Iran: Oil under $60 Troubling for Economy

TEHRAN (FNA)- Iran’s central bank warned on Monday that if oil prices fall under 60 dollars a barrel, the country’s economy will struggle to survive the world financial crisis.

“If average price of oil stays at 60.6 dollars in the remaining five months of the current year (to March 2009), we can get through this crisis safe and sound,” the bank’s deputy for economic affairs, Ramin Pashaifam, said.

“If the price falls under this, our economy will face big problems.”

His comments came from a report by the Iranian students news agency, which was also published in Sarmayeh newspaper on Monday.

Oil prices surged to record highs in July of close to 150 dollars a barrel but have since plunged, with OPEC’s basket price standing at 57.65 dollars on Friday, despite the cartel deciding to cut its output.

Crude income accounts for 80 percent of foreign earnings for Iran, OPEC’s second largest exporter, making the economy vulnerable to oil price shifts.

Pashaifam said that with a minimum price of 60 dollars, Iran will still need to use savings from oil revenues to cover its budget needs.

“In a case of 60 dollars per barrel for oil, no cash will remain in the Oil Stabilization Fund,” he said, referring to a fund which aims to guard against price fluctuations and to finance private sector projects.

Economy Minister Shamseddin Hosseini said on Monday that the fund now contained 25 billion dollars.

Analysts say Iran needs a price of around 80 dollars to survive the global economic downturn, while a report by the International Monetary Fund said in August mentioned $75 for a barrel of Iranian crude would suffice for Iran to survive the crisis.

Other economists have said Iran needs oil at around $70 to $75 to balance its books.

Iranian crude tends to trade a few dollars below lighter, US oil. Yesterday, US crude traded at about $69 a barrel. Pashaei did not specify if his figure of $60.60 a barrel was for international or Iranian oil.

At a price of $60.60 a barrel for the rest of the Iranian year, Iran could not add anything to reserves, Pashaifam said.