In my opinion, opportunity and threat are in some cases, particularly in national security, the two sides of the same coin. In other words, if we use it appropriately, it is an opportunity and if we use it inappropriately, it would turn into a threat. So, I believe the hike in oil prices is both an opportunity and a threat. Oil prices will not remain high in the long-run or even the medium-run. This does not mean that the West is opposed to rising oil prices and our common-held belief that the West is unhappy with the higher oil prices are wrong. The oil price is of no significance for the Westerners and even when the price soars to 65 or 70 dollars a barrel, it is far from their economic "red line."

The price of raw material and the rate of economic growth are the main issues the West looks upon as its red line. During recent years, an increase in oil prices and, consequently, energy costs did not reduce the economic growth in the West, and Western states still registered high economic growth. In fact, the world is experiencing one of its highest economic growth rates – five percent – in the current year. Therefore, the price hike would cause no problem for these countries. Rather, the increase in prices has boosted energy efficiency, decreased energy intensity, and helped replace oil with other energy alternatives. In other words, any increase in the price of oil would be, in the long run, to the disadvantage of those who produce it at lower costs. OPEC’s 40-year record of activity reveals that its share in the world production and export has been reduced.

In my opinion, the United States is willing to cut its dependence on Persian Gulf oil, given the region’s instability and ethnic makeup. An increase in the price of oil would be an opportunity only when it is used appropriately and when the economy does not rely a great deal on the oil industry. I believe that the oil industry can help flourish an economy that does not rely on oil. This is a new idea!

In this scenario oil is not seen as tantamount to revenues and the creation of a non-oil economy removes dependence on oil. If the government deposits the huge inflow of petrodollars and establishes a reserve fund, it creates a golden opportunity. The Supreme Leader has already urged the officials to do so. The government is currently earning some $40 billion annually in the oil sector without any trouble. If a normal economy aims to produce $40 billion revenue, its production and profit should rise a great deal. The state-run companies’ profitability should be so great that their tax alone would amount to 40 billion dollars. To put it differently, if the country’s economy yields a 160-billion-dollar gross profit, it would fetch the government $40 billion in revenue. To target such a figure, production should near 700 or 800 billion dollars.

If the government spends the net revenue appropriately, it would achieve the Outlook Plan’s objectives. The main policy the Supreme Leader has outlined in the Outlook Plan is rapid economic growth, which is 8.5 to 9 percent in the Fourth Development Plan. Now, we should not dismiss an 8.5-9 percent growth as a dream because some regional countries’ economic growth has already hit that figure range.

The growth rate in Turkey is 9 percent while Pakistan has a growth rate of 8 percent. Still, the two states do not enjoy large oil-reserves. Surprisingly, the economic growth rate in oil-rich countries like Saudi Arabia is lower than countries such as India and China that are witnessing a growth rate of plus 10 percent. It means 8-9 percent growth rates are common in the Asian countries surrounding Iran. Two neighboring states in eastern and western Iran have experienced a growth of 9 percent while they have no oil. So, the 9 percent growth rate should not be considered a major obstacle in the way of development and if the country wants to materialize it, it has to make investment as a first step. The investment should be made very fast if the government is after a rapid growth and brisk economy. The capital is provided by the huge oil reserves and revenues which must be used for the country’s economic development.

The private sector has the capability to take part in all plans and projects.

If the national asset, meaning oil, is used in this way, it would provide an opportunity. However, if it is used to enlarge the government and increase state expenditures, it would turn to a threat. This is due to the fact that the price of oil predicted in the country’s Five-Year Plans was predicted between 20 to 25 dollars per barrel at most and the government should have handled the affairs very well with the estimated 25 dollars. But the government has failed to do the job even though oil prices have hit 40 dollars per barrel. The situation will go from bad to worse in the coming years because the escalating expenses act like an avalanche and would become bigger and bigger and the oil revenue would no longer be sufficient to cover the national costs. And this is a serious threat to national security.

