By the start of the war on the oil price between Saudi Arabia and Russia, and then the beginning of the outbreak of corona virus, the oil price fluctuated and, of course, fell sharply. OPEC Plus members then raised the issue of production cuts to support oil prices. (Photo quoted from Yahoo's image)
Finally, the OPEC Plus coalition agreed to reduce production and control oil prices within a reasonable range. In the second half of 2020, oil prices stabilized to some extent due to travel restrictions and intensifying quarantine and controlling the spread of the coronavirus in countries around the world.
Iran was the fourth largest oil producer among OPEC countries in 2019, respectively. But Iran's oil exports fell by 90 percent from 2.5 million barrels per day in 2018 to 254,000 barrels per day in 2020. Falling oil prices and declining oil revenues over the past two years have posed many problems for the Iranian economy. Iran's economy shrank and experienced an inflation rate above 26.9 percent, and the country's GDP fell.
It also exacerbated the recession in economic activity and negative economic growth. Export revenues (crude oil, gas condensate, petroleum products) and revenues from domestic sales of products decreased.
The fall in oil prices had a negative effect on the reduction of domestic resources of energy companies and the development and investment approach. Last year, Iran's budget was based on $ 50 oil value, but $ 50 oil sales did not materialize.
Oil demand was around 100 million barrels per day in 2019, but reached nearly 80 million barrels per day in 2020 with the corona outbreak. However, since the beginning of 2021, with the start of the COVID-19 vaccination, the global economy has improved, OPEC Plus production has decreased, Saudi Arabia has voluntarily reduced one million barrels, US trade reserves have decreased, and oil prices have risen.
If the global oil price falls below $ 50, further reduction in foreign exchange supply, increase in exchange rate, re-inflationary pressure and the possibility of intensifying economic challenges in the Iranian economy will intensify.
The greater the possibility of decrease in the oil, the more the Iranian economy will suffer from the increase in the budget deficit and the possibility of escalating inflation, and will have far-reaching negative economic consequences.In addition, the prolongation of the current process of nuclear negotiations will affect the continuation of sanctions on the sale of Iranian oil and its effects on the country's economy.
On the other hand, considering the price of $ 40 per barrel of Iranian oil in the current budget until March 2022, and of course, considering the approximate daily amount of 600 to 650 thousand barrels of Iranian oil sales in the current situation, there can be signs of improvement in Iran's economy. Also, by returning to the agreement of theJCPOA, Iran's oil can reach one million barrels per day from the end of 2021, including condensate between 2 to 2.5 million barrels in 2022. In this approach, Iran can take back its share from OPEC.
Oil prices above $ 70 increase the supply of currency and can lower the exchange rate. Also, the possible lifting of US sanctions against Iran, along with more exports to China, would mean improving conditions for Iran's economy.
Farzad Ramezani Bonesh
Senior Researcher and Analyst of International Affairs
