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Iran's president concedes oil prices hurt economy

(Agencies)
Updated: 2008-12-04 11:08

Iran has been one of the most vocal proponents of steep cuts in OPEC production in an attempt to keep crude prices between $80 and $100 per barrel. A 1.5 million barrel a day cut by the cartel in October, however, has so far failed to reverse the slide in prices.

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International financial institutions estimate Iran needs oil at $90 a barrel to keep this year's budget balanced.

"Because of the world recession, oil prices will be declining for some time," Ahmadinejad said, according to the IRNA report, which was based on a transcript of an interview the president gave to state television late Tuesday.

But he insisted his administration can control the damage and will continue direct payments to the poor, a populist pledge that helped the former Tehran mayor win the presidency in 2005.

Ahmadinejad did not elaborate on which public sector projects would have to be shelved.

Independent economic analyst Saeed Leilaz said most of them would likely be public utility projects and that oil and gas exploration projects would be delayed.

"You have already witnessed a lack of water, electricity and heating gas. No new project will be launched," he said.

Iran's options might be further limited by UN and US sanctions related to the country's nuclear program.

Another possibility is to cut subsidies that keep automobile fuel prices low but drain the country of hard currency. Because it has few domestic refineries, Iran must import some $350 million worth of fuel per month.

"To manage the country in a better way, applying taxes to low-priced energy is the best" solution, Ahmadinejad said.

But the government's imposition of limited fuel rationing in 2007 proved wildly unpopular. Many economists believe cutting fuel subsidies will take Iran's inflation over 50 percent from the current 30 percent.

If Iran does see a budget deficit next year, it would need to either trim spending, print more bank notes, at the risk of exacerbating inflation, or borrow money. The country is thought to have $28.6 billion in foreign debt already.

However, Ahmadinejad said Iran's foreign currency reserves are healthy and currently topped $23 billion.

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