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Iran Central Bank Governor Defends Decision To Presell Crude Oil In Stock Market

Abdolnaser Hemmati , Governor of the Central Bank of Iran

The governor of the Central Bank of Iran, Abdolnaser Hemmati, advocated for pre-selling oil to domestic buyers as the best way to address the government's budget deficit in a "healthy manner,” blaming U.S. sanctions on Iranian oil exports for the deficit.

In an Instagram post on Wednesday, Hemmati wrote that the government's choices for remedying the deficit include "reducing [expenses], increasing its income from taxes, selling government shares and assets or preselling sanctioned goods such as crude oil.”

Hemmati claimed that implementing the first three solutions would come with obstacles, and that issuing bonds for pre-selling crude oil is the preferred route because bonds issued by an exchange-traded fund (ETF) are less costly and more manageable for the government, as well as more profitable for their holders in comparison to regular bonds.

An ETF is an investment fund traded on stock exchanges that holds assets such as stocks or commodities, or in this case, crude oil for export.

During a cabinet meeting on Wednesday, President Hassan Rouhani briefly referred to the plan to establish an exchange-traded fund and said the government "wants to create a balance between resources and expenditures in the budget and create a safe investment [opportunity] for the people" through selling shares in the fund in September.

Rouhani has previously described the selling of rial-based bonds for crude oil, to be delivered two years later, as the "cornerstone" of "an economic breakthrough".

"We are selling these shares so that people can find out that the stock and oil markets -- not the gold and dollar [market] -- are the right places for investment," Rouhani said at the Wednesday cabinet meeting, though he stopped short of elaborating on the details of the plan.

On Monday, Eqtesad News reported that the government’s new plan would involve pre-selling about 220 million barrels of oil on Iran's energy exchange, IRENEX.

A similar plan was proposed during Mahmoud Ahmadinejad's presidency in 2012, immediately after international sanctions were imposed on the Islamic Republic. The plan was a non-starter and was never successfully implemented.

Given the lack of any guarantees that oil sales can increase in the next three years, critics have questioned whether the government will have the hard currency resources to pay for people's ETF investments over the two-year timeframe.