Low Oil Revenues Keep Iran's Finances In Shambles

The 15-percent discount Iran offers for its exported oil is not a very high percentage, the chairman of oil and gas exporters union Hamid Hosseini says.

He explained that Russia offers large discounts to China and India to offload its oil that used to be exported to Europe and elsewhere before Western sanctions were imposed after the invasion of Ukraine.

Iran is in the same situation, having been sanctioned by the United States in 2018, after former President Donald Trump withdrew from the JCPOA nuclear deal, demanding many concessions from Tehran.

However, Iran has gradually increased oil exports to China since the Biden administration assumed office and began negotiations to reverse Trump’s decision and revive the JCPOA.

Consequently, Iranians wonder why the government is facing a financial crisis and the national currency has lost half of its value since mid-2020 if oil exports to China have increased.

A news website in Tehran asked this week why the budget is in such a bad shape if the government claims ever-increasing oil shipments to China. Hosseini said that in the past two years daily oil exports have increased by 700,000 barrels.

If Iran is shipping a daily average of 850,000 barrels of crude to China at 15 percent discount, it is earning around $65-68 per barrel at current prices. A simple calculation would show that Iran earns around $20 billion annually from oil sales to China.

This is a far cry from $100 billion a year it was earning around 2010, when oil was trading well above $100 a barrel, there was also no discount, and Iran was exporting more than 2.2 million barrels per day, compared to today’s less than one million barrels.

Another factor is that $100 billion in 2010 equals at least $135 billion in 2022 dollars, and global inflation has remained high in 2023.

Iran also ships oil to Venezuela and Syria, but there it hardly earns any money as the relationship is more political and the oil shipments more of a foreign aid scheme.

Therefore, after the United States imposed sanctions in 2018 and reduced Iran’s oil exports, revenues are now less than one-sixth of a decade ago.

Other factors also exist. Different Iranian politicians and officials have pointed out that to repatriate the funds from oil exports, Tehran must use middlemen to circumvent US banking sanctions imposed on third parties, and the amount it actually receives is 15-40 percent less. This adds to the loss incurred by the 15-percent price discount.

Not only oil export revenues are woefully in adequate for Iran’s oil-dependent government and economy, but the energy sector itself is suffering from years of neglect in terms of necessary investments, to the tune of more than $200 billion.

Hosseini expressed hope that with the recent agreement with Saudi Arabia to restore diplomatic relations, perhaps in the future Riyadh would invest in Iran’s oil and gas sector.

Government-controlled media and some officials have also raised expectations that trade can increase with Saudi Arabia in the coming months and perhaps Riyadh would make investments.

However, any foreign investment first needs lifting of US sanctions and for now there is no prospect for Iran reaching a new nuclear agreement with the United States.