Economy of Iran

The economy of Iran is a mixed economy with a large state-owned sector and is the largest in the Middle East in terms of nominal GDP. It is the world's 21st largest by purchasing power parity (PPP). Some 60% of Iran's economy is centrally planned."A survey of Iran: Stunted and distorted". ''The Economist'' (2003) It is dominated by oil and gas production, although over 40 industries are directly involved in the Tehran Stock Exchange. The stock exchange has been one of the best performing exchanges in the world over the past decade.Matthew Lynn: Are you brave enough to invest in Iran?
''Wall Street Journal (Market Watch)'', March 26, 2014. Retrieved March 28, 2014. With 10% of the world's proven oil reserves and 15% of its gas reserves, Iran is considered an "energy superpower".

A unique feature of Iran's economy is the presence of large religious foundations called bonyads, whose combined budgets represent more than 30 percent of central government spending.Bonyad-e Mostazafan va Janbazan Oppressed and Disabled Veterans Foundation (MJF)
Globalsecurity.org. Retrieved February 6, 2011.

Price controls and subsidies, particularly on food and energy, are heavily prominent in the economy. Contraband, administrative controls, widespread corruption, and other restrictive factors undermine private sector-led growth. The government's 20-year vision (as of 2020), involves market-based reforms reflected in the government's, with a five year development plan ( FY 2016 to FY 2021) focusing on "a resilient economy" and " progress in science and technology". Most of the country's exports are oil and gas, accounting for a majority of government revenue in 2010. However in March 2022, the Iranian parliament under new president Ebrahim Raisi decided to eliminate a major subsidy for importing food, medicines and animal feed, valued at $15 billion in FY2021. Also in March 2022, 20 billion tons of basic goods exports from Russia including vegetable oil, wheat, barley and corn were agreed.

Iran's educated population, high human development, constrained economy and insufficient foreign and domestic investment prompted an increasing number of Iranians to seek overseas employment, resulting in a significant " brain drain". However, in 2015, Iran and the P5+1 reached a deal on the nuclear program which removed most international sanctions. Consequently, for a short period, the tourism industry was significantly improved and the inflation of the country was decreased though US withdrawal from the JCPOA in 2018 hindered the growth of the economy again and increased inflation.

GDP contracted in 2018 and 2019, but a modest rebound was expected in 2020. Challenges include a COVID-19 outbreak starting in February 2020 and US sanctions reimposed in mid-2018, increased unemployment due to the sanctions, inflation, a "chronically weak and undercapitalised" banking system, and an "anemic" private sector. Iran's currency (Iranian rial) has fallen, and Iran has a relatively low rating in " Economic Freedom", and "ease of doing business".

History

In 546 BC, Croesus of Lydia was defeated and captured by the Persians, who then adopted gold as the main metal for their coins. There are accounts in the biblical Book of Esther of dispatches being sent from Susa to provinces as far out as India and the Kingdom of Kush during the reign of Xerxes the Great (485–465 BC). By the time of Herodotus (c. 475 BC), the Royal Road of the Persian Empire ran some 2,857 km from the city of Susa on the Karun (250 km east of the Tigris) to the port of Smyrna (modern İzmir in Turkey) on the Aegean Sea.

Modern agriculture in Iran dates back to the 1850s when Amir Kabir undertook a number of changes to the traditional agricultural system. Such changes included importing modified seeds and signing collaboration contracts with other countries. Polyakov's ''Bank Esteqrazi'' was bought in 1898 by the Tzarist government of Russia, and later passed into the hands of the Iranian government by a contract in 1920. The bank continued its activities under the name of ''Bank Iran'' until 1933 when incorporating the newly founded Keshavarzi Bank.

The Imperial Bank of Persia was established in 1885, with offices in all major cities of Persia. Reza Shah Pahlavi (r. 1925–41) improved the country's overall infrastructure, implemented educational reform, campaigned against foreign influence, reformed the legal system, and introduced modern industries. During this time, Iran experienced a period of social change, economic development, and relative political stability.

Reza Shah Pahlavi, who abdicated in 1941, was succeeded by his son, Mohammad Reza Shah Pahlavi (r. 1941–79). No fundamental change occurred in the economy of Iran during World War II (1939–45) and the years immediately following. However, between 1954 and 1960 a rapid increase in oil revenues and sustained foreign aid led to greater investment and fast-paced economic growth, primarily in the government sector. Subsequently, inflation increased, the value of the national currency (the rial) depreciated, and a foreign-trade deficit developed. Economic policies implemented to combat these problems led to declines in the rates of nominal economic growth and per capita income by 1961.

