Accessibility links

Breaking News

Iran Braces Itself For Low Oil Exports In New Budget Forecast

Iranian president Hassan Rouhani handing the budget bill to Ali Larijani , Speaker of parliament, December 10, 2017.
Iranian president Hassan Rouhani handing the budget bill to Ali Larijani , Speaker of parliament, December 10, 2017.

The spokesman of Iranian parliament’s presidium says the Rouhani administration has sent the budget bill for the next Iranian calendar year to the parliament on November 2. The official presentation of the budget is planned for Thursday December 6.

Behrouz Nemati also confirmed that oil exports are estimated to be 1.5 million barrels per day in the new budget, vs 2.7 million before the United States reimposed sanctions on Iran. But critics say even such a huge reduction is an overestimation of what the country could really sell.

According to Nemati, the calculations in the budget bill for March 2019 – March 2020 are based on an estimated oil price of $54 and a rate of exchange for US dollar projected at 57,000 rials per U.S. dollar. The estimated oil price is nearly the same as current market price, but the projected rate of exchange is questionable as the current rate market is around 120,000 rials dollar.

An economic planning official later said that the dollar rate used in the new budget is closer to 58,000 rials.

One reason for raising the exchange rate in the budget is to try to cover the deficit. If oil revenue in dollars is exchanged on paper based on 58,000 rials, instead of current official rate of 42,000, the government can claim to have more rials to spend. It is all arbitrary anyway, since the free market rate is 120,000 rials per dollar.

On Saturday, Iran's Economic Coordination Council had forecast a more than 50 percent decline in the country's oil sales in the next Iranian fiscal year which starts in March 2019.

The forecast put Iran's oil exports next year at one million barrels per day which is less than half of the figure forecast for the current year, Iranian official news agency IRNA reported December 1.

Critics as well as the Iranian Parliament's research center say the real oil sale figure next year would be as low as 500 thousand barrels per day, adding this is going to put the Iranian government face to face with a bigger budget deficit.

An activist writing under the alias Mickle Scofield tweeted, "In the budget for the next year, the estimate for oil sale is one million barrel per day while it is unlikely that Tehran could sell more than 500 thousand barrels. He noted that whatever Iran earns from oil exports can be spent only on food and medicine imports.

Iranian activists, particularly those inside Iran, fearing retaliation and persecution use false names and VPNs to evade tracking and identification by security forces.

The Economic Coordination Council reviewed next year's budget during its meeting on Saturday and called for reducing the share of oil revenues in the budget as well as advising the government to import essential commodities with subsidized dollars, IRNA reported. This means the government would offer cheap dollars to importers, which is the case now, but what actually happens is that at the retail level merchants set prices based on higher, free market dollar rates. This is creating very high prices for essential needs of ordinary people.

According to IRNA, the coordination council, which has been established following the U.S. withdrawal from the nuclear deal with Iran and the ensuing economic difficulties, is attended by the heads of legislative, executive and judiciary branches of the government as well as several other state officials.

The report says that the council emphasized "attention to the needs of low-income strata of the society," and called on the government "to provide essential commodities for the people at a subsidized rate, support production, boost employment, extend financial support to workers and pensioners, and complete abandoned development projects with the participation of the people and private sector."

These are in fact part of the government’s responsibilities it has failed to fulfill, even when the country was not facing a serious economic crisis, because of inefficiency, mismanagement and widespread corruption.

Meanwhile, the council has barred the government from saving 10 percent of the oil revenue in the country's National Development Fund, which is another name for the foreign currency reserve, Fars news agency reported.

The Iranian government had declared earlier that its revenues will face a decline next year due to U.S. sanctions.

The current price of oil is around $60 per barrel for Brent oil and around $51 for West Texas Intermediate. The price of Iranian oil is usually two to three dollars less than the North Sea Brent price per barrel.

Following the reimposition of US sanctions, Iran's oil exports have dropped. According to Reuters, Iran's entire oil export to Asia during November has been 762 thousand barrels, which is its lowest in five years.

In another development, the Economic Coordination Council has called for withdrawing money from the National Development Fund in order to make up for the budget deficit.

The council's ratification and advice needs to be endorsed by Iran's Supreme Leader Ayatollah Ali Khamenei.

The government is to submit the budget bill to parliament by Thursday December 6.

Last year's budget bill, which cut expenditures in some areas, handsomely rewarded religious institutions and the armed forces, as well as the police. That was a factor in igniting mass protests on December 28, which shook the country for more than a week.