On February 9, 2003, Iranian President Mohammad Khatami announced Iran’s program for producing enriched uranium, the fuel for nuclear reactors and nuclear power plants (NPPs). Since then, experts and inspectors of the International Atomic Energy Agency (IAEA) have visited Iran on a regular basis to inspect its program and facilities. The administration of US President George W. Bush argues that the primary purpose of Iran’s program is to develop nuclear weapons, and the European Union, Russia, and Japan, who have extensive commercial relations with Iran, are all pressing Iran to reveal the details of its program.

This article analyzes Iran’s program for generating electricity using NPPs and whether such a program is justified economically. The US argument against Iran’s nuclear program is that, given its vast oil and gas reserves, Iran does not need nuclear energy. When Shah Mohammed Reza started Iran’s nuclear energy program in 1974, NPPs could not be justified economically: Iran’s population was less than half of its present 70 million, oil production was about 5.8 million barrels per day (bpd), far more than the present daily production of 3.9 million bpd, domestic energy consumption was less than a quarter of consumption today, natural gas was being burned to be eliminated, and unlike now, Iran’s oil reservoirs were not in decline. This begs the question: since the United States strongly pushed the Shah to build NPPs in the 1970s, why does it now believe that Iran does not need NPPs, which, as this article shows, can be economically justified?

Iran’s foray into nuclear technology gathered steam in the mid-1960s under the auspices of the United States within the framework of bilateral agreements between the two countries. Up until 1974, the United States had turned down the Shah’s suggestion for a Joint Economic Commission (JEC) that would regulate and expand Iran’s commercial relations with the United States. Yet, after the massive increase in oil prices during 1973 and 1974, the United States suddenly became very interested in establishing a JEC with Iran. In a secret letter dated April 13, 1974, to the Shah’s confidante Amir Assadollah Alam, US Ambassador to Iran Richard Helms wrote, “We have noted the priority that His Imperial Majesty gives to developing alternative means of energy production through nuclear power. This is clearly an area in which we might most usefully begin on a specific program of cooperation and collaboration...” In two National Security Decision Memoranda dated April 22, 1975, and April 20, 1976, US President Gerald Ford authorized selling Iran uranium enrichment and reprocessing facilities in return for Iran buying eight nuclear reactors from the United States. Iran and the United States then signed an agreement worth approximately US$15 billion, by which the United States agreed to build eight NPPs in Iran that would have had a total capacity of 8,000 megawatts (MW). The formal announcement of the agreement was made in October 1977 by Sydney Sober, a representative of the US State Department, in his address to the symposium, “The US and Iran: An Increasing Partnership.”

Energy Consumption and Resources

Members of an Iranian parliamentary delegation visit the uranium conversion facility in Isfahan.

Iran’s current population is about 70 million, compared with 30 million when the Shah started Iran’s program for building NPPs in 1974, and is estimated to reach 100 million by 2025. Since 1978, Iran’s energy consumption has increased 5.5 percent per year on average, while its energy production has barely kept up with its consumption. The demand for electric power is growing at an annual rate of eight percent. Thus, Iran projects needing 70,000 MW of electricity by 2021, compared to the current production of 31,000 MW. These electricity needs would require 112 to 140 million barrels of oil per year because 18 percent of the electricity will be from burning oil. If this trend continues and crude oil is not replaced by another energy source, and if Iran does not increase oil production significantly, it will become a net importer of oil over next decade, a huge catastrophe for a nation that obtains 80 percent of its total export earnings and 45 percent of its total annual budget from exporting oil. Iran also possesses about 942 trillion cubic feet in natural gas reserves—15.2 percent of the world’s proven reserves—second only to Russia. As a result, natural gas has increasingly become a main source of energy in Iran (see “Nuclear Inclination”).

The Case for Nuclear Energy

The main argument of the critics of Iran’s nuclear energy program is that, due to its vast oil and gas reserves, it does not need NPPs. Yet Great Britain, Canada, and Russia, all oil exporters, rely on NPPs for a significant portion of their electricity needs. Russia’s gas reserves represent about a quarter of the world’s known reserves, and Canada exports 1.5 million bpd of oil to the United States every day; both continue to build NPPs. Between 1974, when Iran signed its first agreement for building NPPs, and 2000, use of NPPs for generating electricity in the world has increased by a factor of 12. Figure “Nuclear Inclination” shows Iran’s current sources of electricity production and discusses the trade-off that it has in energy generation, consumption, and exports. By 2021, 10 percent of Iran’s electricity is to be supplied by NPPs, 20 percent by hydroelectric, 5 percent by other sources, and the remaining 60 percent by natural gas, hence eliminating Iran’s reliance on oil for generating electricity, generating significant additional income by exporting the oil and preventing environmental pollution. Currently, 19 percent of the world’s electricity is generated by NPPs, with their share reaching 27 percent by 2021. In addition, using NPPs and diverting some of the natural gas currently used for generating electricity to other uses have many externalities for Iran—benefits that arise when decisions of some economic agents affect the interests of other economic agents. Iran’s nuclear energy program will result in the development and nurturing of new and unprecedented capabilities for building technological infrastructures, as well as the cross-fertilization and diversion of nuclear-related know-how, research, and development into other industries and branches of science, such as medicine and agriculture. The added value and versatility of nuclear technology-related training will be substantial in creating a new cadre of technocrats and scientists in Iran. The added value gained by producing petrochemical products using natural gas with the jobs and industrial base that it creates, and the foreign currency income it generates, far surpass what Iran would gain by merely burning gas to generate electricity (the world’s US$500 billion petrochemical industry has been developed based on such logics).