Iran News ...


Iranians Feel Pinch of Falling Oil Prices

By Arash Hassan-Nia, Tehran (Source: Mianeh)


Many fear living conditions will deteriorate further if parliament approves president's plan to cut energy subsidies. Last October, Iran's central bank head Mahmoud Bahmani warned of hardships ahead as falling oil prices resulted in a 54 billion US dollar reduction in the country's foreign exchange earnings.


Back then, oil cost just less than 70 dollars a barrel, and only the most pessimistic of economists could have predicted that the price would plunge by almost 50 per cent.


The global economic crisis, which has compounded the problem, has overridden all other equations, assessments and predictions.


Yet some officials have remained defiant in the face of the plunge in the oil price, which at its highest in the middle of last year stood at 147 dollars.


Neka Oil Terminal


Iranian vice president Parviz Davoudi said in December that it would have no impact on Iran, insisting that the country with its "independent economic system" would flourish.


However, experts predict that the severe drop in prices will be devastating for Iran's economy, which relies heavily on oil revenue. According to official figures, the Tehran authorities derive 70 per cent of its revenues from sales of crude.


To counter the financial problems facing the country, President Mahmoud Ahmadinejad presented a plan to parliament at the end of last year, under which energy subsidies would be scrapped. This would have a major impact on Iranians, who are used to paying some 36 US cents for a gallon of petrol.


According to reports from February 2, the bill has been met with serious opposition from parliamentary committees.


Meanwhile, Iranian people are said to be concerned about worsening living conditions and fear things will go from bad to worse if the plan to scrap subsidies goes ahead.


The country, in which an estimated 80 per cent of the economy is controlled by the authorities, faces soaring inflation, which was estimated to stand at around 29 per cent towards the end of last year.


In light of this, it's vital that the revenue shortfall from low oil prices is factored into the country's financial planning.


On January 27, Ahmadinejad submitted to parliament a 282.7 billion dollar budget for the year to March 2010.


"Considering today's global economy, we sought to plan a budget with less government dependence on oil resources and if there is a rise in energy prices next year, the extra income from oil sales will be invested in infrastructure and construction projects," Ahmadinejad was quoted as saying by the official news agency IRNA.


The agency also reported that the Iranian parliament would debate the budget on February 28.


But observers predict problems ahead.


A recent report from the International Monetary Fund, IMF, said that if the oil price drops lower than 85 dollars a barrel, the country will face a budget deficit. This conclusion is shared by the country's Parliament Research Centre.


Indeed, Dr Masoud Nili, director of the School of Economy and Management in Tehran's Sharif University of Technology, told Mianeh that according to his calculation an oil price of 50 dollars a barrel would leave a budget deficit of 15,000 billion toman in the coming year.


Oil platform, Siri island, Persian Gulf


Part of Iran's oil revenues are spent on importing goods and services, some of which are consumed by the population and some by Iranian producers.


The drop in income is therefore expected to damage the government's ability to boost private sector production, which in turn, will have a knock-on effect on people's livelihoods.


In addition to this, a huge number of government employees are also likely to go without a salary rise this year.


Economists have criticised Ahmadinejad for squandering the country's former oil wealth on imports.


According to figures released by the central bank and the customs authorities, the average value of annual imports has increased from 30 billion dollars during the presidency of Mohammad Khatami, from 1997 to 2005, to more than 50 billion dollars in the three years of Ahmadinejad's leadership.


In 2004, Iran imported some 38 billion dollars worth of US goods, and this figure reached 56 billion in 2007 - a 47 per cent rise.


"The careless import of luxury cars, fruits and consumer goods as oil prices soared changed people's tastes," said Mohsen Safaii Farahani, the deputy minister of economy in Khatami's government.


"From now on, with a drop in oil prices to half of that of last year, we must witness a recession in the import of such goods."


Farahani said he believed the coming year would be a testing time for Iranians as there will be a decrease in the supply of goods and inflation is expected to continue to rise.


Many reports from official news sources suggest that people could lose their jobs as a result.


Conversations overheard in taxis, buses and other public places confirm that living conditions in Iran have deteriorated of late.


"The price of two kilogrammes of rice - a staple of the Iranian diet - costs about 10 dollars, while my monthly salary is 350 dollars. Even a maths teacher cannot solve the problem of low incomes and high living costs," said Shayda Rangraz, an educational expert.


Seyed Alinaqi Khamoushi, the former chairman of the private economic institution the Chamber of Commerce, Industries and Mines, underlined this point in a recent speech.


"Iranian people's purchasing power is decreasing by a rate of 50 per cent annually," said Khamoushi.


Farhang, a middle-aged employee of the national electricity company, told Mianeh that already he needs two jobs just to get by.


"After 21 years of service, I qualify for 72 dollars of housing assistance every month, but the rent I pay for my home is 355 dollars [a month]," he said.


He is worried what might happen if the president's plan to cut energy subsidies goes ahead.


"In order to make ends meet, I have been working in a private firm for many years. If subsidies are scrapped, I could be looking for a third job," he said.


Parviz, a post office employee, is also struggling.


"By the time I reach the middle of each month, only 10 dollars of my salary is left," he said. "If the government cuts off the energy subsidies employees like me will not even have this small amount left."


Ahmadinejad, who began his 2005 presidential campaign with a promise to "bring oil money to people's tables", has often posed this question to statesmen, "Why don't the living conditions of people change at all, whether oil prices go up or come down?"


This question is all the more pertinent for Iranian people now.


Arash Hassan-Nia is a journalist in Tehran


This article is an abridged and translated version of the full original text published on the Farsi pages of Mianeh, with editorial adjustments agreed with the writer made to provide clarity for English-language readers.


About Mianeh: Mianeh is a new independent web-based initiative run as a project by the Institute for War & Peace Reporting ( the award-winning non-profit media development organisation that works across the globe to platform local voices and promote international learning and engagement. Mianeh aims to be an open space for ideas, news and debate where writers in Iran can reach out to each other as well as to those outside the country who are interested in learning more about the vibrant and dynamic society that is Iran today.

... Payvand News - 02/15/09 ... --

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