We have to decide whether oil is equal to revenue or whether it is a capital resource for different generations. Oil is referred in the country’s budgetary plans as a source of income while I believe oil is a capital and not a source of revenue. It is a resource we are using for routine budgets. The government’s outlook regarding oil is the biggest problem facing our economy. Oil is a national non-renewable resource and should be used for infrastructural and economic development while the government is using it as an asset. Oil revenue is different from taxes since the latter is backed by gross domestic product that develops and will always exists and 25 percent of it will go to the state fund; but oil will not be available forever. If we have such a view, the oil price hike is a threat. To sum up, the increase in oil revenue would provide an opportunity if considered a public asset and turn to a threat if used for routine expenses.

Are you saying we should transfer oil revenues to the Oil Stabilization Fund (OSF) and grant loans to the private sector? 

Precisely. Some part of oil revenue is given to the private sector via loan and another part, around 20 to 23 percent, goes to the government’s current account. It is possible because state affairs have been handled for years when the oil price was at 22 dollars per barrel. The government needs some 24 billion dollars – not 45 billion dollars – to easily fulfill its tasks. The remaining amount should be deposited in the OSF and handed out to the private sector as loans. The outcome would be production and development. The private sector’s production would increase the value added, gross national product (GNP) and taxes, promoting the state economy and non-oil exports and would help achieve the Outlook Plan’s goal of 8-9 percent economic growth.

The enlargement of the public sector, salary increases, increase in government employees, short-term public-pleasing activities like construction of rural roads, generation of power in villages, and establishment of stadiums do not necessarily lead to national development. Basically, simply spending money does not mean that national development is on its way. After 27 years, we have to admit that the country’s economy needs to rely on the private sector.

Do you believe Iran’s oil revenue must be used in the same way Norway has used its oil wealth? Does that reflect your overall analysis, and if so, what is Norway’s economic policy? 

That’s right. Norway has adopted the same policy and it is working. The method Norway has applied is even more difficult than what I told you. Norway is depositing money in another account which is not even making investments inside the country. It makes foreign investment and reaps the profits.

Then, are you recommending the Norwegian model? 

No, I do not propose it for Iran. I believe our country should increase domestic investment as much as possible.

So, should we purchase foreign bonds? 

Not at all. Nobody agrees with that. Even if it is a right policy, there is no social and political ground for it. In the meantime, we are in dire need of investment and should attract foreign investment.

You said oil prices can drop in the short-run and if the price of oil goes below 40 dollars per barrel, it will endanger national security. Is that right? 

Yes, if the price of oil goes below 40 dollars, it would be difficult to administer state affairs. I cannot predict when this phenomenon would occur, but I think that oil prices will fall for certain reasons given its chronological cycles. I am not saying that the price will slump to 20 dollars, although nothing is predictable and it may even reach 20 dollars. The price of oil soared to 40 dollars immediately after the revolution and nobody imagined it would drastically fall and stand at seven dollars. However, it was reduced to seven dollars 30 years later when Mohammad Khatami had just taken office as president and I served the country as Petroleum Minister. So, it is impossible to predict what will happen to the price of oil and the seven-dollar price during my portfolio was completely different from the seven dollar price of previous years.

Let me give you an example and explain what will take place when the price of oil is high. The day I took office as Iran’s Petroleum Minister, the rental of an offshore derrick amounted to 25 thousand dollars and it has now soared to 250 thousand dollars. Meaning that here is enormous demand for oil production which will eventually finds its way into the market. After the products are supplied, the market is satiated, leading to a drop in the price.

Under such conditions, the OPEC member states should cut their output as they recently did. However, some OPEC member countries cheat and do not slash their production in practice and as a result the prices go down in favor of the West. Lack of capacity is one of the reasons behind the price hike. When the excess capacity is low, the price will grow in the long run. The shortage was once a grave concern for the Westerners, but it has been alleviated now.  

 To me, the price fixed in the Fourth Economic Development Plan was reasonable.  

 Yes, 24 or 25 dollars per barrel was an extraordinary price. The government is not expected to use the extra revenue for construction because the government is not duty-bound to implement economic projects.

