Facing declining oil prices and rigid sanctions by the United States, the Iranian government needs to find new ways to fund its public spending. The solutions might prove unpopular both with the public and the powerful elites.
According to the US Energy Information Administration (EIA), Iran has the world’s fourth-largest deposits of oil and the world’s second-largest deposits of natural gas. These vast resources have prompted many Iranians to believe their country is wealthy, and its wealth will never end. Few point out that Iran’s abundant oil and natural gas resources can translate into wealth only if there is a market for them. And these days, what Iran lacks for its vast oil and natural gas resources is a market. And even if Iran regains its market, few are optimistic about the oil market performance as long as the coronavirus pandemic ravages the global economy.
In May 2018, US President Donald Trump announced that the United States would leave the nuclear agreement with Iran. Since then, the United States has been pursuing a pressure campaign with sanctions on Iran’s oil exports. By September 2018, Iran exports fell to 1.9 million barrels per day from a peak of 2.7 million per day in June 2018. By April 2019, Iran’s oil exports dropped to 1 million barrels per day, and by October 2019, Iran’s average oil exports hit just 260,000 barrels per day. The sanctions have cost Iran billions of dollars in revenues.
Iran’s oil production reached 3.8 million barrels per day of crude oil in 2017, as well as 7.2 trillion cubic feet of dry natural gas, earning $55 billion in net oil export revenues. Iran experienced an increase of 21.8% in its net oil export revenues in 2018, pocketing $67 billion. Its war-ravaged neighbor Iraq, with the world’s fifth-largest deposit of oil, earned $91 billion in net oil export revenues in the same year marking a 38% increase compared to 2017. According to the EIA, Iran’s net oil export revenues for the first six months of 2019 reached $20 billion, while Iraq earned $52 billion during the same time. As Iran’s government oil revenues declines, its spending did not change. It continued to pay subsidies, directly and indirectly, accepting a widening budget deficit.
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