Iran Feels the Pinch as Oil Export Loss Reaches $10bn
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Tough Western financial sanctions aimed at forcing Iran to abandon its nuclear programme have already taken its toll on Tehran’s state finances. Iran’s crude exports are down by about 600,000 barrels per day, and estimates suggest that Iran have lost more than $10 billion in oil revenues this year.
In an indication of how successful the Western blockade has been, Iran’s oil output has sunk to its lowest levels in 20 years with crude shipments expected to drop further when a European Union oil embargo takes effect on July 1.
Tough Western financial sanctions aimed at forcing Iran to abandon its nuclear programme have already taken its toll on Tehran’s state finances. Iran’s crude exports are down by about 600,000 barrels per day, and estimates suggest that Iran have lost more than $10 billion in oil revenues this year.
In an indication of how successful the Western blockade has been, Iran’s oil output has sunk to its lowest levels in 20 years with crude shipments expected to drop further when a European Union oil embargo takes effect on July 1.
From July 1, Morgan Stanley expects Iranian exports to fall by a further 150,000 bpd while the International Energy Agency has said it could almost halve by 1 million bpd.
As oil prices fell below $100 a barrel last week amid a bleak global economic outlook, Iran is expected to see a huge drop in its oil revenues this year.
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According to the International Monetary Fund, Iran needs to sell oil at $117 per barrel to balance its budget, set at $462 billion. President Mahmoud Ahmadinejad has said the budget was designed to decrease Iran’s dependence on oil revenues.
Reuters reports that Iran is undergoing what the government has called “major economic surgery”, in the form of cuts to the multi-billion dollar subsidies which for years have held down the prices of essential goods. As a result, Iran’s official inflation rate has more than doubled from the past year, reaching 21.5 percent.
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Mehdi Varzi, a former official at the National Iranian Oil Company, told Reuters:
[quote] This is an act of economic warfare. The sanctions are having a big effect in cumulative terms: Iran is being locked out of the global financial system. [/quote]
However, Varzi pointed out that “it does appear that Iran is more amenable to negotiations now than it was a year ago.”
“The West should take advantage of this momentary situation to offer more meaningful concessions – a road map to where this will all end,” he said.
Diplomats and analysts are hopeful that Iran may offer the International Atomic Energy Agency increased cooperation as a bargaining chip in its negotiations with world powers, which are set to resume in Moscow next week.
Several Iranian oil officials have admitted that sanctions have hurt its export market, but Ahmadinejad defiantly declared in April that Iran has “so much hard currency as we need and the country will manage well even if we don’t sell a single barrel of oil for two or three years.”
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