Prior to 1979, Iran developed rapidly. Traditionally agricultural, by the 1970s, the country had undergone significant industrialization and modernization. The pace slowed by 1978 as capital flight reached $30 to $40 billion 1980-US dollars just before the revolution.Shirin Hakimzadeh. Iran: A Vast Diaspora Abroad and Millions of Refugees at Home
Migration information source (2006). Retrieved July 18, 2009.

Following the nationalizations in 1979 and the outbreak of the Iran–Iraq War, over 80% of the economy came under government control. The eight-year war with Iraq claimed at least 300,000 Iranian lives and injured more than 500,000. The cost of the war to the country's economy was some $500 billion.

After hostilities ceased in 1988, the government tried to develop the country's communication, transportation, manufacturing, health care, education and energy sectors (including its prospective nuclear power facilities), and began integrating its communication and transportation systems with those of neighboring states.

The government's long-term objectives since the revolution were stated as economic independence, full employment, and a comfortable standard of living but Iran's population more than doubled between 1980 and 2000 and its median age declined. Although many Iranians are farmers, agricultural production has consistently fallen since the 1960s. By the late 1990s, Iran imported much of its food. At that time, economic hardship in the countryside resulted in many people moving to cities.

File:Provinces of Iran by contribution to national GDP.svg, Provinces of Iran by contribution to national GDP (2014)
File:Socio-eco expenditures IRAN.jpg, Socioeconomic expenditures (2004)
File:GDP_per_capita_development_in_Iran.svg, Historical GDP per capita development in Iran (1820–2018)
File:Irecosector.gif, Economic sectors (2002)
File:Inflation Iran CPI.jpg, Inflation rate (1980–2010)
File:Iran market liquidity.png, Market liquidity (2012)
File:IRAN CPI broad money FXreserves.jpg, CPI, broad money and foreign exchange reserves (2000–2011)
File:USD-IRR exchange rate.JPG, US dollar/Iranian rial exchange rate (2003–2014 est.)
File:Debt service-Iran.png, Debt service (1980–2000)
File:IRANbalanceofpayment.jpg, Balance of payment (2003–2007)
File:TEPIXvsDJIA.png, TEPIX vs DJIA and oil prices (2000–2009)
File:Oil Production and Consumption.gif, Oil production and consumption (1977–2010)
File:IRAN oil&gas production.jpg, Oil and gas production (1970–2030 est.)

Macroeconomic trends

The following table shows the main economic indicators in 1980–2021 (with IMF staff estimates in 2022–2027). Inflation below 10% is in green.

Iran's national science budget in 2005 was about $900 million, roughly equivalent to the 1990 figure. By early 2000, Iran allocated around 0.4% of its GDP to research and development, ranking the country behind the world average of 1.4%.Reza Malekzadeh, Azarakhsh Mokri, Pejman Azarmina
"Medical Science and Research in Iran"
. Academy of Medical Sciences of Iran. Retrieved December 4, 2008. In 2009 the ratio of research to GDP was 0.87% against the government's medium-term target of 2.5%.– The foreign trade regime of the Islamic Republic of Iran
Ministry of Commerce (Iran) (2009). Retrieved April 8, 2010. Iran ranked first in scientific growth in the world in 2011 and 17th in science production in 2012.

Iran has a broad and diversified industrial base. According to '' The Economist'', Iran ranked 39th in a list of industrialized nations, producing $23 billion of industrial products in 2008. Between 2008 and 2009 Iran moved to 28th from 69th place in annual industrial production growth because of its relative isolation from the 2008 international financial crisis.

In the early 21st century, the service sector was the country's largest, followed by industry (mining and manufacturing) and agriculture. In 2008 GDP was estimated at $382.3 billion ($842 billion PPP), or $5,470 per capita ($12,800 PPP).

In 2010, the nominal GDP was projected to double in the next five years. However, real GDP growth was expected to average 2.2% a year in 2012–16, insufficient to reduce the unemployment rate.Iran at a glance
Economist Intelligence Unit (subscription required), December 12, 2011. Retrieved January 8, 2012. Furthermore, international sanctions have damaged the economy by reducing oil exports by half before recovering in 2016. The Iranian rial lost more than half of its value in 2012, directing Iran at an import substitution industrialization and a resistive economy.Ali Akbar Dareini: Iran Leader Unveils 'Economy of Resistance'.
Associated Press, February 19, 2014. Retrieved February 19, 2014. According to the International Monetary Fund, Iran is a " transition economy", i.e., changing from a planned to a market economy.

