December 2, 2008 / 10:37 AM / 9 years ago

Iran eyes budget based on oil at $45/barrel

4 Min Read

TEHRAN (Reuters) - Iran's government and a parliament committee have an initial agreement to base next year's budget on an oil price of $45 a barrel, lower than previously suggested as crude prices have tumbled, a newspaper said on Tuesday.

But one senior lawmaker in Iran, the world's fourth largest oil producer which depends heavily on oil revenues, said even a figure of $45 was too high and no more than $35 would be more realistic for the 2009/10 budget, the daily Poul reported.

Economists say Iran's government, which has enjoyed windfall oil earnings in recent years, would likely have to cut spending next year when President Mahmoud Ahmadinejad is expected to run for re-election, unless crude prices rebound to $80 or so.

Benchmark U.S. crude has tumbled by about two-thirds since a July peak, trading below $48 a barrel on Tuesday as demand from big Western consumers has shrunk amid a world economic slowdown. Iranian oil tends to trade a few dollars below U.S. crude.

"Based on views proposed in the last committee meeting, members of the committee and government representatives reached preliminary agreement to base the budget on an oil price of $45 (a barrel)," Hassan Vanaie, member of parliament's planning and budget committee, said, according to Poul.

A government official said in October Iran was planning for an oil price of $55 to $60 in the 2009/10 budget that starts in March, but oil prices have continued to slide since then.

The oil price set for Iran's budget indicates government expectations but does not give a full picture.

Economists said last year's budget was officially based on a price of about $40 a barrel but, when withdrawals from an oil revenue reserve fund and other crude-related earnings were taken into account, the state needed $70 or more to balance its books.

Economists say in 2009/10 the oil reserve fund, called the Oil Stabilization Fund, will have less cash to tap.

That will likely mean investment in projects that have been a centerpiece of Ahmadinejad's pledge to spread wealth to the poor could face cutbacks. This will not be welcome news ahead of the 2009 June presidential election, analysts say.

The budget runs from March each year.

Hamidreza Katouzian, head of parliament's energy committee, said the government should prepare for much lower prices than previously expected because of rapidly falling world oil demand.

"My personal view is that the (2009/10) budget should not be based on more than $35 (a barrel) but many lawmakers believe this figure can be between $30 and $40," he said, according to Poul.

His remarks were echoed by an editorial in another economic daily, Sarmayeh, which said the budget should be based on no more than $35 a barrel.

The government has been seeking to reduce subsidies, a heavy drain on state coffers, including discussing utility bill hikes.

Fuel rationing was introduced last year, letting drivers buy 120 liters of gasoline a month at the subsidized price of 1,000 rials (10 U.S. cents) a liter. Any extra costs 4,000 rials a liter.

Asked if the government would lower the so-called free market gasoline price because of the fall in crude prices, Oil Minister Gholamhossein Nozari said: "We have no plan to change the price of free market gasoline, it is a fair price."

His comments were published by Etemad newspaper.

Reporting by Edmund Blair and Parisa Hafezi; editing by Stephen Nisbet

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