Cheap oil chokes off Iran's economy, budget resources

Business Materials 10 December 2014 15:10 (UTC +04:00)

Baku, Azerbaijan, Dec. 10

By Dalga Khatinoglu

While Iran's targeted oil export revenues hasn't been realized, a 41percent decrease in OPEC basket price compared to June has choked off the country's economy and budget incomes.

Falling OPEC oil basket price from $107.89 in mid-June to $62.33 on Dec.9 was unexpected for Iran, which had set its yearly budget based on $100/barrel prices. While, according to its budget law, Iran should have exported 1.3 million barrels per day of crude oil (including the natural gas condensate), the statistics released by Reuters on Nov.29 reported that Iran's oil exports to Asia stood at 1.11 million barrels per day during the ten months of 2014.

Iran also has about 0.1 mbpd of oil export to Turkey, but the Iranian Oil Ministry has confirmed that targeted 1.3 mbmpd oil export hasn't been realized.

Iran's Government Spokesman Mohammad Baqer Nobakht said Dec.9 that people should remember that the government has to manage the economy based on $24 billion oil export revenues. Iran's yearly petroleum export revenues were about $120 in 2011. Iran oil export decreased from 2.5 mbpd in 2011 to about 1.07 mbpd in 2013.

The Iranian government offered the next fiscal year's budget to Parliament on Dec.7 to be approved. The budget was set based on $72/barrel oil price. Iran's fiscal year starts on March 21.

A senior expert at Iran's Center for Strategic Research within Expediency Discernment Council of the System Jamshid Pajouyan says that falling oil prices will affect Iran's economy which has already suffered from stagnation, high-depended to oil revenues and high inflation rate.

Pajouyan, who was the head of Iran's state Competition Committee under the Ministry of Economy and Finance until November 2013, told Trend Dec.10 that falling oil price also caused the lose in Iran's natural currency's value against US dollar. While the country has a significant amount of imports, the US dollar shortage impacts the ability to continue to import goods.

The value of the US dollar against Iran's national currency, rial, has been increased from 31,750 rials in mid-June to 34,200 rials on Dec.10.

On the other hand, according to the Custom Administration's latest report, Iran's imports increased by 24.05 percent to $46.378 billion during the 10 months of 2014, about $18.5 more than the country's non-oil exports.

Iran's petroleum export revenues ($ billion) based on the Central Bank of Iran's statistics

National Development Fund's assets can useful, but not more

Pajouyan says that using the National Development Fund's (NDF) assets can help the government avoid f the effects of low oil prices partly, but the Fund wasn't established for this purpose and its financial reserves are restricted.

Based on Iran's Fifth Five-Year Development Plan (2010-2015), the government should deposit about 30 percent of its annual oil income into the National Development Fund to be used to finance private sectors' projects.

Robert Biglerian, a member of the Energy Commission of Iran's Parliament told Trend news agency on Dec. 6 that the government can use the NDF funds to invest in the country's infrastructure development plans and even pay the current expenses.

The latest official statistics indicate that the Fund's reserves stood at $54.6 billion.

Blocked assets abroad

Pajouyan believes that avoiding a budget deficit is impossible without releasing the country's assets blocked abroad. According to the U.S. estimations, Iran has about $100 billion in blocked assets, inaccessible for Iran due to sanctions.

Falling oil price continues while according the Deutsche Bank estimations in October for oil price targets per barrel indicate that Iran requires $131/barrel oil prices in order to balance its annual budget.

Parviz Mina, who served as a member of OPEC Long-Term Strategy Committee, told Trend Dec.10 that regarding this fact, OPEC has kept output ceiling level unchanged at 30 million barrels per day, while the cartel's 12 members are producing even more than this level, there is not any positive forecast in an oil price increase in the short term.

"In case the US continues tight oil production and increase the volume, I think the oil prices could plunge around $60 in 2015," Mina said.

Dalga Khatinoglu is an expert on Iran's energy sector, head of Trend Agency's Iran news service
Follow him on @dalgakhatinoglu

Edited by CN