No right time for Iran to reduce oil export
By Dalga Khatinoglu
Discussing the new budget bill in Iran's parliament has led to emerging new oil ideas, from decreasing to halting oil export in the next fiscal year.
Before western sanctions were imposed on Iran in mid-2012, 35 to 50 percent of the government budget had relied on oil export revenues.
Iran's petroleum revenues including, gas condensate, oil productions was about $114.75 (88 percent of total exports) in 2011, while the OPEC's oil basket price was $107.46/barrel and Iran was exporting 2.5 million barrels per day of oil export.
Iran's fiscal year starts on March 21.
There is no information about Iran's total petroleum export value in 2014, but the country reportedly exported 1.4 to 1.5 million barrels per day of oil, gas condensate and Natural Gas Liquids (NGLs), while the average OPEC oil basket price was $92.3/barrel. However, OPEC’s oil price plunged to about $46.59 on Jan.6.
Mohammad Esmail-Nia, a member of Parliament told Iran's ISKA news (Iran Student Correspondents Association) Jan.6 that 124 MPs have signed a scroll demanding a full cut in Iran's oil export if the prices fall below $50/barrel.
Before that, Iranian Parliament’s Energy Commission member Mahdi Mousavinejad unveiled the mentioned plan Jan. 2 saying that plan is aimed at obliging the administration to cut crude oil exports by 25 percent in the next Iranian fiscal year.
Mousavinejad told Tasnim News Agency on Friday, an official announcement of a reduction in Iran’s crude exports would affect the global oil price; also the plan would reduce the country’s dependence on oil incomes.
Iranian government offered a budget bill, considering exporting 1.3 mb/d of oil and condensate based on $72/barrel for the next fiscal year to parliament to be approved.
The share of oil export revenues in new government budget bill with $290 billion is about 31.5 percent.
Sohbet Karbuz, Director of Hydrocarbons, France, Mediterranean Energy Observatory (OME) told Trend on jan.7 that Iran’s crude oil exports including condensates for November were estimated at 1.3 mb/d. "Iran’s Resistance Economy model is intended to reduce the country’s dependence on oil revenues.
However, reducing the volume of oil exports as much as 25 percent starting from the new Iranian year (1 March 2015) in order to lessen the negative impact of the fall in state budget would be a combination of an inappropriate policy and a wrong timing with painful consequences. This sort of short-sighted cynicism of the politicians may come back to haunt them," he said.
Iranian Supreme Leader Ayatollah Ali Khamenei ordered implementation of a Resistance Economy model during the last years due to hard-bidding sanctions effect on Iran's oil export imposed by EU and the U.S..
Iranian government increased the share of tax revenues by 20 percent to $23.15 billion, however the country faces a high inflation rate (17.2 percent) and stagnation.
Iran's GDP at current market prices decreased from about $480 billion in 2011 to around $366 billion in 2013.
The Iranian government says the DGP growth for last spring and summer was about 4 percent.
Karbuz says, "The government rightfully wishes to reduce the reliance on oil exports but to do so it indeed increases the reliance on tax revenues. The government has already increased the taxes but increases in wages and salaries remained below inflation. In addition, although subsidy reform reduced the spending of the government, it increased the pain in the pockets of the people. It is true that non-oil export revenues have been increasing but it would be wrong to look at the absolute values alone."
The other energy-related problem in Iran is depositing about $13 for each registered citizen's bank account monthly as a compensation for rising fuel prices. There are 73 million people in Iran who was registered to get the cash subsidies.
Iranian government has increased the energy carriers' price two times since 2010, but the country's national currency has also lost its value by 3.5 times during this period.
Karbuz says that "we should look at the evolution of the shares of taxes, oil and no-oil exports in the budget revenues over the past 5 years. Now let’s make simple math. Assume that we want to decrease the volume of oil exports from 1.3 mb/d to 0.98 mb/d (i.e. 25%). At the same time, the average price of oil decreases from $100/b to $72/b (as suggested by the new budget proposal), so a 28% decrease. The total effect in the export revenues would be a drop of 45%. This would most likely lead to a current account deficit. A twin deficit (budget and current account) could increase Iran’s reliance on foreign debt. Does Iran want that in the current political environment?"
Director of OME added that On the one hand they want to attract foreign investment into the oil and gas sector (including the Iran's oil & gas summit in London, delayed to Feb 2015, concerning the new contract regime and upstream offers), on the other hand they show that the government can put restrictions in place anytime it wishes.
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