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Iran Says Budget Adjusting To Low Oil Prices

Iran Says Budget Adjusting To Low Oil Prices

Iranian President Hassan Rouhani says the persistently low price of oil and Western sanctions are no longer putting pressure on his country’s budget because Tehran is now relying less on such revenues than ever before in its history.

Only four months ago, Rouhani said the low price of oil in particular would put “short-term pressure” on Iran’s budget. Since late June 2014, the average global price of crude has plummeted from more than $100 per barrel to around $60 today.

At the same time, under the sanctions, imposed because of Tehran’s nuclear research, Iran now produces no more than an estimated 2.7 million barrels of oil per day, and of that, about 1 million barrels are exported. That's not much production for a country with the world’s fourth-largest proven reserves of crude oil.

Related: Who Is Saudi Arabia Really Targeting In Its Price War?

In a speech on Dec. 7 to the Majlis, Iran’s parliament, Rouhani said that as a result, “[i]t’s necessary for next year’s budget to be adjusted with caution.” Yet when he addressed a meeting of commanders and staff members of the Iranian Law Enforcement Forces on April 25, Rouhani said those issues have been addressed head-on.

In fact, Rouhani said, he’s even managed to increase budget spending for development over the past two years, although he gave no details of the spending plan or how he managed to reduce the country’s reliance on oil revenues.

The Iranian president did, however, repeat his belief that other countries in the Middle East, which he didn’t name, have been conspiring to keep oil prices low. This echoed comments he made as long ago as Dec. 10 to his cabinet in Tehran.

Related: OPEC Says US Oil Boom Will End This Year

“The fall of the oil prices is not just something ordinary and economical, this is not due to only global recession,” Rouhani said at the time. “The main reason for it is [a] political conspiracy by certain countries against the interest of the region and the Islamic world and it is only in the interest of some other countries.”

In fact, it was then that Rouhani announced plans to counteract the low price of oil to ensure that Iran’s budget wouldn’t suffer. Again, he gave no details of his plan.

Iran and fellow OPEC member Venezuela both had urged the cartel to cut production at its Nov. 27 meeting last year. But under the leadership of Saudi Arabia, OPEC’s most productive and therefore most influential member, the group decided to maintain production at 30 million barrels a day.

Related: Is This Where Investors Should Be Looking When Oil Recovers?

This strategy was seen as a way of undercutting US production of shale oil which requires expensive extraction technology and therefore becomes unprofitable when crude prices drop below a threshold of around $60 per barrel. But many in Iran also see their country as a target.

It’s generally thought that rich Sunni Muslim Arab oil nations, especially Saudi Arabia, which has currency reserves widely reported to be in the neighborhood of three-quarters of a trillion dollars, along with other rich Sunni Muslim Arab oil producers in the Persian Gulf region, could survive a period of low oil prices.

The same could not be said for rival Shi’a Muslim Iran or for Russia, which has its own budget headaches because of low oil prices. Some in Iran believe the Saudi leadership is trying to punish both Iran and Russia economically for their support of Riyadh’s longtime adversary, Bashar al-Assad, the president of Syria.

By Andy Tully of Oilprice.com

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