Iran: High Time to End Budget Dependency on Oil Revenues

EghtesadOnline: Delinking current expenditures from oil revenues must be given high priority, the head of Energy Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture said.

News ID: ۷۴۷۷۶۱

06 July 2019

"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," Ali Shams Ardakani was quoted as saying by the Persian-language daily Arman.

According to the ICCIMA official, oil and gas are not a means of generating income, as these are national resources that belong to future generations.

Drawing an analogy between Iran and Turkey, he said daily energy consumption in the former is almost equal to the energy produced by burning 5 million barrels of crude oil, while the latter's total liquid fuel consumption averaged about 860,000 barrels per day in 2015, according to Financial Tribune.

Turkish subscribers are charged 25 cents as tax for each liter of fuel.

In the past four years, the price of gasoline has not changed whereas tariffs for electricity and gas have risen on a regular annual basis.

Criticizing Iran’s Management and Planning Organization, Ardakani noted that oil revenues should be invested in the critical scientific and petrochemical sectors.

"The revenue will be wasted unless it is reasonably spent on expanding manufacturing industries that will not only generate income, but also help create jobs," he said.

Painful Experience

Highlighting previous painful experiences, Ardakani said that the former government headed by president Mahmoud Ahmadinejad sold $800 billion of crude that was $63.5 billion more than the revenues earned by the country in the previous century, “almost all of it was squandered”.

The MPO, dissolved in 2007 by Ahmadinejad, was revived by President Hassan Rouhani and is in charge of the government’s fiscal planning.

"Promoting the notion that oil revenues are meant to go into people's pockets is exploiting their ignorance and gullibility. These incomes are assets that should lead to boosting investments," Ardakani said.

Iran launched Subsidy Reform Plan under the tenure of Ahmadinejad in 2010. The plan cut subsidies on food and energy, and replaced it with monthly cash payments of 455,000 rials (currently around $3.5) per person.

According to reports, around 70 million people are currently receiving the cash subsidy that cannot even purchase even 1 kg of red meat.

OPEC Agreement

Referring to the recent agreement between OPEC and non-OPEC members, Ardakani said the deal to extend oil output cuts to raise prices will benefit the National Iranian Oil Company.

Iran is heavily dependent on oil revenues and reduction in oil prices will adversely affect its economy, the growth of which has already been weakened due to the US Sanctions.

OPEC and its allies led by Russia agreed to extend oil output cuts until March 2020 last Tuesday to prop up the crude price, as the global economy has weakened and US production soars.

"Preserving the Organization of Petroleum Exporting Countries for the time being is in line with Iran's national interest," he said.