Modeling the exploitation of common oil and gas resources under different conditions of resource distribution and extraction power: A game theory approach

Abstract

Oil and gas are the driving forces behind many economic and productive activities, so they hold a crucial place in economic growth and development. The South Pars/North Dome field, the world's largest gas field, needs to be adequately developed and utilized. Iran and Qatar jointly own this field, and they have the responsibility of developing appropriate strategies for oil and gas exploitation. This study analyzes four static game models of the Nash equilibrium and optimal strategies between the two countries to exploit their shared resource. It assumes that a country's extraction power relies on international sanctions, which leads to unequal extraction power. The various conditions of the model include “equal resource distribution and equal extraction power”, “unequal distribution with equal extraction power”, “equal distribution with unequal extraction power”, and “unequal distribution with unequal extraction power”. The study's findings indicate that in the first two scenarios in which no country faces sanctions, both countries should adopt a non-commitment to cooperation. However, in the latter two scenarios in which one country is under sanctions and has weaker extraction power, the sanctioned country should commit to a cooperative policy, while the other country should adopt a non-cooperative approach. Therefore, the decision of a country to participate in the exploitation of common resources depends on its extraction power rather than resource distribution. Consequently, it can be argued that Iran and Qatar's common gas field, which is unequally divided, is significantly affected by sanctions. Due to Iran's sanctions, its extraction power has decreased, and it has adopted a cooperative strategy with Qatar. Meanwhile, Qatar's dominant strategy is non-cooperation. As a result, Iran suffers from the exploitation of shared resources under sanctions.