Iran's oil bonds not profitable during foreign currency crisis

Oil&Gas Materials 11 August 2020 16:54 (UTC +04:00)
Iran's oil bonds not profitable during foreign currency crisis

TEHRAN, Iran, Aug.11


Iran is expected to announce issue of bonds to fund oil projects in the coming week to compensate budgets deficit, but this might lead to more losses due to current decline of oil price, said financial analyst Ali Sadvandi, Trend reports citing Mehr News Agency.

"The idea is to issue bonds for two years in order to sell oil so that the oil ministry can obtain 14.5 percent of revenue from oil sale; however, the oil price has declined due to coronavirus spread," Sadvandi added.

"It is possible that in next two years, the oil price would increase; meanwhile, considering the fluctuation in foreign currency rates the oil bonds interest rate will affect the economy," he said.

"The Central Bank of Iran is expected to issue securities that will would be competitive with the government's bonds, but this may cause further recession," the analyst noted.

"Oil bonds are very risky since the debt stability depends on the debt rate more than anything; if the bond rate is below the inflation rate, there will never be debt volatility, but if the debt rate is higher than the inflation rate, its repayment will inevitably be supplied from the monetary base and this will create problems," he said.

"When the oil price is high and the country has good foreign currency return, issuing bonds is a good idea but, but when the oil price has declined, Iran's access to foreign currency revenues is difficult," he added.

The U.S. administration has re-imposed sanction against Iran’s oil industry to reduce the country's oil sale. The country uses stock exchange to sell crude oil.