The United Nations classifies Iran's economy as semi-developed. In 2014, Iran ranked 83rd in the World Economic Forum's analysis of the global competitiveness of 144 countries.Iran ranks 69th out of 139 in global competitiveness
. '' Global Competitiveness Report'', World Economic Forum (2010). Retrieved September 18, 2010. Political, policy and currency stability are regarded as the most problematic factors in doing business in Iran. Difficulty in accessing financing is also a major concern, especially for small and medium enterprises. Most of Iran's financial resources are directed at trading, smuggling and speculation instead of production and manufacturing. According to Goldman Sachs, Iran has the potential to become one of the world's largest economies in the 21st century."The N-11: More Than an Acronym"
. Goldman Sachs, March 28, 2007. Retrieved February 6, 2011. Iranian President Hassan Rouhani stated, in 2014, that the country has the potential to become one of the ten largest economies within the next 30 years.

One major problem often cited by Iranian industrialists is that the government is not supporting them by authorizing imports of similar parts or products into the country, thus undermining their activity and domestic market. This is partly due to corrupt interests inside the government and mismanagement.

Reform plan

Expansion of public healthcare and international relations are the other main objectives of the fifth plan, an ambitious series of measures that include subsidy reform, banking recapitalization, currency, taxation, customs, construction, employment, nationwide goods and services distribution, social justice and productivity. The intent is to make the country self-sufficient by 2015 and replace the payment of $100 billion in subsidies annually with targeted social assistance.''Iran Investment Monthly''
. Turquoise Partners (January 2011). Retrieved January 31, 2011. These reforms target the country's major sources of inefficiency and price distortion and are likely to lead to major restructuring of almost all economic sectors. As such, by removing energy subsidies, Iran intends to make its industries more efficient and competitive. By 2016, one third of Iran's economic growth is expected to originate from productivity improvement. Energy subsidies left the country one of the world's least energy-efficient, with energy intensity three times the global average and 2.5 times higher than the Middle Eastern average.Reza Taghizadeh (June 9, 2010)
Sanctions And Iran's Achilles Heel
''Radio Free Europe''. Retrieved October 13, 2010. Notwithstanding its own issues, the banking sector is seen as a potential hedge against the removal of subsidies, as the plan is not expected to directly impact banks.

National planning

Iran's budget is established by the Management and Planning Organization of Iran and proposed by the government to the parliament before the year's end. Following approval of the budget by Majlis, the central bank presents a detailed monetary and credit policy to the Money and Credit Council (MCC) for approval. Thereafter, major elements of these policies are incorporated into the five-year economic development plan. The plan is part of "Vision 2025", a strategy for long-term sustainable growth.

;Sixth development plan (2016–2021)
The sixth five-year development plan for the 2016–2021 period places emphasis on "guidelines" rather than "hard targets". It defines only three priorities:
* the development of a resilient economy;
* progress in science and technology;
* and the promotion of cultural excellence.

Fiscal and monetary policy

Since the 1979 revolution, government spending has averaged 59% on social policies, 17% on economic matters, 15% on national defense, and 13% on general affairs. Payments averaged 39% on education, health and social security, 20% on other social programs, 3% on agriculture, 16% on water, power and gas, 5% on manufacturing and mining, 12% on roads and transportation and 5% on other economic affairs. Iran's investment reached 27.7% of GDP in 2009. Between 2002 and 2006, inflation fluctuated around 14%. In 2008, around 55% of government revenue came from oil and natural gas revenue, with 31% from taxes and fees."Crude price pegged at dlrs 39.6 a barrel under next year's budget"
'' IRNA'', January 27, 2008. Retrieved December 5, 2008. There are virtually millions of people who do not pay taxes in Iran and hence operate outside the formal economy. The budget for year 2012 was $462 billion, 9% less than 2011.Iran's parliament approves $462 billion budget
. Associated Press. Retrieved May 19, 2012. The budget is based on an oil price of $85 per barrel. The value of the US dollar is estimated at IRR 12,260 for the same period. According to the head of the Department of Statistics of Iran, if the rules of budgeting were observed the government could save at least 30 to 35% on its expenses. The central bank's interest rate is 21%, and the inflation rate has climbed to 22% in 2012, 10% higher than in 2011. There is little alignment between fiscal and monetary policy. According to the Central Bank of Iran, the gap between the rich and the poor narrowed because of monthly subsidies but the trend could reverse if high inflation persists.Najmeh Bozorgmehr: Subsidy dispute adds to Iran's woes
''Financial Times'', April 25, 2012 (subscription required). Retrieved April 25, 2012.

