Iran’s oil minister, Gholam-Hossein Nozari, said yesterday in Tehran that Opec should pursue “stability” and that consumers would suffer if oil prices did not return to a “logical level”.
Nozari stopped short of confirming that Iran, traditionally a price hawk, would press for output reductions at next month’s emergency Opec meeting in Vienna. But the minister was reflecting Iranian concern over crude prices falling by 17% in a week.
The International Monetary Fund will next week report that any oil price below $90 a barrel – on the IMF’s World Economic Outlook (WEO) benchmark – will create a 2008 fiscal imbalance for Iran, where president Mahmoud Ahmadinejad is pursuing expansionary policies.
The figure is to be released on October 20 in a Regional Economic Outlook, with this “break even” figure for Iran far higher than for its Arab neighbours in the Gulf Cooperation Council.
In August, the IMF suggested in its annual Article IV that a price below $75 for Iranian crude – which has a 10-15% discount on the WEO benchmark – would lead by 2010/11 to a current-account deficit that Iran could not sustain because of its “limited access to international financial markets” due to sanctions.
The Iranian reaction to turmoil in international markets has been characteristically muted, although Iran’s Opec governor, Mohammad Ali Khatibi, said last week that the financial crisis was “deeper than we expected [and] definitely influencing world oil demand”. Khatibi added that there was no slackening of demand from Asia, where Iran has its main markets.
IMF officials bemoan a lack of transparency in Iran’s accounts – including its windfall oil fund – as its fiscal and monetary policies become intensely politicized. Ahmadinejad has been at loggerheads with some senior officials as he increases spending before a presidential election next June when he hopes to win a second term.
Ahmadinejad recently appointed a new central bank governor, Mahmoud Bahmani. He replaced Tahmasb Mazaheri, who had locked horns with the president over bank lending rates. At Ahmadinejad’s behest, these have been kept well below inflation, which reached 27.6% year-on-year in the Iranian month ending on August 20.
In a valedictory speech, Mazaheri launched a blistering attack on Ahmadinejad’s expansionary polices. He said that the “central bank asset”, a reference to the windfall Oil Stabilisation Fund (OSF), was being “looted”, and that the government should be “barred from raiding” it.
OSF coffers have become shrouded in mystery during the past year. An official at the IMF said: “No one seems to have any hard information. [Iranian] press reports suggest the OSF has gone down to $7 billion.”
A leading economics analyst in Tehran said it was lower, despite record levels of oil revenue in the past year. “The government has made so many commitments that I do not believe the OSF can contain more than $4-5 billion”, he told Emerging Markets.
In August 2007, Mohammad-Jaafar Mojarrad, then vice-governor of the central bank and now Iran’s IMF representative, said he expected the OSF to contain over $9 billion by April 2008.