You are here: Home » Opinion » Breakingviews
Business Standard

Crude pain

Una Galani 

Iran’s sanction pain is just beginning. Oil revenue in the Islamic Republic may have fallen by nearly one third, or $35 billion, on the back of a slowdown in exports and declining prices. With US sanctions set to tighten and China’s apparent readiness to go along, Teheran’s budget could be thrown deep into the red.

Sanctions are squeezing hard. The harshest of the US and European measures don’t formally kick in until the end of the month. Yet crude oil exports have already fallen to 1.5 million barrels per day (bpd), according to industry sources, compared to 2.5 million bpd last year.

With an average price of Brent crude for the year to date at $121, Iran might generate $67 billion of oil revenue this year with the current level of exports, compared to an estimate of more than $100 billion last year.

This can only get worse. The International Energy Agency expects Iran’s exports to fall another third. Chinese state-owned refiner Sinopec surprised this week when it said it would buy 20 per cent less Iranian oil this year and pointed out that it had rebuffed discounts from Teheran.

US sanctions are also designed in a way that keeps up the pressure.

Buyers of Iranian oil are expected to continue scaling back their imports even after they have made an initial cut. And, Iran’s total oil revenue for the year will be even lower after taking into account the discounts Tehran is offering to shift its crude.

A few months earlier, the International Monetary Fund forecast Iran’s 2012 fiscal deficit at 0.2 per cent of GDP, with exports at 2 million bpd. To balance the budget, the fund reckoned Iran would need $117 per barrel. Tehran’s own numbers are different, with a break-even at just $85 per barrel.

Either way, Iran would need to sell its 1.5 million bpd at $185 per barrel to generate the same level of export revenue as last year, according to a rough calculation. Official foreign reserves, estimated at $113 billion, can help finance the deficit, but spending cuts are already being implemented and the risk is that inflation rises even higher if the central bank is called to the rescue to print money. With an economy already suffering from low growth, Iran will find life in the red zone especially painful.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, June 14 2012. 00:14 IST
RECOMMENDED FOR YOU