Iran considers reducing dependence on oil to zero

Shaimaa Hefzy

Head of Iran’s Plan and Budget Organization Mohammad-Bagher Nobakht said on Sunday that the new reforms in the structure of the country’s budget aim at cutting direct dependency on oil revenues to zero.

He made the announcement at the first session of drawing up the budget structure for the next Iranian fiscal year (starting on March 20, 2020).

“Given the difficult times of sanctions, we will be losing a considerable amount of budget resources; therefore, it is necessary to make sure that the reforms in the budget structure for the next year will be able to cut down direct dependency on oil revenues to zero,” Mohammad-Bagher Nobakht, the head of Iran’s Plan and Budget Organization, said.

The official also admitted the government would need to restructure its budget to reduce oil’s weight in it even without sanctions.

The head of the energy commission at Iran’s Chamber of Commerce commented, as quoted by the Financial Tribune that “It is regrettable that the country has continued to repeat the same mistake for the last seven decades. Instead of squandering oil revenues on current expenditure, it should be invested in infrastructures.”

In the latest budget approved by the Iranian government last December, revenues from oil exports were calculated at US$21 billion. This would constitute a third of the budget for the 2019/2020 financial year that started this March. A third is not an overwhelming portion of the budget that relies on a single commodity. However, the US$21-billion figure was possibly too optimistic.

The figure assumed an average price for Iranian oil of between US$50-54 a barrel. That’s cautious enough but it also assumed average daily exports of 1-1.5 million barrels. After the removal of sanction waivers for Iran’s largest oil buyers, most sources agree that Iran is exporting a lot less than that.

Estimates of Iranian exports vary, with Reuters pegging the July average at as little as 100,000 bpd, based on information from an unnamed industry source and tanker data. According to one energy analyst who Reuters also quoted at the end of July, Iran had capacity to only export 225,000-350,000 bpd during last month.

Iran has vowed to continue to export despite US sanctions. The Iranian President and other officials have threatened to disrupt oil shipments across the Strait of Hormuz if Washington tries to stop Iranian oil exports.