Oil Plunge Takes Toll on the Masses

Oil Plunge Takes Toll on the Masses Oil Plunge Takes Toll on the Masses

The continued oil plunge is inflicting a monthly loss of 900,000 rials ($25.7 at market rate) on Iranian citizens, a figure which is twice the per capita cash subsidy they receive monthly from the government, Eghtesad News estimates show.  

According to the report, although officials claim they would be able to manage the budget even with an assumed base price of $25 a barrel for oil, estimates indicate it might not be the case, as even a drop to $40 – the oil price suggested by the economy minister for next year's budget -- can give rise to huge losses.

Since the effects of the drop in oil prices will be reflected in different sectors of the economy, including foreign exchange rate, GDP growth, and inflation, it is not possible to precisely calculate the costs the national economy will incur as a result, the report noted. However, "a rough prediction of the amount of losses is somewhat possible."

According to unofficial statistics attributed to the oil ministry, Iran exports 1.07 million barrels of oil (bbl) a day, said the report. Given that crude oil prices have fallen by average $60 to $45 from June's $105 highs, it can be said that on average the country has lost $64 million a day as a result of the sharp decrease in the oil price.

"If we multiply this amount ($64 million) by 35,000 rials (USD's base market exchange rate) and then divide the result by Iran's population (77 million according to 2013 census), the result will show the per capita loss caused by the decline in oil prices, which is 30,000 rials a day," writes Eghtesad News.  

However, the amount will be higher if official statistics are used in calculations, as "according to the latest reports on the central bank's indicators, exports of oil and its products in the last quarter of the previous Iranian year (ended March 2014) stood at 1.57 million barrels a day," said the report.

 In this case, the estimated loss for every single citizen would be 43,000 rials a day, making up a per capita monthly loss of 1.2 million rials ($36.5 at market rate).

The report also says the recent freefall will bring higher losses for oil-rich countries, like Saudi Arabia, that exports 7 million bbl of oil a day. "Given its population of 28.8 million (2013), Saudi Arabia loses 420 million dollars every day as a result of the decrease in oil prices, making a per capita loss of $437 on a monthly basis.

The report notes, however, that cash subsidies comprise only a part of the government's oil revenue spending. "A major part of oil revenues is deposited in the National Development Fund of Iran (NDFI)," it says, adding that the rest is channeled into the National Iranian Oil Company for financing the oil and gas projects in line with the commitments made by the company to its contractors, among other things.

Global oil prices have tumbled almost 60 percent since June, hitting near six-year lows as growing production and tepid global demand has caused a supply glut and prompted oil producers to scale back spending.