Iran expects oil prices at five-year lows will put “short-term pressure” on the government’s budget even as it strives to contain inflation, President Hassan Rouhani said.
Crude prices have declined about 40% from a June peak amid overproduction and slower demand growth.
The Organization of Petroleum Exporting Countries decided on November 27 to maintain its production target, prompting a drop in European benchmark Brent crude to less than $70 a barrel for the first time since May 2010.
“The price of Brent has fallen from $110 to less than $70, a decline little before seen,” Rouhani said yesterday in a speech to the country’s parliament in Tehran, according to the semi-official Iranian Students’ News Agency. “It’s necessary for next year’s budget to be adjusted with caution.”
The plunge in crude comes as international sanctions imposed on Iran over its nuclear program are already curtailing crude exports, the Persian Gulf nation’s main income source.
Iran agreed last month to extend negotiations intended to limit its nuclear work in return for an end to sanctions, which constrain the country’s exports to about 1 million barrels a day.
The new deadline for the talks is July 1.
“It looks very, very tough,” said Robin Mills of Manaar Energy Consulting. “Even after sanctions are lifted, we still might be in for a couple more years of lower oil prices. They’ve got to plan for the long haul,” said Mills, who worked in Iran as a geologist for Royal Dutch Shell Plc in the 1990s before heading Dubai-based Manaar’s consulting business.
The country’s new budget will cover the Iranian calendar year beginning March 21, 2015.
Iran will need to rely on non-oil exports for growth and its inflation rate will slow to less than 20% by March 2015, Rouhani said, according to the ISNA report.
Inflation slowed to 23% in the 12 months ending August 22, according to data from the nation’s central bank.
The $311 billion spending plan represents a 4.3% increase over this year’s budget, the oil ministry’s news agency Shana reported on its website.
Iran is basing next year’s budget on an average oil price of $72 a barrel, Rouhani said yesterday, according to state-run Islamic Republic News Agency.
Crude “shows signs of further decline over the days ahead,” Mohsen Qamsari, director for international affairs at state-run National Iranian Oil Co., said in an interview with Shana.
He declined to give a price forecast, according to the report.
Oil may continue to trade at about $65 a barrel for the next six months, Kuwait Petroleum Corp. Chief Executive Officer Nizar Al-Adsani said today at a conference in Kuwait City.
European benchmark Brent crude and US West Texas Intermediate both closed at the lowest per-barrel price in five years on December 5, according to data compiled by Bloomberg.
Brent extended its decline today, falling as much as $2.30 a barrel, or 3.3%, and trading at $66.87 as of 12:10 p.m. in London. WTI slumped to $64.16 in New York.
The government had assumed $100 a barrel in the budget for the current Iranian year, which ends March 19, Gholamreza Tajgardoon, head of the parliament’s planning and budget commission, told ISNA on December 2.
The drop in prices meant the country will have to “limit spending,” he said.
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