30% Drop In Iran’s Oil Revenues

Rooz Online

The fall in the price of oil in world markets has altered the forecasts of Iran government’s income and expenditures and has sharply raised the possibility of a large budget deficit.

While oil prices are forecast to fall to about $70 per barrel, the commodity constitutes the principal source of revenue for Iran’s government. During both of Mahmoud Ahmadinejad’s administrations the price of a barrel of oil hovered above $100 whose result was that Iranian budgets were calculated with those projections in mind. Today, a barrel of oil is sold around $85 in international markets.

The fall of oil prices in global markets prompted Mohsen Ghamsari, the director general of international affairs of the Iranian national oil company, to confirm yesterday that the government’s revenues have fallen by 30 percent.

“The fall of oil prices in international markets has resulted in a 30 percent fall in oil revenues for the country,” he said. “With the sharp fall of oil prices since July, and its current price of $85 per barrel, state oil revenues have fallen by 30 percent and this is despite the fact that the 2014 budget of the country has been calculated on the premise that the price of oil would be $100 per barrel,” he elaborated. “We believe the price of oil was kept artificially up not just in the beginning of this year but for about two to three years. No economic factors have changed to push oil prices down except that there was support higher up to keep the prices up. Now the need to continue this support is not there so the price of oil has fallen,” he continued.

The fall in oil prices to $85 a barrel has forced the government to adjust its budget scenario for next year and officials now speak of not relying on a $100-barrel of oil. In this regard, the deputy of planning at the oil ministry Mansoor Moazami said, “In view of the current prices of oil, the government’s budget for next year will most certainly be calculated on a logical and fulfillable price. We will not calculate the budget on a $90 or a $100 oil barrel. The oil ministry will present the best scenario for the price of oil to the government, a price that is realistic and logical for next year’s budget that is attainable and can be used to manage the country.”

Then he made an unusual assertion. “The fall in oil prices have not only caused a deficit in our budget, we have in fact met the goals of the budget from oil revenues and have a budget surplus. In the last many years till now different governments have been successful in managing the economy with a $5 price of oil barrel and with a $140 price and there have been no problems. For next year, the price that will most certainly be taken into account that will be sustainable to run the country.”

Shargh newspaper recently published a report in which it does not share the deputy oil minister’s optimism and writes of president Rouhani’s displeasure with the current price of oil. “The president recently raised his criticism of officials as to why they had not predicted the fall in oil prices. But the president knows well that because of the many factors that play a role in the market price of oil it is not possible to precisely predict this price. But even if it predicted that the price of oil will be less next month would he allow the ministry of oil to sell oil at prices lower than its current price? Finally, well before Hassan Rouhani was sworn in as the president, the country’s media predicted that between 2015 and 2016 the price of oil would fall to about $80 a barrel and would stay at that price for some time.”

The article then continued, “The waste that took place during Ahmadinejad’s administration must not be repeated again. With the end of sanctions and a rise in oil exports, Iran’s revenues will gradually go up, no matter the price of oil. Has the economic system of the country come up with plans for that? Today, we must temporarily tighten our belts.”

The ministry of economy’s recent report also has speaks of a fall in the government’s revenues and raises concerns about a budget deficit. “The government’s total budget revenues in the first half of the year show a 27 percent deficit compared to the budget law. The budget law estimates the revenue amount for this year to be 106 billion Toman while the government has succeeded in making only 76 billion Toman. Government revenues have three sources: income, oil revenues and sales. In the first half of this year all three sources have fallen short. Income has fallen by 32 percent, oil sales by 11 percent and sales by 55 percent. In the first half of this year, despite the sale of oil at over $100 a barrel, the budget suffered a deficit. The fall of the price of oil by $20 a barrel in the last two months indicates that the government’s revenues from oil sales will suffer an even bigger deficit.”