The petrochemicals industry forms an important element in Iran's economic diversification plans.

The history of the petrochemicals industry in Iran dates back to 1963, when the Shiraz Petrochemical Company was founded. The National Petrochemical Company (NPC) was founded the next year, and the industry grew swiftly. As a result of the Imposed War (1980-1988), the development of the petrochemicals industry came to a halt, but in the early 1990s the industry took center stage of government efforts to diversify the economy by decreasing the economy's dependency on crude oil exports and to create more value-added from the hydrocarbon value chain. The Iranian petrochemical industry presently constitutes 40% of non-oil exports and is expecting to expand significantly in the medium term.

In 2009, the production of the petrochemical industry was estimated to stand at 34 million tons per annum (tpa). This constitutes 12% of production in the Middle East, which makes Iran the second largest producer of petrochemicals in the region after Saudi Arabia and its petrochemicals giant SABIC.

Iran has some of the largest petrochemical complexes in the world: Jam Petrochemical is the world's largest ethylene producer with a capacity of 1.3 million tpa and Noori (Bourziyeh) is the world's largest aromatics producer, with a capacity of 2.5 million tpa of heavy aromatics. Zagros Petrochemical is among the world's largest methanol producers at 3 million tpa.

Lately, Iranian producers have focused more on petrochemicals that use natural gas as a feedstock following the discovery of vast reserves of gas and the eroding profitability of naphtha-consuming petrochemicals in the world. Iran plays an important role in fulfilling global methanol demand with a production capacity of 5 million tpa. NPC had developed a Strategic Plan for the Development of the Petrochemical Industry in Iran in 1989, and this plan is being updated following the national Five-Year Development Plans. Accordingly, by 2015 Iran aims to increase its production capacity of petrochemicals to 100 million tpa. The Oil Ministry has set targets for annual production of 11.5 million tpa of ethylene, 11.5 million tpa of polymer, and 3.4 million tpa of urea, with a target of becoming the world's leading producer of methanol with 7.5 million tpa of methanol capacity, which represents 18% of global capacity. International observers calculate Iran needs up to $50 billion in investment to reach that target. Commodity Online reports that 29 projects are already being built at a cost of $18 billion, adding 22.5 million tpa to current production capacity.

FDI is important for Iran to reach these targets and many incentives are offered to attract it to the country, including guarantees of capital and profit transfer, and providing the required utilities and the needed infrastructure for industrial and commercial operations through special economic zones and ports. Two of the most important zones for the production of petrochemicals in Iran currently are Bandar Imam's Petrochemical Zone (Petzone) and Assaluyeh's Pars Special Energy Economic Zone (PSEEZ). These zones provide investors with cheap feedstock and a highly trained workforce, as well as proximity to other producers and a sizable domestic market of consumers that facilitates improved coordination in the sector.

Privatization is playing an important role in the expansion plans of the petrochemical industry. Many of the petrochemical complexes have already been privatized and the government is making efforts to attract domestic private players into the sector. The government tasked NPC with developing a detailed privatization plan it hopes to approve by March 2011. The Minister of Petroleum, Masoud Mir Kazemi, was quoted saying that “all petrochemical units and refineries" will be sold off to private concerns in the near future. This means that, like other economic sectors, the petrochemicals industry will soon become the preserve of the private sector.