Economy, Business And Markets

SMEs Seen as Viable Option to Oil

SMEs Seen as Viable Option to OilSMEs Seen as Viable Option to Oil

The government should move toward supporting small and medium-sized enterprises in order to improve the manufacturing sector, said Rahim Zare the speaker of the Parliament’s Economic Commission. Backing SMEs will help create jobs and at the same time reduce the economy’s overdependence on oil income.

Moving toward manufacturing non-oil goods for export could be a substitute for oil dependence, according to the MP. Under the present conditions the government “has little option but to revive the stagnant economy by supporting manufactures.”

Pumping money into SMEs “is the key to strengthening production and higher production by small businesses means more income for them and in turn higher tax revenues for the government,” he was quoted as saying by IRNA.

The legislator pointed to decades of the oil-dependent economy saying that the low prices of crude oil in the international market are indeed warning signs for the government. The $40 oil price projection in next year’s budget is not “feasible,” he said, and urged the government to find a substitute for the oil receipts. The present trends (relying largely on oil) simply “translate into deeper budget deficits and the near impossibility of completing development projects.”

Another solution to the problem of oil dependency would be to “upgrade and expand the petrochemical industry which generates added value. It also helps us move away from selling crude oil which is cheaper than its processed derivatives,” the lawmaker added.

He pointed to plummeting oil prices in 2015 with the OPEC basket price hovering around $31.50 and warned that further decline in prices may well be ahead. “The price could go as low as $25 and at that point drilling for oil would be no longer feasible.”  

The production cost of crude oil in Iran averages around $15 per barrel, and the breakeven cost for developing a new oil field is said to be $30 per barrel.