Oil Dependency in New Budget Is Unwarranted

EghtesadOnline: Return of normalcy to Iran’s oil export after US president-elect Joe Biden takes office in January and eases the economic siege is way off, a deputy head of the Iran Chamber of Commerce, Industries, Mines, and Agriculture's Exports Commission said.

News ID: ۷۵۱۶۴۸

06 December 2020

“There is no consensus among officials about the future of US sanctions and the Joint Comprehensive Plan of Action [the 2015 Iran nuclear deal]. Even if the incoming US administration eases the path for Iran's return to the oil market, when that would happen in not clear,” Hamidreza Salehi was quoted as saying by ISNA.

Under the current circumstances and given the destruction that Covid-19 has unleashed on oil demand and prices, contemplating that “the world is waiting for Iranian oil is wishful thinking,” Salehi warned.

Referring to the March 2021-22 budget bill sent to parliament on Wednesday, he noted that oil and gas condensate export for the year is forecast at around 2 million barrels per day -- a figure too good to be true.

The government, he said, is of the view that petrodollars will again start flowing as it has forecast oil and oil byproduct revenue at $9 billion next year.

The share of oil revenue in the budget has been one of the forever contentious issues in political and economic corridors, he recalled. It is almost impossible to accurately predict oil revenue when drafting the budget and “even optimistic forecasters and analysts in Iran cannot imagine exporting 2 million barrels of crude a day from March 2021”.

There is no denying that oil and gas production is key to Iran’s economic growth and stability. Nonetheless, what has been projected in the new budget “is unrealistic” to say the least.

Iran and the world are waiting to see how the Biden administration will proceed and “the road to a new and multilateral US-Iran reengagement will be long and arduous”.

Immediate Challenge

The immediate challenge, the ICCIM official added, for Washington and Tehran will be domestic. “Biden and his team will take months to craft a constructive Iran policy while nothing major is likely to happen in Iran before the June 2021 presidential elections.”

Regarding other factors restricting oil sales, Salehi said many countries embarking on measures to shift away from fossil fuels.

“Oil demand growth slows because demand for diesel and gasoline nears a plateau as high fuel efficiency standards are imposed on combustion engine vehicles and electric vehicles hit the market.”

Global attention is increasingly focused on the need to accelerate clean energy transition to mitigate the risks of climate change. Given its huge emission footprint, the energy sector – including the oil and gas – is at the heart of the global discourse on ways to cut greenhouse gases.

Demand growth for gasoline and diesel between 2019 and 2025 is set to weaken further as more countries introduce policies to improve efficiency and cut CO2 emissions while investing billions in electric vehicles.

The impact of boosting clean energy on the future fossil fuels is not very clear with many companies prioritizing short-cycle projects. To date, announcements by oil majors on reducing CO2 emissions have tended to focus on long term objectives. Nevertheless, investors continue to ratchet up pressure on the industry to sharpen focus on sustainability issues while environmental activists, especially in Europe and North America, push for scaling back new oil development projects.

Referring to another hurdle, the official noted that not complying with norms of the Financial Action Task Force, the international anti-money laundering watchdog, has undermined Iran’s access to international banking and financial services. “Even if the National Iranian Oil Company is able to export oil, revenues will be locked outside the country”.

At its October plenary session, the FATF said Iran along with North Korea will remain on its list of “high-risk jurisdictions”.

“This has created problems for our economic and financial relations with the outside world including with friendly countries like China and Russia.”

One bitter reality is that the global economy has moved on without Iranian oil and pinning hopes on ending the US blockade in the near future and selling oil as in the past will not be a panacea.