Oil Prices and Agricultural Policy in Iran

Abstract

The geo-political economy of oil exporting countries in the Middle East and North Africa are mainly affected by abundant oil resources, semi-arid climate, and rapidly growing population. The interplay of agricultural policies for self-sufficiency, food imports, and oil prices have shaped the food security situation in the Islamic Republic of Iran. This paper explores the dynamic and causality linkage between external factors (e.g. oil prices) and internal factors (e.g. domestic food production). In particular, the causality relationships among domestic wheat production, wheat imports, and oil prices in Iran for 1964 to 1991 are examined. The results show that there is a unidirectional "Granger Causality" relation from oil price to wheat imports. This suggests that "past and present" history of oil prices and domestic production of wheat are useful information to improve prediction of wheat imports. But the past history of domestic production of food (wheat) alone cannot improve prediction of food imports. The implications of these results are significant in the context of food availability in Iran. Also, the expected agricultural policy reforms under GATT will further expose Iranian agriculture to instability from its macroeconomy as well as from the world economy. The findings in this study about the dynamic interaction of external and internal variables with food security might by useful in predicting possible consequences of GATT reform.

oil price, food security, food self-sufficiency, GATT, wheat imports