Oil revenues are higher than the approved budget

Reuters

Iranian Oil Minister Bijan Zanganeh talks to journalists before a meeting of OPEC oil ministers at OPEC's headquarters in Vienna December 4, 2013.

Article Highlights

  • One of the key questions that must be considered when gauging stability is whether the price of oil is sufficient for Iran to meet its budget.

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  • The Iranian economy is dominated by oil.

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  • What Tehran does with its surplus will reflect a great deal on both the internal power and character of the new leadership

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The Iranian economy is dominated by oil. While the country also exports carpets, pistachios, and caviar, petroleum comprises 80 percent of Iranian exports. The problem for successive Iranian governments is that while the budget depends on oil revenue, it is impossible to know the price of oil a year in advance of when parliament is putting together the budget. Indeed, one of the key questions that must be considered when gauging stability in and around Iran is whether the price of oil is sufficient for Iran to meet its budget for social services and subsidies. The fact that in Iran’s statist system oil supports the treasury more than customs or tax income simply adds to the government’s financial uncertainty.

If the price of oil falls below the level at which the budget is set ($92 per barrel this year), then either the Iranian government risks domestic unrest or it must come up with a way to increase the price of oil. Threats leveled on the international stage or sponsorship of unrest in the Persian Gulf often are sufficient to create a momentary spike in oil prices.

According to the article excerpted, the price of oil has remained significantly above the level at which Iranian officials set their budget. This means that the Iranian government will have excess cash at its disposal. What Tehran does with its surplus will reflect a great deal on both the internal power and character of the new leadership: if the government invests its windfall profit into its nuclear and ballistic missile program, that would indicate either that newly-elected president Hassan Rouhani is not so much of a reformist as he and his supporters claim, or that he does not have the power to change substantially the character of the Islamic Republic. If, however, he applies such money to restore and diversify Iran’s moribund economy, then it would suggest that he is serious about fulfilling some of his campaign pledges.

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