RIYADH: Unlike its Gulf Arab neighbours, Iran is in a tight spot. Crude market prices have fallen by 25 per cent since June.

The classical, cyclical, trough has arrived — yet at a wrong time — as always. It has come while most producers are faced with growing public expenditure.

Most Gulf Arab crude producers, however, are better placed today to face the emerging storm.

Reserve cushion would bail them out. But not all are in the same league. In case of a bottoming market, Russia, Iran and Venezuela are faced with strong headwinds — threatening the very growth, stability and sustainability of their economies.

The dwindling fortunes may have strategic consequences too — altering and impacting — the long term geopolitical ambitions of their respective governments.

The situation of Iran is significantly interesting. Already faced with western sanctions, Iran is especially vulnerable to the falling crude fortunes.

Tehran desperately needs revenue from oil sales. The country has already lost about half of its oil revenues since 2011. Sanctions have had a significant impact on Tehran’s oil output too.

By some estimates, crude exports have fallen by one million barrels per day. As a result, Iran’s income from oil exports has reportedly fallen from $118 billion in 2011-2012 to $56bn in 2013-14.

Falling prices are a double whammy to Tehran. To cover its budgeted expenditure, the Islamic Republic needs an oil price of at least $140 per barrel. The prices currently are hovering around $85. The gap is significant and is widening.

Strategically speaking, lower oil prices have also limited Iran’s flexibility in negotiations with P5+1 over its purported nuclear programme. Sanctions are choking its crude exports, the nation’s main source of income. A deadline of Nov 24 to settle the dispute is fast approaching. The less cash flows from oil business, easing of sanctions becomes the more important to Tehran, analysts strongly feel.

Diminishing returns on oil sales could push Tehran to strike a deal with West, many in Washington argue today.

The situation is dire. Iran oil exports fell to the lowest level on record in August, Jodi confirmed. As per the IMF, Iran’s $400 billion economy has shrunk by more than 7 per cent over the past two years.

Iran’s dependence on oil revenue is putting the Islamic Republic’s economy at the mercy of major powers, Supreme Iranian leader Ayatollah Ali Khamenei conceded last week. “They (the West) have forced our oil production from 4mbpd to 1mbpd, and this recent fall of oil prices is their latest gimmick,” government spokesman Mohammad Baqer Nobakht was quoted as saying by the semi-official Mehr News.

President Hassan Rouhani’s administration appears to be scrambling for alternative sources of income to meet revenue forecasts.

Last week, the president asked the oil minister Bijan Zangeneh to come up with “more effective use of diplomacy” to stop a further slide in crude prices.

Iran, Opec’s second-largest producer, is normally among the first members of the group stressing on cutting supplies to support prices, analysts say. But in a change of tack, Iran is now saying that it could live with lower oil prices and that there was no need for an emergency Opec meeting to discuss and stop the slide in prices.

In medium term, though, Tehran wants producers to rein in output. Iran’s oil ministry warned earlier the month that oil prices will slump further if Opec repeats its mistakes of the 1990s and fails to cut production fast enough to cope with the glut of crude flooding the international market.

“In 1998, the inadequate response by Opec sent oil prices to as low as $6 to $8 per barrel,” energy advisor Mehran Amirmoeini was quoted as saying.

Iran desperately wants to wriggle out of the corner. Fireworks are already in air. The upcoming Opec ministerial in Vienna is anticipated to be one of the most heated ones in recent times.

Flaring up of temperatures inside the meeting room on the fateful day cannot be ruled out. Much is at stake. Let’s keep the fingers crossed.

Published in Dawn, October 26th, 2014