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Fall in Oil Prices Due to the Coronavirus, Adds to the Troubles of Iran’s Supreme Leader Khamenei

The sharp decline in oil prices this year has been exacerbated due to the coronavirus outbreak, which has hit Iran especially hard and is expected to worsen its economy.

Following numerous rumors about Iran's 2020-2021 budget, which the regime claimed was least reliant on oil, the 30 percent drop in oil prices in recent days added another Gordian knot to the troubles of the regime in the 2020-2021 budget.

The failure of the OPEC summit with Russia’s lead on 6 March has pushed oil prices down by one-third since then and alarm bells ring for the oil-exporting countries.

So far, oil prices on the world markets have experienced a 30 percent decline, a decline unprecedented since the Gulf War in 1991. Shares in the world's stock markets, from Asia and Europe to the US, have also fallen sharply following the fall in oil prices.

OPEC decided to reduce the daily production of OPEC and allies led by Russia in the fiscal quarter of this year by another 1.5 million barrels a day in order to maintain oil prices, but Russia rejected the offer on 6 March and World oil prices were falling rapidly.

Saudi Arabia responds to Russia's move by increasing its oil output and slashing its oil price. Oil prices which have fallen rapidly in recent weeks due to the coronavirus outbreak, on Monday recorded the largest drop since 1991.

Reuters wrote: “Brent crude futures LCOc1 fell $10.91, or 24.1%, to settle at $34.36 a barrel. The contract fell by as much as 31% earlier in the day to $31.02, its lowest since Feb. 12, 2016.

U.S. West Texas Intermediate (WTI) crude CLc1 fell $10.15, or 24.6%, to settle at $31.13 a barrel. WTI earlier dropped 33% to $27.34, also the lowest since Feb. 12, 2016.

“Monday marked the biggest one-day percentage decline for both benchmarks since Jan. 17, 1991, when oil prices fell a third at the outset of the U.S. Gulf War.”

Saudi Arabia is the largest oil exporter and Russia, the world's second-largest oil producer. OPEC and other producers had agreed to reduce further oil production to prevent further oil prices from falling, but Russia opposed it.

Saudi Arabia plans to increase its oil production to over 10 million barrels in April after the current OPEC-Russia’s reduction deal expires at the end of March.

Saudi Arabia, Russia, and other major oil producers have been competing and increasing their supply of oil in 2014 - 2016 to gain greater market share after the US reduced shale oil production.

Saudi Arabia and Russia are entering a price war that is likely to be limited and tactical, the Eurasia Group said in a note.

But no matter what the outcome of the power struggle over oil prices among other governments and their results and for which they are most profitable, what is triggered by the dramatic fall in oil prices is the escalation of the economic problems of the Iranian regime in 2020.

Following the widespread international sanctions over the nuclear and regional terrorist adventures and human rights abuses, Iran’s regime lost oil as its powerful leverage in its budget calculations.

After the ban on oil exports and a sharp decline in it, the regime was forced to declare that it had closed the year's budget with the least reliance on oil. The budget that went to parliament but under the influence of the Coronavirus outbreak was sent to the Guardian Council through the Integration Commission to obtain approval.

In spite of claims by the regime that oil depreciation is the least in the budget of 2020, but the regime has closed the budget at 484 trillion tomans for 2020 and according to the figures for domestic and foreign sales of oil, oil and gas products has a share of over 40% of the total budget of the regime and if not implemented, the regime will face a huge deficit. But that was the equation before the fall of oil prices that the regime was faced with.

Suddenly the price of oil fell sharply by 30%. Certainly, this price cut is crucial for the Iranian regime, before it is decisive for the first and second-largest oil exporters.

The regime requires $194.6 for every barrel and a daily export of 500000 barrels to prevent a deficit, while Kepler's statistics show that the regime’s daily oil output in January and February was about 250000 barrels.

The regime also includes the exporting of 1 million barrels of oil at a price of $50 in the budget. Brent oil is usually a few dollars more expensive than Iranian oil, so the price of Iranian oil should now be around $32.

A regime plagued by major budget deficits, as the aftermath of the budget deficit of 2019 engulfed the regime and forced it to triple the gasoline prices to find a way out of its budget deficit which leads to the bloody November demonstration.

Now, with the fall in oil prices, despite the claim of "minimal reliance", it seems likely that the consequences on the regime will be crushing.

 

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