I disagree because the country does not require the government budget. The country could be run by the private sector’s capital for the time being. In other words, the private sector has the capability to take part in all plans and projects. For example, in the case of power generation, some argue that the private sector is not able to do the job since the government has subsidized electricity. I strongly oppose the idea because I believe the government is granting the people a small subsidy, compared to the fuel subsidy. For the same reason, the power sector should manage its affairs by itself.

We grant fuel subsidy, the problem is that it is calculated twice. In 2005, the government fuel subsidy amounted to 30 billion dollars while the figure has reached 40 billion dollars in 2006. So, the electricity subsidy is not that considerable. In my opinion, the government should give subsidy for the power sector and urge the private sector to manage the others. When I was the Petroleum Minister, the ministry received no budget from the government and we meet the ministry’s financial need through foreign investment. I refused to take a loan from the OSF for petrochemical projects.

It is a big mistake for the OSF to lend money for oil and petrochemical projects. If the oil, gas, and petrochemical sectors fail to use foreign sources, how can we expect a sector that needs two million dollars to attract foreign capital? The oil and petrochemical sectors that require 10 billion dollars should do their best and use foreign sources, opening the way for other sectors. The currency fund should be dedicated to small sectors and help the economy move forward. It is totally wrong for the oil industry to receive 1.5 billion dollars in loan. I, too, could take such a loan if I demanded, but I didn’t and you can ask the influential figures about the authenticity of my remarks. I believed that the oil industry should minimize its pressure on the state budget and we have to use the oil-related sources for development. We have to absorb foreign sources and support the domestic economy. The oil sector is the most active part of our economy beyond the borders. If this sector fails to attract foreign exchange, the which sector would be able to do so?

No, I am certain about it and it is not an empty slogan. I have discussed the issue in my speeches and commentaries. Our economy has three main features, all of which have shortcomings. Firstly, the oil’s real share in the GNP is 50 percent. This is a high share and the Central Bank of Iran (CBI) announces various percentages that are wrong. Secondly, the oil sector’s share in our foreign balance is too high. Over 80 percent of the country’s exports go to the oil sector and non-oil exports have a small share. Thirdly, oil’s share in the government’s public revenue is very high. I guess the share of oil export revenue in the current year touches 70 percent. I am sure if the oil asset is used suitably and if we put the Outlook Plan into practice, the OSF would help reduce the oil sector’s share in the GNP.

I believe oil offers the fastest way. Norway, Britain, and the U.S. are exporting both oil products and oil technology, i.e. service. Now, think about our oil sector’s share in engineering service exports to the oil-rich region. We are now drilling some oil wells. Some part of Iran’s GNP depends on oil. As an example, Assalouyeh, which is undergoing development operations, increases the country’s gross domestic product (GDP) and could be involved in service exports and petrochemical output in the next stage.

We have the capacity to have petrochemical exports worth 20 billion dollars. If domestic problems are resolved, the figure would reach 9 billion dollars within the next two years. In 1997, the figure stood at one billion dollars. Therefore, we are able to boost the share of non-oil exports. The oil industry’s share in the country’s public revenues would reduce only when the tax share goes up and the tax share would soar when the GDP increases. The government should define its role, as well. The government prepares the ground and its duties are clear. Government involvement should be very limited. The government is expected to do its own job and move forward. If we are going to implement the Outlook Plan, the economy should yield over 900 billion dollars within the next 20 years.

Is it possible to achieve what you are saying? 

Sure. If the economic growth rate is 8 percent, we will achieve it. We have no alternative other than speeding up our economic growth. How could we have a brisk economy like that of Turkey? It is not a complicated economic model. According to the website of the International Monetary Fund (IMF), Turkey’s gross national product amounts to 302 billion dollars, Saudi Arabia’s at 250, and Iran’s at 160. I looked for the statistics in these three states. I concluded that if we speed up our economic growth we would be able to outpace Turkey and Saudi Arabia. This is the objective the Outlook Plan is seeking and it needs an economy that would fetch 900 billion dollars.

What are the biggest challenges facing the Outlook Plan?