Iran had an estimated $110 billion in foreign reserves in 2011Minister: Iran Facing No Problem in Currency Reserves, Revenues
. Fars News Agency, April 18, 2012. Retrieved May 2, 2012. and balances its external payments by pricing oil at approximately $75 per barrel. As of 2013, only $30 to $50 billion of those reserves are accessible because of current sanctions. Iranian media has questioned the reason behind Iran's government non-repatriation of its foreign reserves before the imposition of the latest round of sanctions and its failure to convert into gold. As a consequence, the Iranian rial lost more than 40% of its value between December 2011 and April 2012. Iran's external and fiscal accounts reflect falling oil prices in FY 2012, but remain in surplus. The current account was expected to reach a surplus of 2.1% of GDP in FY 2012, and the net fiscal balance (after payments to Iran's National Development Fund) will register a surplus of 0.3% of GDP. In 2013 the external debts stood at $7.2 billion down from $17.3 billion in 2012. Overall fiscal deficit is expected to deteriorate to 2.7% of GDP in FY 2016 from 1.7% in 2015.Iran: Concluding Statement of an IMF Staff Visit
IMF, October 3, 2016. Retrieved October 10, 2016.

Money in circulation reached $700 billion in March 2020 (based on the 2017 pre-devaluation exchange rate), thus furthering the decline of the Iranian rial and rise in inflation.

Challenges

The GDP of Iran contracted in FY 2018 and FY 2019 and modest rebound is expected in 2020/2021 according to an April 2020 World Economic Outlook by the IMF.
Challenges to the economy include the COVID-19 outbreak starting in February 2020, which on top of US sanctions reimposed in mid-2018 and other factors, led a fall in oil production and are projected to lead to a slow recovery in oil exports. Labor-force participation has risen but unemployment is above 10% as of 2020 and projected to rise in 2021 and 2022. Inflation reached 41.1% in 2019, and is expected to continue "in the coming years" according to the World Bank, but decline into the 34-33% range. In July 2022, the average inflation rate rose 40.5% while the inflation rate for food and beverages alone rose 87%. Iran's banking system is "chronically weak and undercapitalised" according to Nordea Bank Abp, holding billions of dollars of non-performing loans, and the private sector remains "anemic". The unofficial Iranian rial to US dollar exchange rate, which had plateaued at 40,000 to one in 2017, has fallen 120,000 to one as of November 2019. Iran's economy has a relatively low rating in the Heritage Foundation's "Index of Economic Freedom" (164 out of 180); and ease of doing business ranking (127 among 190) according to the World Bank. Critics have complained that privatization has led not to state owned businesses being taken over by "skilled businesspeople" but by the powerful Islamic Revolutionary Guard Corps "and its associates". In 2020, an Iranian businessperson complained to a foreign journalist ( Dexter Filkins) that the uncertainty of "chronic shortages of material and unruly inspectors pushing for bribes" made operating his business very difficult -- "Plan for the next quarter? I can't plan for tomorrow morning."

According to the NIOC, daily consumption of gasoline in Iran has surpassed 85 million liters, i.e., 10 times more than Turkey with almost the same population.

Ownership

Following the hostilities with Iraq, the Government declared its intention to privatize most industries and to liberalize and decentralize the economy. Sale of state-owned companies proceeded slowly, mainly due to opposition by a nationalist majority in the parliament. In 2006, most industries, some 70% of the economy, remained state-owned. The majority of heavy industries including steel, petrochemicals, copper, automobiles, and machine tools remained in the public sector, with most light industry privately owned.

