The Iranian economy is dominated by oil and gas exports which constituted 70% of government revenue and 80% of export earnings as of 2008. It has a large public sector, with an estimated at 60% of the economy directly controlled and centrally planned by the state. A unique feature of Iran's economy is the large size of the religious foundations, or Bonyads and whose combined budgets are said to make up as much as half that of the central government. A combination of price controls and subsidies, particularly on food and energy, continue to weigh down the economy, and administrative controls, widespread corruption, and other rigidities undermine the potential for private-sector-led growth. High oil prices in recent years have enabled Iran to amass nearly $80 billion in foreign exchange reserves. Yet this increased revenue has not eased economic hardships, which include double-digit unemployment and inflation - inflation climbed to 26% as of December 2008. The economy has seen only moderate growth. Iran's educated population, economic inefficiency and insufficient investment - both foreign and domestic - have prompted an increasing number of Iranians to seek employment overseas, resulting in significant "brain drain".
Petroleum constitutes the bulk of Iran's exports (80%), valued at $46.9 billion in 2006. Iran's non-oil exports stood at $16.3 billion in the year ending March 20, 2007, a rise of 47.2% from the previous period. Pistachios, liquefied propane, methanol (methyl alcohol,) hand-woven carpets and automobiles are the core items of Iran's non-oil exports. Iran s export of technical and engineering services in 2007-08 was $2.7 billion; 40 percent of the export of technical services pertains to Central Asia and the Caucasus. About 30 percent, equivalent to $350 million, to Iraq, and close to 20 percent ($205 million) to Africa and North Africa. The total volume of imports to Iran rose by 189% from $13.7 billion in 2000 to an estimated $39.7 billion in 2005.
Iran's major commercial partners are China, India, Germany, South Korea, Japan, France, Russia and Italy. Iran's trade with India crossed US$13 billion in 2007, an 80% increase in trade volume within a year. From 1950 until 1978, the United States was Iran's foremost economic and military partner; thus participating greatly in the modernization of its infrastructure and industry. After the Iranian Revolution in 1979 though, the United States ended its economic and diplomatic ties, banned Iranian oil imports and froze $12 billion of its assets. In 1996, the U.S. Government passed the Iran and Libya Sanctions Act (ILSA) which prohibits U.S. (and non-U.S. companies) from investing and trading with Iran for more than $20 million annually, with the exception, since 2000, for items like pharmaceuticals, medical equipment, caviar and Persian rugs.
Since the mid 90's, Iran has increased its economic cooperation with other developing countries in "south-south integration" including Syria, India, China, South Africa, Cuba and Venezuela. Iran is expanding its trade ties with Turkey and Pakistan and shares with its partners the common objective for the creation of a single economic market in West and Central Asia called ECO.
Since 2003, Iran has increasingly invested in the economy and reconstruction of its neighboring countries like in Iraq and Afghanistan. In Dubai, UAE, it is estimated that Iranian expatriates are handling over 20% of its domestic economy with an equal proportion of its population. Money is invested in the local real estate market and import-export businesses, collectively known as the Bazaar, and geared towards providing Iran and other countries with the demanded consumer goods. In 2006, the combined net worth of the Iranian citizens abroad was about 1.3 trillion dollars.
Since 2006, Iran's Nuclear Program has become the subject of contention with the West because of suspicions regarding Iran's military intentions. This has led the UN Security Council to impose sanctions against Iran on select companies linked to this program, thus furthering its economic isolation on the international scene.