activity is typically limited to small-scale workshops, farming, and the service industry. As a result of inefficiencies in the economy, significant informal market activity flourishes and shortages of goods are common. President Ahmadi-Nejad has failed to make any notable progress in fulfilling the goals of the nation's latest 5-year plan. A combination of price controls and subsidies continues to weigh down the economy, while administrative controls and widespread corruption undermine the potential for private-sector-led growth. President Ahmadi-Nejad has made known his plan to eliminate Iran’s inefficient subsidies on food and petroleum imports; however, whether this plan will be actually implemented is unclear. Previous government-led efforts at economic reform--such as fuel rationing in July 2007 and the imposition of the value added tax (VAT) in October 2008--were met with stiff resistance and violent protests.

High oil prices in recent years allowed Iran to greatly increase its export earnings and amass over $70 billion in foreign exchange reserves. However, with widely fluctuating oil prices in 2009, the Iranian Government faced a particularly worrisome economic situation. The government has drawn heavily from the country’s Oil Stabilization Fund and there have even been reports that President Ahmadi-Nejad’s administration has illegally dipped into the foreign exchange reserves. Inflation is 16.8% (2009 estimate), while the unemployment rate continues to be in the double digits. Widespread underemployment amongst Iran’s educated youths has convinced many to seek employment overseas. While Iran’s economic quandary may look grim, the Islamic Republic has fared worse--notably during the Iran-Iraq war. With the government’s 2009 budget formulated to anticipate lower oil prices, it is very possible that Iran will be able weather adverse economic circumstances once again.

GDP (purchasing power parity, 2010 est.): $ 863.5 billion.
GDP (official exchange rate, 2010 est.): $337.9 billion.
GDP real growth rate (2010 est.): 3%.
GDP composition by sector (2010 est.): Agriculture 11%, industry 45.9%, services 43.1%.
Per capita income (PPP, 2010 est.): $11,200.
Work force (2010 est.): 25.7 million.
Work force - by occupation (June 2007): Agriculture 25%, industry 31%, services 45%.
Unemployment rate (2010 est., according to the Iranian Government): 14.6%.
Natural resources: Petroleum, natural gas, coal, chromium, copper, iron ore, lead manganese, zinc, sulfur.
Agriculture: Principal products--wheat, rice, other grains, sugar beets, fruits, nuts, cotton, dairy products, wool, caviar.
Industry: Types--petroleum, petrochemicals, textiles, cement and building materials, food processing (particularly sugar refining and vegetable oil production), metal fabricating (particularly steel and copper), armaments.
Trade (2010 est.): Exports--$78.69 billion (2010 est.): petroleum 80%, chemical and petrochemical products, carpets, fruits, nuts. Major export partners (2009)--China (16.58 %), Japan (11.9 %), India (10.54 %), South Korea (7.54 %), Turkey (4.63 %). Imports--$58.97 billion (2010 est.): industrial raw materials and intermediate goods, capital goods, foodstuffs and other consumer goods, technical services, military supplies. Major import partners (2009)--U.A.E. (15.14 %), China (13.48 %), Germany (9.66%), South Korea (7.16 %), Russia (4.81 %), Italy (5.27%), India (4.12%).