Article 44 of the Iranian Constitution declares that the country's economy should consist of state, cooperative, and private based sectors. The state sector includes all large-scale industries, foreign trade, major minerals, banking, insurance, power generation, dams and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like. These are publicly owned and administered by the State. Cooperative companies and enterprises concerned with production and distribution in urban and rural areas form the basis of the cooperative sector and operated in accordance with Shariah law. As of 2012, 5,923 consumer cooperatives, employed 128,396.6,000 Cooperatives Nationwide
''Iran Daily'', July 12, 2012. Retrieved July 14, 2012. Consumer cooperatives have over six million members. Private sector operate in construction, agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors.

Since Article 44 has never been strictly enforced, the private sector has played a much larger role than that outlined in the constitution. In recent years, the role of this sector has increased. A 2004 constitutional amendment allows 80% of state assets to be privatized. Forty percent of such sales are to be conducted through the " Justice Shares" scheme and the rest through the Tehran Stock Exchange. The government would retain the remaining 20%. In 2005, government assets were estimated at around $120 billion. Some $63 billion of such assets were privatized from 2005 to 2010, reducing the government's direct share of GDP from 80% to 40%. Many companies in Iran remain uncompetitive because of mismanagement over the years, thus making privatization less attractive for potential investors. According to then-President Mahmoud Ahmadinejad, 60% of Iran's wealth is controlled by just 300 people.

Islamic Revolutionary Guard Corps

The Islamic Revolutionary Guard Corps (IRGC) are thought to control about one third of Iran's economy through subsidiaries and trusts. Estimates by the '' Los Angeles Times'' suggest IRGC has ties to over one hundred companies and annual revenue in excess of $12 billion, particularly in construction. The Ministry of Petroleum awarded IRGC billions of dollars in no-bid contracts as well as major infrastructure projects. Tasked with border control, IRGC maintains a monopoly on smuggling, costing Iranian companies billions of dollars each year. Smuggling is encouraged in part by the generous subsidization of domestic goods (including fuel). IRGC also runs the telecommunication company, laser eye-surgery clinics, makes cars, builds bridges and roads and develops oil and gas fields.

Religious foundations

Welfare programs for the needy are managed by more than 30 public agencies alongside semi-state organizations known as ''bonyads'', together with several private non-governmental organizations. ''Bonyads'' are a consortium of over 120 tax-exempt organizations that receive subsidies and religious donations. They answer directly to the Supreme Leader of Iran and control over 20% of GDP. Operating everything from vast soybean and cotton farms to hotels, soft drink, automobile manufacturing, and shipping lines, they are seen as overstaffed, corrupt and generally unprofitable.Abbas Bakhtiar
"Ahmadinejad's Achilles Heel: The Iranian Economy"
Payvand, January 25, 2007. Retrieved February 12, 2008. ''Bonyad'' companies also compete with Iran's unprotected private sector, whose firms complain of the difficulty of competing with the subsidized ''bonyads''. ''Bonyads'' are not subject to audit or Iran's accounting laws. '' Setad'' is a multi-sector business organization, with holdings of 37 companies, and an estimated value of $95 billion. It is under the control of the Supreme Leader, Ali Khamenei, and created from thousands of properties confiscated from Iranians.

Labor force

After the revolution, the government established a national education system that improved adult literacy rates: as of 2008 85% of the adult population was literate, well ahead of the regional average of 62%. The Human Development Index was 0.749 in 2013, placing Iran in the "high human development" bracket.

Annual economic growth of above 5% is necessary to absorb the 750,000 new labor force entrants each year.. ''Iran Daily'', June 24, 2008. Agriculture contributes just 10% to GDP and employs 16% of the labor force. As of 2017 the industrial sector, which includes mining, manufacturing, and construction, contributed 35% of GDP and employed 35% of the labor force. Mineral products, notably petroleum, account for 80% of Iran's export revenues, even though mining employs less than 1% of the labor force. In 2004 the service sector ranked as the largest contributor to GDP (48%) and employed 44% of workers. Women made up 33% of the labor force in 2005. Youth unemployment (aged 15–24) was 29.1% in 2012, resulting in significant brain drain. According to the government, some 40% of the workforce in the public sector are either in excess or incompetent.

Personal income and poverty

Iran is classed as a middle income country and has made significant progress in provision of health and education services in the period covered by the Millennium Development Goals (MDGs). In 2010, Iran's average monthly income was about $500 ( GNI per capita in 2012: $13,000 by PPP).Iran's per capita income exceeds $13,000: minister
Mehr News Agency, May 8, 2012. Retrieved April 18, 2014.Iran Data by country: Iran, Islamic Rep
. World Bank (2011). Retrieved February 5, 2011. A minimum national wage applies to each sector of activity as defined by the Supreme Labor Council. In 2009 this was about $263 per month ($3,156 per year). The World Bank reported that in 2001, approximately 20% of household consumption was spent on food, 32% on fuel, 12% on health care and 8% on education. Iranians have little debt. Seventy percent of Iranians own their homes.. ''Iran Daily'', April 9, 2007.

