2015-16 Budget May Be Based on $70 Oil

2015-16  Budget May  Be Based  on $70 Oil
2015-16  Budget May  Be Based  on $70 Oil

The break-even price for the coming Iranian year's (Starting March 2015) budget might be around $70 a barrel, Mehr news agency quoted an official in the oil ministry as saying. Yet, oil prices are not decided for the coming year's budget, the official added.

The prices at which the governments of oil-producing countries balance their budgets – known as fiscal break-even prices – are looked at closely as one important metric by which to assess a state’s fiscal vulnerability to oil price swings. In theory at least, if the break-even price is higher than the market price, the budget cannot be balanced.

Break-even oil prices are created through a complicated combination of the following variables: oil production costs, population size, domestic demand for petroleum products, how much the country produces and exports, royalties and taxes, exchange rates, non-oil revenue as well as government expenses.

Their range gives us a sense of each country’s fiscal strength. While stronger economies such as Saudi Arabia and Kuwait have lower break evens, weaker nations such as Venezuela have much higher ones.

Iran's budget needs oil prices well above $100, among the highest in OPEC. Analysts suggest that the break-even price for Iran in order to balance its budget is $140 a barrel.

This year's budget was based on an oil price of $100 a barrel, with the level of exports set at 1.4 million barrels per day (mbpd). According to the oil ministry's figures, Iran exported 0.1 mbpd less than the figure envisaged in the budget, Masoud Mir-Kazemi, the head of energy commission in Iran's parliament and former oil minister told Mehr news agency on Oct.17. This signifies that the recent slump in oil prices could lead to budget deficit for the country.  

The planning and budget commission of the parliament (Majlis) held an emergency meeting on October 18 to discuss the falling trend of oil prices in the global market and its impact on Iran’s budget law. Oil minister Bijan Namdar Zanganeh also attended the emergency meeting, Shana news agency reported. The commission’s members decided that there is no need to amend the budget law, and possible budget deficit could be managed without any amendments to the budget.

Global Reaction

Other members of the Organization of the Petroleum Exporting Countries (OPEC) have reportedly based their 2015 budget on oil prices between $60 and $80 per barrel.

Nigeria is proposing an oil price benchmark of $78/barrel for the purposes of revenue calculations in its 2015 budget, amid concerns over falling oil prices in the international market. The 2015 oil price benchmark is slightly higher than the $77.50/b price for the current 2014 budget.

Venezuela's 2015 budget will be based on a target oil price of $60 dollars per barrel, President Nicolas Maduro said on Friday, but he repeated expectations that prices will recover. Venezuela routinely underestimates oil prices when planning its budget to permit more spending later with fewer budget restrictions. The OPEC country's 2014 budget proposal also put oil prices at $60 dollar.

Non-OPEC oil producing countries have also reacted to the falling oil prices. Azerbaijan has calculated next year's budget based on an oil price of $90 per barrel, down from $100 this year, and predicted a significant fall in the sector's contribution to gross domestic product.

Russian President Vladimir Putin has said that the current low oil prices are “no tragedy” for the Russian budget, stressing that they may soon see an upward correction. Putin stated that some corrections to the budget may be made, but that welfare spending won't be affected.