Is Iran ready for $70-barrel crude oil?

OPEC oil basket price slipped to $80.64 per barrel on Nov.3 from a mid-June figure of about $108.

Iran hasn't announced officially any figure for its crude oil price, but Mehr News Agency reported in late October that Iran set its oil price at $86, as opposed to an average of $104 per barrel over the past seven months.

 The Middle East country's yearly budget was based on $100 per barrel oil. Iran reportedly offers discounts as well as free shipping services for his customers to help restore the huge drop in oil export levels started in 2012 due to Western sanctions.

Iran's crude oil export went from 2.5 million barrels per day (mbpd) in late 2011 to 1.07m bpd in late 2013. After sanctions eased due to the interim nuclear accord obtained on November 24, 2013, Iran's crude oil increased, mostly because of soaring the natural gas condensate exports.

However, according to the Custom Administration's latest report published on Nov.3, Iran exported a barrel of gas condensate at about $76 per a barrel, while these figures for September, August and July were about $107.6, $101 and $84. The last month's figure clearly is significantly below the global natural gas condensate price.

Iran, of course increased its condensate export volume to 435,757 bpd in first 9 months of 2014 from about 170,000 bpd in the same time during last year, but it's crude export have not undergone what was recognized in the budget bill.

According to the budget bill, Iran should export 1.3 mbpd of crude oil (including condensates) at $100 per a barrel. However according to Reuters' calculations, Iran's crude oil export to Asian markets was about 1.14 mbpd in the January-September period. Iran sells oil to Turkey as well, but it doesn't seem that the total oil export of Iran during the current year could outpace 1.3 mbpd.

Cheap oil not only affects Iran's revenues, but also has a double impact on Iran's economy because the budget law is written based on Iran's fiscal year, which starts on March 21. Based on the budget, Iran needs to take measures to withstand cheap oil prices for another five months until approval of a new yearly budget. Iran also can review its new budget bill, but the deputy head of Parliament's energy commission, Mohammad Saeed Ansari told Trend on Oct.29 that the government hasn't requested any review over the current budget bill yet.

Petchem sector

Iran can boost its petrochemical products export to compensate for the drop in crude oil revenues because the petrochemical products export shares about 28 percent of its non-oil exports (including gas condensate). Iran exported about $7.6 billion worth petrochemical products during the last seven months, indicating an 18 percent increase compared to the same period in last year. But regarding this fact the Iran's gas consumptions tripled during last week and it's expected to reach from the current 350 million cubic meters per day (mcmpd) to 450 mcmpd in winter. It is impossible for Iran to supply more gas to petrochemical plants in the coming months due to long-term gas shortages in the cold seasons, despite the surplus capacity in petrochemical units.

National Iranian Petrochemical Company's Managing Director Abbas Sheri Moqaddam said on Oct.28 that the country’s annual petrochemical production capacity is 60 million tons, but the current production is about 40 million tons.

Tax revenues

Iran's tax revenues stood at 330 trillion rials (some $10 billion) during the first seven months of the current Iranian year, starting from March 21, head of Iran's tax organization, Ali Askari said in late October.

However, according to budget bill, it was expected that the country's tax revenues reach $20 during the current fiscal year, so Iran's tax revenues haven't been realized.

Production sector

It seems the country exited from economic stagnation, despite about 9 percent economic contractions during the last two years. According to Iran's government, the GDP growth in spring was about 4.6 percent totally, while in the industrial sector this figure reached 10 percent. Iran can boost financing the industrial sector, including the auto sector, steel and cement production. However, Iran's total non-oil export increased by 19 percent during last seven months, while the share on commodities excepting the gas condensate and petrochemical products in this growth is only 2.5 percent.

It seems the only way in front of Iran is to economize in allocation budgets in some sectors, such as construction.

Iran also can use funds stored in national monetary funds like the National Development Fund. Iran has deposited 29 percent of oil revenues to this fund during the current year and before that, the fund's assets were about $54 billion. The Iranian government can get help from this fund's reserves to pass this sensitive stage.