Economy, Domestic Economy

Oil Price Scenarios in 2015-16 Budget

Oil Price Scenarios in 2015-16 BudgetOil Price Scenarios in 2015-16 Budget

The issue of oil price in Iran’s next budget (stating March 22) is still a source of controversy among  business leaders, statesmen and lawmakers as falling crude in the international market is taking a devastating toll on Iran’s economy.

The government of President Hassan Rouhani has based its budget bill for the next fiscal year on an oil price of $72 per barrel. However, economists believe that with further plummeting of oil prices to less than $50 per barrel, the government’s overestimated pricing of such a strategic commodity is likely to create a huge budget deficit.

To avoid that, economists argue that oil prices in the next year’s budget bill should be set with a more realistic evaluation of the international oil market – itself heavily influenced by political volatilities.

“As for the oil price in next year’s budget, two different scenarios could be envisaged,” according to Secretary of Expediency Council, Mohsen Rezaee.  “One being the government’s oil price estimation of $72 per barrel, and the other being the $50 per barrel estimation, which is more realistic.”  

The oil price which had fallen by more than 56 percent from its peak of $114 per barrel in mid-June, further plunged to less than $50 per barrel last week. The oil exports account for about 31.5% of Iran’s state revenues and more than 80% of the country’s total export earnings.

If the oil price slumps to half of what the government has considered in its budget (i.e. $72 per barrel), the administration is expected to lose 300 to 350 trillion rials ($11.1 - $12.9 billion at official exchange rate) of its revenues and will be obliged to compensate the deficit through cutting its current capital expenditures and offering the government-owned assets to the market. Experts say it is an inevitable scenario since the government’s budget is largely dependent on the oil income. The solution, experts argue, is for the government to reduce its dependence on oil revenue and turn to production and non-oil export instead.