Economy, Domestic Economy

Oil Not a Reliable Revenue Source

Oil Not a Reliable Revenue SourceOil Not a Reliable Revenue Source

Oil prices in international markets have drastically decreased, registering a four-year record low. The fall in price was predictable but the scale of such freefall took everybody by surprise, wrote Mohammad Tabibian, a Tehran-based economist, in an article in Donyay-e Eghtesad newspaper on Tuesday.

Until recently, oil in future contracts for 2016 was priced at $75 to $90 per barrel; however, on November 30, the future contracts were priced at about $67 per barrel. This shows the shaky future of the oil market.

There are strong indications that the oil market will face lower demand in the future. Possible stagflation deemed to engulf emerging economies such as India and China – traditionally oil consuming countries – and the bleak future that is anticipated for Europe’s economy are among indicators showing that oil is going to lose the appeal it was once holding.  

On the other hand, the rise of oil supply by the US, made possible as a result of the new extraction method (known as fracking),  as well as new excavations authorized by the US administration to be made in the Gulf of Mexico are both expected to lead to a drop in oil demand worldwide.

Recently, Lockheed Martin claimed that it has developed a promising design for a compact nuclear fusion reactor, which according to the company, is expected to transform the life of the mankind. Although the claim was met with skepticism and denial, in the event it comes true it will put at stake the oil’s significance as well as the interests of oil producing and dependent countries.

What can be concluded from all such developments is that oil is no longer considered a reliable source of revenue and that oil prices are likely to plunge further in the years to come.

This, plus the downward trend in the stock exchange and the current turmoil in the currency market have further shaken the country’s economy. The later resulted from the nuclear talks which were extended after the parties engaged in the negotiations failed to reach a “permanent” settlement to end the standoff over Iran’s nuclear energy program by a November 24 deadline.

Back on November 18, Bloomberg published an analysis in which it claimed Tehran was more optimistic than the West about a nuclear deal, suggesting that one cannot really expect anything effective to be done on the part of the West. Although the ongoing talks and the removal of sanctions are very important for the country’s economy, and the government’s historic attempt in this regard is laudable, the talks are to produce the desired results only when the parties engaged in the negotiations optimize their aims from the negotiations.

What can be concluded is that the government should not overlook the economic potential at home.

Relative stability prevailed the market as a result of the government’s economic policies. However, the recent fluctuations in the currency and stock market shows that people’s expectations regarding the economy are shifting.

Given that Iran’s economy, battered by excessive liquidity, stagnant manufacturing and investment, is potentially ready for an economic outburst, it is necessary for the government to pay more attention to macro- and microeconomics.

Statistics shows that liquidity increased in the first quarter of the current year compared with the same period last year. Meanwhile, the government is weighing how to set the price for the dollar in the next year budget draft. Any price set below the current market rate will allow rent-seekers to take advantage of the difference between the market rate and the official rate of the dollar.

Another problem facing Iran’s economy is the value-added tax (VAT) which is anything but real tax as it has been damaging the manufacturing sector in the country.