According to the Statistical Center of Iran, median household income of Iran in the fiscal year of 2018–2019 was 434,905,000 rials (a bit above $3,300), an 18.6% rise from the previous yearlong period of 2017–2018, where median household income was about 366,700,000 rials. Adjusted for purchasing power parity, Iran's 2017–2018 median income was equivalent to about $28,647 (2017 conversion factor, private consumption, LCU). As the average Iranian household size is 3.5, this puts median personal income at around $8,185. While Iran rates relatively well on income, median wealth is very low for its income level (on par with Vietnam or Djibouti), indicating a high level of spending. According to SCI, median household spending in the FY 2018 was 393,227,000 rials, or 90.5% of the median household income of 434,905,000 rials.

After the Revolution, the composition of the middle class in Iran did not change significantly, but its size doubled from about 15% of the population in 1979 to more than 32% in 2000. The official poverty line in Tehran for the year ending March 20, 2008, was $9,612, while the national average poverty line was $4,932. In 2010, Iran's Department of Statistics announced that 10 million Iranians live under the absolute poverty line and 30 million live under the relative poverty line.

Social security

Although Iran does not offer universal social protection, in 1996, the Iranian Center for Statistics estimated that more than 73% of the Iranian population was covered by social security. Membership of the social security system for all employees is compulsory.

Social security ensures employee protection against unemployment, disease, old age and occupational accidents. In 2003, the government began to consolidate its welfare organizations to eliminate redundancy and inefficiency. In 2003 the minimum standard pension was 50% of the worker's earnings but no less than the minimum wage. Iran spent 22.5% of its 2003 national budget on social welfare programs of which more than 50% covered pension costs. Out of the 15,000 homeless in Iran in 2015, 5,000 were women.

Employees between the age of 18 and 65 years are covered by the social security system with financing shared between the employee (7% of salary), the employer (20–23%) and the state, which in turn supplements the employer contribution up to 3%. Social security applies to self-employed workers, who voluntarily contribute between 12% and 18% of income depending on the protection sought.Iran's entry
U.S. Social Security Administration. Retrieved October 14, 2010. Civil servants, the regular military, law enforcement agencies, and IRGC have their own pension systems.

Trade unions

Although Iranian workers have a theoretical right to form labor unions, there is no union system in the country. Ostensible worker representation is provided by the Workers' House, a state-sponsored institution that attempts to challenge some state policies. Guild unions operate locally in most areas, but are limited largely to issuing credentials and licenses. The right to strike is generally not respected by the state. Since 1979 strikes have often been met by police action.

A comprehensive law covers labor relations, including hiring of foreign workers. This provides a broad and inclusive definition of the individuals it covers, recognizing written, oral, temporary and indefinite employment contracts. Considered employee-friendly, the labor law makes it difficult to lay off staff. Employing personnel on consecutive six-month contracts (to avoid paying benefits) is illegal, as is dismissing staff without proof of a serious offense. Labor disputes are settled by a special labor council, which usually rules in favor of the employee.

Sectors

Agriculture and foodstuffs

Agriculture contributes 9.5% to the gross domestic product and employs 17% of the labor force. About 9% of Iran's land is arable, with the main food-producing areas located in the Caspian region and in northwestern valleys. Some northern and western areas support rain-fed agriculture, while others require irrigation.
Primitive farming methods, overworked and under-fertilized soil, poor seed and water scarcity are the principal obstacles to increased production. About one third of total cultivated land is irrigated. Construction of multipurpose dams and reservoirs along rivers in the Zagros and Alborz mountains have increased the amount of water available for irrigation. Agricultural production is increasing as a result of modernization, mechanization, improvements to crops and livestock as well as land redistribution programs.

Wheat, the most important crop, is grown mainly in the west and northwest. Rice is the major crop in the Caspian region. Other crops include barley, corn, cotton, sugar beets, tea, hemp, tobacco, fruits, potatoes, legumes (beans and lentils), vegetables, fodder plants (alfalfa and clover), almonds, walnuts and spices including cumin