Iran’s fiscal breakeven oil price—the one at which the country would be able to balance its budget—is US$194.60 a barrel for 2020, the International Monetary Fund (IMF) said in a report on Monday, in which it lowered its economic growth forecasts for the entire Middle East region.
Due to the U.S. sanctions severely constraining Iran’s oil exports, the Islamic Republic would have balanced its budget for 2019 if oil prices were at US$155.60 per barrel, according to the IMF’s estimates in its Regional Economic Outlook published today.
Saudi Arabia, the world’s top oil exporter and OPEC’s largest producer, would need oil prices at US$86.50 this year and US$83.60 next year in order to balance its budget, the IMF predicts.
In its report, the fund lowered its estimates for economic growth in the Middle East, citing volatile oil prices, faltering global growth rate, and heightened geopolitical tensions.
Economic growth in Gulf Cooperation Council (GCC) countries—that is Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—is expected at just 0.7 percent this year, notably down from the 2-percent growth last year. This decline will be mostly due to the production cut agreement of the OPEC+ pact, the IMF said. Related: Oil Rebounds On Rare Market Optimism
Next year, the economies of those countries are expected to collectively grow by 2.5 percent, thanks to real oil GDP growth because of rising oil production in Kuwait and Saudi Arabia, the start of full operations at the Jizan refinery in Saudi Arabia, and increased natural gas production in Oman and Qatar, the IMF said. The 2020 projection, however, is uncertain because it’s not clear yet if OPEC and allies will let the production cuts pact to expire by March 2020, according to the IMF.
Saudi Arabia’s real GDP growth is set to edge up by just 0.2 percent in 2019, before picking up to 2.2 percent in 2020.
Iran’s economy, on the other hand, “has entered a steep recession,” with output expected to drop by 9.5 percent this year, the IMF said.
“Iran’s main export, oil, is severely restricted, and imports have collapsed,” the fund noted.
By Tsvetana Paraskova for Oilprice.com
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The International Monetary Fund (IMF) is wrong to say that Iran needs a fiscal breakeven oil price of $194.60 a barrel to be able to balance its budget in 2020. I will explain why the IMF is wrong.
The first reason is that long before the first set of US sanctions in 2012 were imposed on Iran, Iran was working on reducing the contribution of the oil revenue to its GDP. It managed to reduce it to less than 40%, far lower than Saudi Arabia and other GCC countries. Therefore, low oil prices affect Iran’s economy far less that Gulf producers.
The second reason is that Iran’s economy is quite well diversified unlike other producers in the Gulf.
The third reason is that US sanctions have so far failed to reduce Iran’s crude oil exports with its main customers, namely, China, India, the European Union (EU) and Turkey never reduced their purchases of Iranian crude with the exception of the EU. Moreover, many other countries including Russia are continuing to buy Iranian crude oil by barter trade.
For these reasons, Iran doesn’t need as high a fiscal breakeven oil price as the IMF suggested to balance its budget.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London