Azernews.Az

By Sara Rajabova

As oil prices on the global market are continuing to drop, the energy-producing countries have been forced to take some steps to avoid a potential economic breakdown.

Iran’s government which heavily depends on oil has set a much lower target price for oil in the next year’s budget. The target price for oil in Iranian budget for the next year was defined as $72 per barrel, while the oil prices in the current budget is $100 per barrel.

However, as the oil prices in the market fell almost by half, some argue that even the price of $72 per barrel can lead to a deficiency in the budget.

Currently, Brent price in the market stood at $60 per barrel. But, the prices in the market fluctuate at times even falling less than $60.

Robert Biglerian, a member of the Iranian parliament on energy told Trend Agency that Iran should reduce the target price of oil budget for the next year to prevent a budget deficit.

He considered that given the current situation with oil prices, the optimal target price for the state budget should be about $60 per barrel.

This comes as the Iranian government has already faced a budget deficit in the current calendar year (ending March 20, 2015) due to the fall in oil prices.

Earlier, Biglerian said the Iranian government can use the funds from the fund for national development of the country to compensate the budget deficit.

Kamran Dadkhah, a professor of economics at Northeastern University in Boston city of Massachusetts State, told AzerNews that with taking the oil prices at $72 per barrel, the Iranian budget will face deficit.

“Even with the price of oil at $72 per barrel, the budget of the Iranian year 1394 (March 2015-March 2016) showed a deficit, although the phrase “budget deficit” isn’t used anymore,” Dadkhah said.

Since the budget is based on the assumption that the government would earn $37 billion from exporting oil and liquid gas, if the oil price drops to $60 per barrel, the government will earn $3.6 billion (=104,000 billion rials) less, the experts underscored.

“Investment in development projects are low and in jeopardy,” Dadkhah said, warning that a further reduction in government revenues and in the foreign exchange earnings of the country could lead to even higher unemployment and inflation.

He went on to say that although the oil prices have reached its lowest level, the government still expects the prices to normalize in the next year.

“The drop in the price of oil is partly due to higher supply (shale oil) and reduction of demand (in Europe and China). It is also due to the expectations and rumors including estimates of lower demand for oil by the International Energy Agency. In other words, the market is reacting to rumors rather than news. The price has already gone too low and we expect it to rebound in 2015,” Dadkhah said.

On the other hand, there are opinions that the drop in oil prices will not have a significant impact on Iran’s budget plan.

Mohammad-Ali Abdolahzadeh, a member of the Planning and Budget Commission of Iranian Parliament told Trend that decline in oil price will not result in significant budget deficit in the next Iranian calendar year, which starts from March 21, 2015.

He justified his conclusion saying the oil price fall is temporary and cannot last for a long time.

“According to the law, some 32 percent of the country’s oil revenues should go to the National Development Fund in the next calendar year. We have to increase the fund’s share by 3 percent each year. The figure was 29 percent in the current year. But based on the government’s proposal just some 20 percent of the oil revenues will go to the NDF next year, so the government will have some 12 percent more to spend and compensate any price fall,” Abdolahzadeh said.

Iranian President Hassan Rouhani submitted the draft budget for the next Iranian fiscal year (beginning March 21) to the parliament on December 7.

Iran should export 1.4 million barrels of oil (including gas condensate) daily, in accordance with the state budget law. According to the government, if the current downward trend in oil prices continues, the budget deficit of Iran may exceed $2.5 billion.

Earlier, Rouhani warned that the country's income from oil sales could be reduced by a third in the current calendar year.