The US Energy Information Administration (EIA) has forecast Iran’s crude production to drop by 850,000 barrels a day (b/d) to 2.7 million b/d by the end of 2012, compared with 3.55 million b/d at the end of last year.

In its new short-term energy outlook, the EIA said Iran’s output decline is accelerating due to a lack of investment, which is needed to offset natural production declines.

The forecast does not include the potential effects of the latest round of US financial sanctions against Iran, or the EU embargo on Iranian crude set to kick in on 1 July.

“A number of foreign companies that were investing in Iran’s upstream have halted their activities as a result of previous sanctions against the country that have made it difficult to do business with the country,” says the EIA.

The Washington-based body says Iran may have to increase oil storage as it becomes increasingly difficult to find export markets for its crude and, if storage capacity is outstripped, it may have to shut down upstream capacity.

The US government has reportedly exempted India, Malaysia, South Korea, Sri Lanka, Turkey and Taiwan from its tougher Iran oil sanctions. But Iran’s two main customers, China and Singapore, could be prevented from energy-related transactions with the Iranian financial institutions when the measures are introduced at the end of June.

Iran is currently the second largest producer in Opec after Saudi Arabia, but the EIA forecasts would see its crude production fall to around the same level as the UAE and Iraq by the end of 2011.

Iran’s envoy to Opec this week blamed other members of the organisation, including Saudi Arabia and its allies the UAE and Kuwait, for violating quotas and contributing to the decline in crude prices.