A Bunch of Lies: What is the Government’s Oil Revenue Really?
A Bunch of Lies: What is the Government’s Oil Revenue Really? Truly, what is the government’s oil revenue? Recent statements by Ebrahim Raisi about a significant increase in Iran’s oil revenues under the Thirteenth Government have sparked reactions from experts and commentators. The President of the Islamic Republic of Iran recently attributed the government’s increased oil revenues as the main reason for controlling and reducing inflation rates in recent months.
In the so-called news conference on Monday, Raisi made claims about the amount of oil sales, which were met with reactions from industry activists. Raisi reported an unprecedented increase in oil sales since Trump’s exit from the JCPOA to date. He had previously claimed that the government not only easily sells oil but also receives its money in cash.
Is Raisi’s Claim True?
In a previous press conference, Raisi once again talked about the government’s increased oil revenue. The President claimed that the reason for controlling inflation was the halt in government borrowing from the Central Bank due to increased oil exports and the resulting revenues. However, Raisi did not provide statistics on Iran’s oil sales over the past year, although some cabinet members had previously announced astonishing figures, including exports of one to one and a half million barrels per day.
Although there is no precise and specific report to verify this government claim that can be cited, some statistics and figures, including the audit report from the Court of Audit, provided intriguing information to the media, indicating the government’s claims about the amount of oil exports were incorrect.
The Audit Report Exposed the Government
The audit report of the budget from the first two months of the current year reported a maximum realization of 14% of the export revenues projected in the 1401 budget. In fact, the Court of Audit did not announce the exact figure of budget realization in the oil export section, but overall, it was mentioned in this report that in the first two months of 1401, a maximum of 14% of the total projected revenues for 1401 was realized.
This account shows that Raisi’s claim about the increase in government oil sales and revenues is also not true because unofficial reports on the budget deficit and also indirect government borrowing from the Central Bank confirm the unreality of these claims. If Raisi’s statements were true, we should have witnessed about 17% realization of oil revenues according to the 1401 budget in the first two months of the year.
On the other hand, the Court of Audit mentioned the 14% figure for all export-derived revenues and not just limited to oil export revenues. In other words, if we assume all export revenues were from oil sales, the government is still lagging behind the budget projections.
The Ukraine War and Price Surge in the Energy Market
Russia’s attack on Ukraine caused extensive price surges in global markets, including the energy sector. This issue naturally led to a significant increase in oil revenues for energy-exporting countries without increasing sales volume. In other words, oil exporters even with constant energy sales volume gained much more revenue due to an unprecedented price surge in the energy market following Russia’s invasion of Ukraine.
Iran is no exception to this. Naturally, due to the increase in oil prices in global markets, Iran also gained more revenue without increasing oil export volume compared to previous years. Therefore, the amount of government oil revenue cannot be considered a criterion for increased export volume, although according to the Court of Audit report, even with the unprecedented oil price surge, budget expectations from oil revenues were still unmet.
FATF and Proving the Incorrect Claims of the ‘Champion of the Poor’
Another doubt regarding oil revenue achievement is the barriers to banking transactions, notably Iran being on the FATF blacklist. This list has led to almost no bank in the world willing to transfer Iran’s foreign exchange resources in any framework.
With these circumstances, Ebrahim Raisi in his recent statements did not clarify how he managed to bring cash funds into the country without Iran exiting the FATF blacklist, although the government had previously announced in 2020 that Iran’s blocked funds in Iraq were released, and Iran managed to receive a significant amount from Baghdad’s debts to Tehran.
However, a few days after this claim, it was revealed that this amount was only transferred from one Iraqi bank to another in the country. In fact, neither of these two Iraqi banks were willing to defy banking sanctions and also violate the Financial Action Task Force rules. The result of this was the non-receipt of the Islamic Republic’s foreign exchange claims in Iran.
Therefore, many experts believe that as long as Iran remains on the FATF blacklist, the possibility of receiving these claims will not exist. Evidence also indicates that receiving cash oil revenue for the government is not feasible, although some countries like India and China may have settled Iran’s claims through barter.
Even if such a thing is underway, it cannot be accounted as government oil revenues, although the issue of carrying out barter operations currently faces many uncertainties. On the other hand, it is unlikely that a country would risk being sanctioned by the United States and engage in bartering essential goods in exchange for receiving Iranian oil.
If Foreign Exchange Exists, Why Was the 4200 Toman Dollar Removed?
In fact, when the government acted to remove the preferential exchange rate, officials reported a shortage of foreign exchange in the country. If Raisi’s claim about Iran’s access to foreign exchange resources and increased oil revenues is true, then why was there a need to remove the 4200 Toman dollar, which had a direct impact on ordinary people’s livelihoods, and its removal broke the record for point-to-point inflation in recent months?
From the beginning of his tenure in the executive branch, the head of the government has always emphasized the justice-oriented nature of his economic policies. Although there is no evidence of such an approach in the government, assuming it is correct, it can be said that the government was certainly forced to remove the preferential exchange rate due to a shortage of foreign exchange resources.
Given this government action, one can say either the government is lying about the amount of oil revenue, or Raisi is comfortably seated among the wealthy, and the title ‘Champion of the Poor’ is merely a publicity stunt whose expiration date has now passed.
Analysis of the Future Oil Market
In recent days, the Iranian Court of Audit published its second report on the government’s budget performance for the current year. According to this report, it was revealed that Raisi’s and his economic team’s claims about increased oil revenues compared to last year are baseless. This report shows that the Raisi government has not even managed to achieve its budget predictions for oil sales, as the audit report indicates a 40% realization of oil revenues according to the 1401 budget.
With this in mind, it seems the Raisi government intends to continue using misleading statistics to claim that the economy is not tied to the JCPOA as its propaganda tool. However, the point is whether the country can be managed with baseless words and statistics, and whether the basic needs of the people for living will be met.
Considering the state of Raisi’s cabinet, from the Ministry of Roads and Urban Development to the worrying report on oil sales, it can be said that the Thirteenth Government has an urgent need to revive the JCPOA because evidence suggests Raisi’s government has failed in efficiently circumventing oil sanctions, so much so that the country’s budget needs have not been met, and the only escape route for the government from this situation is to revive the JCPOA.
Although, as previously mentioned, many believe that reviving the JCPOA without accepting the FATF will increase transaction costs and will not lead to a desirable outcome for the Iranian people. On the other hand, experts estimate that from the day the agreement is revived until the blocked oil resources are available to Iran, there will be at least a four-month gap. Despite the serious concerns mentioned, it seems the government has succumbed to the influence of radical currents, which could result in an unprecedented increase in economic pressure on the people.
In other words, if the government’s current policies in the Vienna negotiations continue, we should expect intensified oil restrictions from the Biden administration. If such a scenario unfolds, definitely even the meager oil revenue of the government will be out of reach, and the livelihood of various segments will become much more difficult than before.