A solution for Iran to respond to Saudi oil challenge

Business Materials 21 January 2016 08:48 (UTC +04:00)

Baku, Azerbaijan, Jan. 21

By Farhad Daneshvar - Trend:

In the wake of sharp decline in global oil prices, reduction of the excess oil consumption in the domestic market would help Iranian government to balance its budget, an energy and security expert said.

"The Saudis are not pressing on the supply brakes, seeing the current price as both a means of poking Iran and targeting unconventional oil producers in the US," Anne Korin, co-director of the Institute for the Analysis of Global Security, a think tank focused on energy and security told Trend Jan 20.

Speaking about Tehran's intention and capability to reduce oil production in 2016 to regain its lost share from global oil markets following the removal of international sanctions against Iran's oil industry, Anne Korin said that the real question is not how much Iran can add to its production, but rather how much is in its interest to add to a market in which the price is well below that needed by the Iranian government to balance its budget.

"The best course for Iran would be - politically difficult though it is - to reduce the excess oil consumption in the domestic market (also due to smuggling out of below market fuel) which places a large strain on the government's budget," she said.

This can be done by continuing on the path of reducing subsidies and rationalizing prices of domestic gasoline, diesel, and petroleum based electricity, and - on the positive side - by expanding the methanol fuel blending program to include the manufacture of gasoline-methanol flexible cars by IKCO and Saipa and diesel-methanol bi-fuel trucks, thus speeding the domestic displacement of the oil products gasoline and diesel with the natural gas product methanol, Anne Korin concluded.

In a joint statement on Jan. 16, the EU's High Representative Federica Mogherini and Iran's Foreign Minister Mohammad Javad Zarif announced the implementation of the JCPOA and the removal of economic sanctions on Iran.

According to the statement, EU has confirmed that legal framework, providing for lifting of its nuclear-related economic and financial sanctions, is effective.