Oil Stabilization Fund (OSF) and National Development Fund (NDF) in Iran: Differences, Performance and Legal Basis

Oil Stabilization Fund (OSF) has been created in Iran’s third and fourth development plans to invest part of Iran's oil revenues and act as a stabilizer against fluctuating oil revenues. Although OSF has two mentioned rules, in practice, more than 90 percent of OSF resources were allocated to government projects and less than 10 percent was lent to the private sector. After unsuccessful experience of OSF, National Development Fund (NDF) has been established only to invest part of Iran's oil revenues and OSF act as a stabilizer against fluctuating oil revenues. Natural resources, theoretically, are consider as intergenerational wealth. So any exploitation of these resources must be determined based on the optimization of periodic social desirability. Considering this rule, per capita wealth of the people during time should remain constant. Then when life of resources ends, we will have wealth equals present value of oil and gas wealth in financial assets. Adherence to this principle requires that part of revenues from oil and gas should be invested in National Development Fund. The success of NDF and optimal management of oil and gas revenues in Iran depends on modifying the government organizational structure and its financial behavior.