Iran must sit with oil cartels in order to pay bills

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Iranian President Hassan Rouhani, shown on state-run TV in Tehran on Oct. 13, has reportedly directed Iran's oil ministry to seek a meeting of the Organization of Petroleum Exporting Countries cartel next month to discuss propping up oil prices. (Mohammad Berno / Associated Press)

Iranian President Hassan Rouhani, shown on state-run TV in Tehran on Oct. 13, has reportedly directed Iran?s oil ministry to seek a meeting of the Organization of Petroleum Exporting Countries cartel next month to discuss propping up oil prices. (Mohammad Berno / Associated Press)

Iranian officials are expressing new worry over the global oil price slump, which is threatening the country?s budget and could undermine its strategy in international nuclear negotiations.

As recently as Tuesday, Iran?s oil ministry was speaking confidently despite the 20% global price decline, insisting that it wouldn?t affect the budget. Deputy Oil Minister Rokneddin Javadi said the decrease would be ?short lived,? an oil ministry information service said.

But Iranian President Hassan Rouhani, clearly concerned, has directed the oil ministry to seek a meeting of the Organization of Petroleum Exporting Countries cartel next month to discuss propping up the price, Iranian news agencies are reporting.

Crude oil has fallen from over $100 a barrel in spring to under $85 a barrel. About 75% Iran?s government revenues come from oil sales, and analysts say the country needs an oil price of around $140 a barrel to sustain its budget.

Iranian Vice President Mohammad Nobakht, acting on Rouhani?s instructions, told Oil Minister Bijan Zanganeh to seek the OPEC meeting, Iranian news agencies reported.

Rashed Abbasi, head of a study group associated with the oil ministry, is predicting that prices could fall to under $60 a barrel within a year. Bayazid Mardokhi, an economist associated with Iran?s reformist camp, said a continuing price slump would force the government to pare its overall budget or reduce planned civil engineering projects.

Oil analysts say it is uncertain how long the decline in prices will last. It has been driven by a slowdown in the economies of China and Europe, coupled with strong supply from the United States and some Middle Eastern countries.

But some analysts speculate that it could reflect a longer-term shift away from petroleum usage. The last long oil price slump lasted from the mid-1980s to about 2000, and strained the economies of oil-dependent states such as the Soviet Union and Iran.

The Iranian economy has been showing some signs of life recently, due to better management and some easing of international sanctions following Iran?s signing of an interim nuclear deal last November.

Iranian officials have hoped that this new strength could make it easier for Iran to walk away from the international talks over its nuclear program if the West insisted on tough terms for a long-term deal.

However, the economic pressure from the oil price decline could make a collapse of the nuclear talks more painful, and stir unhappiness among middle-class Iranians who yearn for a higher standard of living and better ties to the West.
But it?s not clear that such a scenario would worry Iranian Supreme Leader Ayatollah Ali Khamenei and the powerful Iranian Revolutionary Guard Corps, which controls much of the Iranian economy. They want their nation to turn away from the West and to accept the privations of what Khamenei calls the ?resistance economy.?

It is not certain that OPEC would agree to take steps to bolster prices. The group, which still accounts for about 40% of global oil supply, is divided. Saudi Arabia, Iran?s regional rival, is apparently willing to have oil prices drift downward.

Analysts speculate the kingdom hopes in that way to preserve its market share, and may also want to undermine American shale oil producers, who need a higher price to pay for their relatively expensive method of oil extraction.

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Source:?http://www.latimes.com/world/middleeast/la-fg-iran-oil-price-slump-20141018-story.html

Special correspondent Mostaghim reported from Tehran and Times staff writer Richter from Washington.

Follow @richtpau on Twitter for coverage of international developments

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