* Iran may see 38 percent drop in oil revenue * IMF says Iran needs $117 oil to balance books * Resilience of ordinary people tested by soaring inflation Iran’s state finances have come under unprecedented pressureand the resilience of ordinary people is being tested by soaringinflation as oil income plummets due to tightening Westernsanctions and sharply falling oil prices. Tough financial measures imposed by Washington and Brussels havemade it ever more difficult to pay for and ship oil from Iran. Itsoil output has sunk to the lowest in 20 years, cutting revenue thatis vital to fund a sprawling state apparatus. Already down by more than a quarter, or about 600,000 barrels perday, from rates of 2.2 million bpd last year, shipments of crudeoil from Iran are expected to drop further when a European Unionoil embargo takes effect on July 1. Tehran is already estimated to have lost more than $10 billion inoil revenues this year.
Causing even more pain, oil prices fell below $100 a barrel lastweek to a 16-month low amid a darkening outlook for economies inEurope, the United States and China. “This is an act of economic warfare. The sanctions are havinga big effect in cumulative terms: Iran is being locked out of theglobal financial system,” said Mehdi Varzi, a former officialat the National Iranian Oil Co. “It does appear that Iran is more amenable to negotiationsnow than it was a year ago. The West should take advantage of thismomentary situation to offer more meaningful concessions – aroad map to where this will all end,” said Varzi, now runningan energy consultancy in Britain, Varzi Energy.
Diplomats and analysts say Iran may offer the IAEA, the U.N.nuclear watchdog, increased cooperation as a bargaining chip in itsnegotiations with world powers, which resumed in April after a15-month hiatus and are to continue in Moscow on June 18-19. Basic mathematics dictate that the lower Iran’s oil exports,the higher the oil price it will need to stay in the black. According to the International Monetary Fund, Iran needs oil at$117 a barrel to balance its budget, set at $462 billion. PresidentMahmoud Ahmadinejad has said the budget was designed to decreaseIran’s dependence on oil revenues. Female Body Piercing Jewelry
Senior Iranian oil officials have acknowledged that sanctions havereduced exports but say the country has long experience of findingways around them and a drop in oil revenue is not the end of theworld. “Personally, I will be very happy if the dependence of theeconomy on oil revenue is decreased,” said an Iranian oilofficial, who requested anonymity. “We can use the sanctionsas an opportunity”. STRUCK BY SOARING PRICES International sanctions have been a fact of life in Iran fordecades and Tehran is adept at working round them. China Silver Hoops Earrings
But there are growing signs that ordinary people are feeling muchmore pain from them than in the past as inflation has soared in thelast six months. “I was struck by the high prices when I went to the grocerystore yesterday,” said Ahmad, 54, who owns a small fabricshop in Tehran’s bazaar. He said the price of apples had more than doubled in the past monthand strawberries had almost tripled to 110,000 rials per kilo, ormore than $6 at market rates. “Little by little, even fruit is becoming a luxury.” Inflation is now officially running at about 20 percent, althougheconomists say prices of the goods most Iranians worry about arerising much faster. The country is undergoing what the government has called majoreconomic surgery, in the form of cuts to the multi-billion dollarsubsidies which for years have held down the price of essentialgoods such as fuel and food. Engraved Silver Charm
The value of the rial began to slip in January and traded at around20,000 rials per dollar in February, up from 10,500 rials inDecember. It now stands at around 17,800 rials at market rateswhile the official rate is 12,260 rials to dollar. The price of petrol on the domestic market remains stable but taxiand public transport fares have gone up. Sanctions are also painfully reshaping flows of goods for smallenterprises, with one owner of an import company in Tehran sayinghe was forced to fire some workers recently after being forced tosource his purchases from China instead of Europe.
“The shift caused a great deal of financial loss for us. I amnot sure how much longer we can go on like this. We certainly willnot be able to cope if financial sanctions on Iranintensify,” the entrepreneur, who asked not be named, said. HOMELESS OIL On the export front, several big European companies have haltedpurchases of Iranian oil and others are winding down. Iran had hoped that energy-hungry China and India, both majorcustomers, would mop up much of the oil left homeless by Europeanclients.
That may not be the case. “Our impression is that China and India have not been ashelpful as the Iranians expected,” said a senior Western oilexecutive, who declined to be identified. “But it’s very difficult to get a clear picture of howmuch oil is moving because they are deliberately cutting offcommunication.” Since early April, Tehran has been hiding the destination of itsoil sales by switching off tracking systems on its tankers. But barrels counted upon arrival in Iran’s top four customers– China, India, Japan and South Korea – show a 20percent decrease, or 357,000 bpd, so far this year, according togovernment data and industry sources.
That translates into a loss in revenue of roughly $35.7 million aday, or $4.3 billion in the first four months of this year, basedon current Brent crude prices. Iranian crude is sold at a discount of several dollars per barrelto benchmark dated Brent, so the actual losses are likely to beeven higher. Some relief has come from soaring prices earlier this year as Brentso far in 2012 is averaging $116 a barrel, up from 2011′s$110, which was a record high. But reduced output and fallingprices are making things worse very quickly. From July 1, Morgan Stanley expects Iranian exports to fall by afurther 150,000 bpd while the International Energy Agency has saidthey could almost halve by 1 million bpd.
That is putting Iran on course for a huge drop in oil revenues,while those of its rivals from the Organisation of the PetroleumExporting Countries will hit a record. According to the London-based Centre for Global Energy Studies, thestrong oil price has put OPEC on a path to earn $911 billion fromoil exports this year. Iran – OPEC’s second biggest producer – could seea 39 percent decrease this year to $44 billion, while Saudi Arabiais expected to see a $3 billion increase to $294 billion. Belt tightening may be needed for Iran to withstand lower oilprices and exports after the EU sanctions take full effect.
“The only way around it will be for Iran to cut the budget,which has a lot of fat,” said Varzi. Source: in.reuters.com/article/2012/06/11/iran-oil-revenues-idINL5E8H78K120120611.