What is Oil Stabilization Fund (Iran)

The Oil Stabilization Fund was a government-controlled sovereign wealth fund managed for the government of Iran. The funds deposited with the Oil Stabilization Fund were primarily the surplus revenues from the development of Iran's oil reserves.

In 2011, it was replaced by another sovereign wealth fund in Iran, the National Development Fund of Iran (NDFI), with the country transferring 20 percent of its oil revenues into the fund.

BREAKING DOWN Oil Stabilization Fund (Iran)

Iran's Oil Stabilization Fund, or OSF, was established in 2000 as a way to make strategic investments and stabilize funding for the Iranian government.

In general, a stabilization fund is a framework developed by a country's national government or central bank to help insulate the its economy big revenue influxes – typically from commodities such as oil, as in Iran's case. The aim is to protect against overheating while maintaining a steady level of government revenue, even with commodity price fluctuations.

The Iranian parliament established the OSF as a means to maintain support, through capital investments, for the country's economy in the event of either inflation or a drop in oil prices. The reserves, funded with surplus revenues from the Iran's oil and gas sales, were meant as a safeguard, since some 80 percent of the republic's foreign exchange income is from fossil fuels.

In 2011, the National Development Fund of Iran was set up to supplant OSF as a means for investing oil and gas revenues. Iran's socioeconomic development plan called for 20 percent of that income is to be transferred to NDF, which was expected to extend half of its funds to the private sector and 20 percent to spur foreign investment.

Soon after NDFI was established, Iranian state news agency quoted then-President Mahmoud Ahmadinejad that the fund could reach $55 billion by March 2013. He also said the 20 percent of set-aside revenues would be increased to 23 percent and 26 percent over the next two years.

“For the first time in history ... (the) government has been able to save a proportion of its oil revenues while previous governments spent all revenues every year,” Ahmadinejad said.

NDFI currently has $91 billion is assets is among the 20 largest sovereign wealth funds in the world.

NDFI since supplanting the Oil Stabilization Fund

According to Iran's English-language Financial Tribune, as of January 2018, NDFI has approved more than $36 billion in foreign exchange loans since its inception. More than $34 billion of the approved resources were allocated. "Of this amount, $19.8 billion were extended to the private sector, $101 million to the cooperatives sector and $14.5 billion went to projects belonging to businesses affiliated to non-government public entities."

The report notes that NDFI's statute requires some resources to be earmarked for development and infrastructure projects. "In addition to facilities allocated through agent contracts, $11 billion were separately allocated to implement national projects related to water, soil and agriculture," according to the fund's report.