A Fistful of Lies: What is the Government’s Actual Oil Revenue?
A Fistful of Lies: What is the Government’s Actual Oil Revenue? Indeed, what is the government’s actual oil revenue? Recent statements by Ebrahim Raisi about the significant increase in Iran’s oil revenues under the thirteenth government have elicited reactions from experts and commentators. The President of the Islamic Republic of Iran recently attributed the increase in government oil revenues as the main reason for controlling and reducing inflation rates in recent months.
In the controversial press 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 until today. He had previously claimed that the government not only sells oil easily but also receives its payment in cash.
Is Raisi’s claim true?
In the previous press conference, Raisi once again spoke of the increase in government oil revenues. The president claimed that the reason for controlling inflation was the halt of government borrowing from the Central Bank due to increased oil exports and the resulting revenues. However, Raisi did not provide statistics on the amount of Iran’s oil sales in the past year, although some cabinet members had previously mentioned 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 of the Court of Audit, provided interesting information to the media, indicating the inaccuracy of government claims regarding the amount of oil exports.
The audit report exposed the government.
The budget audit report for the first two months of the current year announced the realization of a maximum of 14% of the projected export revenues in the 2022 budget. In fact, the Court of Audit did not announce the exact figure for the realization of the budget in the oil export sector, but generally, the report stated that in the first two months of 2022, a maximum of 14% of the total projected revenues for the year 2022 was realized.
This calculation shows that Ebrahim Raisi’s claim about the increase in government oil sales and revenues is not true, as unofficial reports on the budget deficit and also the indirect borrowing of the government from the Central Bank confirm the unreality of these claims. If Raisi’s statements were correct, we should have seen a realization of about 17% of oil revenues according to the 2022 budget in the first two months of the year.
On the other hand, the Court of Audit mentioned the 14% figure for all export revenues and not just limited to revenues from oil exports. In other words, even if we assume that all export revenues were related to oil sales, the government is still behind the projected amount in the budget.
The Ukraine War and Price Surges in the Energy Market
Russia’s attack on Ukraine led to widespread price surges in global markets, including the energy sector. This issue naturally caused the oil revenues of energy-exporting countries to grow significantly without increasing sales volume. In other words, oil exporters earned much more income even with constant sales volumes, due to the unprecedented price surge in the energy market, following the Russian invasion of Ukraine.
Iran is no exception to this rule. Naturally, due to the increase in oil prices in global markets, Iran has also earned more income compared to previous years without increasing the volume of oil exports. Therefore, the amount of government oil revenue cannot be considered a criterion for the increase in export volume. Although, according to the Court of Audit’s report, even with the unprecedented surge in oil prices, the budgetary expectations from oil revenues were not met.
FATF and Proving the Incorrectness of the Claims of the ‘Champion of the Poor’
Another ambiguity regarding the realization of oil revenues is the barriers to banking transactions, including the most significant of which is Iran’s name being on the FATF blacklist. This list has caused almost no bank in the world to be willing to transfer Iran’s foreign exchange resources under any framework.
Given this situation, Ebrahim Raisi did not specify in his recent statements how he managed to bring cash funds into the country without Iran exiting the FATF blacklist. Although previously, the government announced in 2021 that Iran’s frozen funds in Iraq had been released and Iran had managed to receive a substantial amount from Baghdad’s debts to Tehran.
However, a few days after this claim, it became clear that this amount was only transferred from one Iraqi bank to another within the country. In fact, neither of these two Iraqi banks was willing to violate banking sanctions and also to disregard the rules of the Financial Action Task Force. 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 does not exit the FATF blacklist, the possibility of receiving these claims will not exist. Evidence also suggests that receiving cash oil revenues for the government is not feasible, although some countries like India and China may have taken steps to pay Iran’s claims through barter.
Even if such a thing is happening, it cannot be counted as government oil revenues. Although the issue of executing barter operations currently faces many uncertainties, 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 There is Foreign Exchange, Why Was the 4,200 Toman Dollar Removed?
In fact, when the government took the step of removing the preferential exchange rate, officials reported a shortage of foreign exchange in the country. If the claim of Iran’s access to foreign exchange resources and the increase in oil revenues that Raisi mentioned is true, then why was there a need to remove the 4,200 Toman dollar, which had a direct impact on the livelihood of ordinary people, and its removal led to a record-breaking point inflation in recent months?
The head of the government has always emphasized the justice-oriented nature of his economic policies since taking office in the executive branch. Although there is no evidence of such an approach in the government, assuming it is true, it can be said that the government was certainly forced to remove the preferential exchange rate due to a lack 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 settled among the wealthy, and the title ‘Champion of the Poor’ is merely a promotional wave that has now expired.
Analysis of the Future Oil Market
In recent days, Iran’s Court of Audit released its second report on the government’s budget performance for the current year. According to this report, it was revealed that Raisi’s oil claims and his economic team’s statements about increased oil revenues compared to last year are baseless. This report shows that Raisi’s government has not even been able to achieve its budgetary forecasts for oil sales, as the budget audit report indicates a 40% realization of oil revenues according to the 2022 budget.
Given this situation, it seems that Raisi’s government intends to continue using misleading statistics and claims of not tying the economy to the JCPOA as a promotional tool. But the question is whether a country can be governed 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 concerning report on oil sales, it can be said that the thirteenth government will have a pressing need to revive the JCPOA, as evidence suggests Raisi’s government has failed in effectively circumventing oil sanctions. Consequently, the country’s budgetary needs have not been met, and the only escape for the government from this situation is the revival of the JCPOA.
However, as previously mentioned, many believe that reviving the JCPOA without accepting the FATF will increase transaction costs and cannot lead to a favorable 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 is at least a four-month gap. Despite serious concerns mentioned, it seems the government is overwhelmed by extremist currents, which could result in unprecedented economic pressure on the people.
In other words, if the current government policies in the Vienna negotiations continue, we should expect increased oil restrictions from the Biden administration. If such a scenario occurs, even the meager oil revenues of the government will be out of reach, making the livelihood of various sectors significantly more challenging than before.
