Financial squeeze has Iran debating oil price reduction to boost exports
With insufficient income to cover the monthly expenses of the Iranian state, a dispute has erupted among Iranian officials over a proposal to reduce the price of Iranian oil to boost dwindling oil exports.
Since this January Iranian oil exports have dropped from 1.1 million barrels a day to a bare 700,000 daily. With more than 90 percent of Iranian state income derived from oil exports, a mere $3.9 billion currency reserves remaining , and the world market flooded with Saudi oil at $32 a barrel, Iranian government economists have recently urged a $2 price reduction for Iranian oil -- now selling $37 a barrel plus a $1.80 premium.
Despite the central bank's private lobbying for price reductions, its director recently described the $37 price mark as "one of the achievements of the Islamic revolution."
Government spokesman Behzad Nabavi, defending Iran's present oil policy, further claimed that former President Abolhassan Bani-Sadr was responsible for Saudi attempts to force price stabilization within the Organization of Petroleum Exporting Countries (OPEC) at $34 a barrel. By publicly revealing secrets of iran's economy, Mr. Bani-Sadr had enabled the Saudis to take advantage of Iran's problems, Mr. Nabavi said.
The Iranian press charged last month that "the usually cautious Saudis are engineering a showdown within OPEC to destroy any influence countries like Islamic Iran may have on oil prices. Working for and with the US, the Saudis are pricing Islamic Iran out of the market in order to cripple its economy."
Iranian oil experts concede that the Saudi- engineered oil glut and Saudi low prices are responsible for the decline in Iranian exports.
Iran's present monthly revenues from oil exports, estimated to be $700 million, fall far short of covering Iran's monthly $1.2 billion in expenses. The Gulf war is costing Iran $4 million a day, plus damages caused by fighting.
A recent unpublicized Iraqi bombing of Iran's most important domestic oil pipeline has further aggravated the situation. The Islamic republic is now forced to import 50 percent of its domestic oil consumption -- estimated to be 600,000 barrels a day.
On June 19 Iraqi fighter planes attacked the Izeh pumping station along the newly Italian-built crude oil pipeline from Marun in the embattled southern oil province of Khuzestan to the refineries of Tehran and Tabriz. The Iraqis destroyed two oil pumps, leaving Izeh with only one pump operational.
Since that attack Iraq has twice flown reconnaissance missions over the area. Iraq's Air Force has in past weeks remained largely unchallenged in Iranian skies because Iran's fundamentalist clergy, afraid of a possible coup, has kept the Air Force virtually grounded since mid-June.
With the Abadan oil refinery already badly damaged in the early stages of the war, the closing of the refinery in Khermanshah, the temporary stoppage at Tabriz, and the recent Iraqi air attack, production for domestic consumption has dropped to less than 300,000 barrels a day. Observers believe Iran is importing military supplies from Singapore.
Further, with at most 45 percent of its industrial capacity being utilized, a projected negative growth for this year of 5 percent, inflation officially at 27 percent, unemployment at 4 million, and prices of staples having doubled and tripled since the revolution, diplomats in Tehran believe that Iran's fundamentalist regime has three months to radically improve the situation.
At the same time these diplomats point out that Iran's authorities find economic decisions the hardest to take. Within the fundamentalist movement, every shade of economic ideology from state capitalism to private enterprise is represented.
Iranian officials indicate that should the cash squeeze really begin to hurt, "We will still be able to do transactions in gold." The International Monetary Fund e stimates that Iran owns 135 tons of gold.