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At a time of plummeting prices for crude, Iran is looking for ways to decrease its dependence on oil revenues to balance its budget.
“We need to increase non-oil exports to make up for the decreases in oil revenues,” Iranian President Hassan Rouhani told a session of the Majlis, Iran’s parliament, on Dec. 7. But rather than sound frustrated over the six-month-old decline in global oil prices, he said it could offer an opportunity to expand its economy beyond oil.
The president said he expects the current low price of oil will put “short-term pressure” on Iran’s budget. And he reminded legislators that the price of crude had plunged nearly 40 percent since mid-June because of slower demand from China and Europe and increased production, mostly from the harvesting of shale oil in the United States.
And despite pleas from less prosperous OPEC members such as Iran and Venezuela, the cartel decided at its Nov. 27 meeting not to reduce its production limit of 30 million barrels a day in an effort to shore up prices. That served only to send prices down further.
“The price of Brent [the benchmark crude] has fallen from $110 to less than $70, a decline little before seen,” Rouhani said. “It’s necessary for next year’s budget to be adjusted with caution.”
As it stands, oil accounts for the majority of Iran’s export income. Oil income can’t rise because exports are limited by the UN sanctions imposed on Iran because of its nuclear program, which Iran says is peaceful but some Western nations believe may be aimed at developing atomic weapons.
For years, Iran has been negotiating with six world leaders: the five permanent members of the UN Security Council – Britain, China, France, Russia and the United States – as well as with Germany about lifting the sanctions. The talks with group, called the P5+1, were to have concluded on Nov. 24 but were extended at the last moment until July 1.
Before the extension was agreed upon, however, Iran’s oil minister, Bijan Namdar Zanganeh, said that once the sanctions are lifted, Iran could quickly double its oil exports. He didn’t say how much Iran was now exporting, except that it was “much lower than 2 million barrels a day.” Whether the negotiators eventually agree to a deal to end sanctions is another matter altogether.
Iran isn’t the only oil-rich country struggling with low oil revenues. Venezuelan President Nicolas Maduro has announced that his government will cut spending for “discretionary and luxury” programs by 20 percent; adjust Venezuela’s currency-exchange system in hopes of strengthening its bolivar against the US dollar; and seek financial aid from Russia and China.
Russia, too, is facing economic hardship. Deputy Economy Minister Alexei Vedev said Dec. 2 that the country’s probably will fall into recession in 2015. He said gross domestic product probably will fall by 0.8 percent next year, lower than the previously expected growth of 1.2 percent. This he attributed to the lower price of oil and Western sanctions imposed because of Russia’s treatment of Ukraine.
The Economy Ministry had previously expected the sanctions would be lifted by mid-2015, but Vedev said, “We now assume that sanctions will remain in place throughout the whole of 2015.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com