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Is Iran ready for $70-barell crude oil?

05 November 2014 [16:41] - TODAY.AZ
By Umid Niayesh

OPEC oil basket price slipped to $80.64 per barrel on Nov.3, while this figure in mid-June was about $108.
Iran hasn't announced officially any figure for his crude oil prices, but Mehr news Agency reported in late October that Iran set its oil price at $86, while during last seven months, Iran's crude oil price was about $104 per barrel on average.
The Middle East country's yearly budget was based on $100-oil, while Iran reportedly offers discounts as well as free shipping services for his customers to restore huge drop in oil export level started on 2012 due to Western sanctions.
Iran's crude oil export increased from 2.5 million barrels per day (mbpd) in late 2011 to 1.07m bpd in late 2013, but after easing sanctions due to the interim nuclear accord obtained on November 24, 2013, Iran's crude oil increased, mostly because of soaring the natural gas condensate exports.
However, according to the Custom Administration's latest report published on Nov.3, Iran exported a barrel of gas condensate at about $76 per a barrel, while this figure for September, August and July were about $107.6, $101 and $84. The last month's figure are clearly below the global natural gas condensate price significantly.
Iran, of course increased its condensate export volume to 435,757 bpd in first 9 months of 2014 from about 170,000 bpd in the same time during last year, but it's crude export have not outgo from what recognized in budget bill in total.
According to the budget bill, Iran should export 1.3 mbpd of crude oil (including condensates) at $100 per a barrel. But according to Reuters' calculations, Iran's crude oil export to Asian markets was about 1.14 mbpd in January-September period. Iran sells oil to turkey as well, but it doesn't seem that the total oil export of Iran during the current year could outpace 1.3 mbpd.
The cheap oil not only affects Iran's revenues, but also has double impact on Iran's economy, because the budget law is written based on Iran's fiscal year which starts on March 21. Then Iran should take measures to withstand with cheap oil prices for further 5 months until approval of new yearly budget. Iran also can review new budget bill, but the deputy of head of Parliament's energy commission Mohammad Saeed Ansari told Trend on Oct.29 that government hasn't requested any review over the current budget bill yet.
Petchem sector
Iran can boost its petrochemical products export to compensate the drop in crude oil revenues, because the petrochemical products export shares about 28 percent of its non-oil exports (including gas condensate). Iran exported about $7.6 billion worth petrochemical products during last seven months, indicates 18 percent increase compared to the same period in last year. But regarding this fact the Iran's gas consumptions tripled during last week and it's expected to reach from the current 350 million cubic meters per day (mcmpd) to 450 mcmpd in winter, it is impossible for Iran to supply more gas to petrochemical plants during coming months due to long-going gas shortage in the cold seasons, despite being the surplus capacity in petrochemical units.
National Iranian Petrochemical Company's Managing Director Abbas Sheri Moqaddam said on Oct.28 that the country's annual petrochemical production capacity is 60 million tons, but the current production is about 40 million tons.
Tax revenues
Iran's tax revenues stood at 330 trillion rials (some $10 billion) during the first 7 months of the current Iranian year, starting from March 21, Head of Iran's tax organization, Ali Askari said in late October.
However, according to budget bill, it was expected that the country's tax revenues reach $20 during current fiscal year. Then Iran's tax revenues haven't been realized during 7 months of current fiscal year.
Productions sector
It seems the country exited from economic stagnation, despite about 9 percent economic contractions during last two years. According to Iran's government, the GDP growth in spring was about 4.6 percent totally, while in industrial sector this figure reached 10 percent. Iran can boost financing the industrial sector, including the auto sector, steel and cement production. However, Iran's total non-oil export increased by 19 percent during last seven months, while the share on commodities excepting the gas condensate and petrochemical products in this growth is only 2.5 percent.
It seems the only way in front of Iran is economize in allocation budgets in some sectors, like constructions.
Iran also can use funds stored on national monetary funds like the National Development Fund. Iran has deposited 29 percent of oil revenues to this Fund during current year and before that, the Fund's assets was about $54 billion. Iranian government can get help from this Fund's reserves to pass this sensitive stage.

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