International oil prices started to rise in 2004 mostly due to booming economic activities in India and China as well as speculations related to future oil sales at international markets. It was clear that although this growth was in favor of the oil producing countries, but it was not a logical economic growth. Therefore, all people who were involved in formulating the Fourth Economic Development Plan in Iran were not optimistic because although the oil price is usually rooted in supply and demand, it has other economic causes too. Economic growth in the world showed that oil prices were false and due to current conditions in international capital markets, they have started to fall.

We should have known that oil prices will start to fall sooner or later, but this occurred in the worst time when we are facing a global economic crisis; that is, in addition to the oil market, the economic crisis has also affected the oil price. The crisis started about four months ago (though its signs loomed about three years ago) as a result of selling mortgage bonds by banks. As international economic figures show, the price fall in those bonds is about 7,000 to 11,000 billion dollars which is tantamount to the annual gross domestic product of the United States and about 25 percent of the world’s gross domestic product.

This crisis is engulfing industrial countries. This means that after reduction in the oil price, this will happen to metals and many automakers will reduce production because of the threatening economic outlook.

In Iran, however, Table 8 of the Fourth Economic Development Plan which is about next year had considered Iran’s oil revenues at 82 billion dollars; that is, 23-24 dollars per barrel. We were hopeful to bring about an economic growth rate of 8 percent and boost investment by 12 percent in order to assure sustainable development while depositing needed foreign exchange reserves at the Oil Stabilization Fund.

The ninth government, however, showed no respect for the Budget Act. It first fixed the foreign exchange rate. Although the Fourth Economic Development Plan had aimed at gradual reduction of subsidies and introduction of real prices, the ninth government fixed prices and caused high energy consumption in the country, so that, we exported 2.75 million barrels per day of oil in 2004, but we have reduced it to 2.35 million barrels per day due to increased domestic demand. Reduced exports and increased domestic oil price is a major concern and it is the policymakers and planners that have encouraged the society to consume more energy.

Under the existing circumstances and due to excessive consumption, the government is facing a budget deficit of 15 billion dollars.

Although the Fourth Economic Development Plan had precisely predicted the annual budget and current expenses were to rise in a balanced manner, both the government and the Majlis approved the budget supplements and expanded the current budget to over 80 percent of the projected figure. For example, the current budget for 2006 had been predicted at 420,000 billion rials by the existing Budget Act while the Fourth Economic Development Plan had predicted it at 240,000 billion rials and what was approved by the Majlis showed a deviation of about 90 percent from the projected figure. We have gotten the society and the government used to high expenses and instead of depositing oil revenues at the Oil Stabilization Fund, we spent it on current expenses. The Fourth Economic Development Plan had projected the oil price at 20-25 dollars per barrel, but the actual price was 80-100 dollars per barrel. Now, seven months have passed since the beginning of the current Iranian year and we may not face major problems due to oil reserves. However, a country which has to import about 8 million tons of wheat and 3 million tons of sugar, rice, and vegetable oil and even fodder for livestock, and whose imports have increased from about 26 million dollars to 50 billion dollars should sell oil for 80 dollars per barrel to make up for that 50-billion-dollar difference.

Under the existing circumstances and due to excessive consumption, the government is facing a budget deficit of 15 billion dollars. However, since the country has been made dependent on oil prices higher than 60 dollars per barrel and in view of price fluctuations in international markets, our country is in for major problems and next year will be a difficult year for us. We have been used to high spending in the past three years and we have greatly increased imports in order to control inflation. Now that oil prices are falling, we will have to brace for lower revenues, but our society is not ready for this shock. Both current spending by state-run bodies has increased, and the market is awash with consumer goods that have been imported through high oil prices. Domestic plants are facing major production problems. Our banks are giving facilities to importers because the government has enforced low interest rate and that money is spent on imports instead of being used for production. Production cycle is one year, but import cycle is less than six months. On the other hand, the high number of importers has motivated banks to allocate more resources to them in order to gain more profit.

As a result, the country has been facing a major problem during the past three years and producers are short of needed money. Our foreign policy, on the other hand, has reduced our country’s international credibility to zero and this has affected both state-run and private sectors. Before the ninth government, we had about 35 billion dollars of credits in European and world banks which had been guaranteed by the government and credits pertaining to our businesspeople alone, stood at 15 billion dollars. Now, in the second half of the Iranian year 1387 (March 2008 – March 2009) the 50-billion-dollar credit has been reduced to zero. Therefore, producers and investors are also under external pressures due to shortage of credits and despite slogans chanted by the ninth government, consumption, imports, and dependence on oil has greatly increased.

We have never been this much dependent on oil. The past three years could have been the most legendary period of the Iranian economy because we earned 200 billion dollars by selling oil and gas. Since the annual budget had been projected at 50 billion dollars the difference between 50 and 200 billion dollars shows that we have earned four times the expected budgetary figure. Our foreign exchange revenues in the past three years was higher than all we got under eight year of the reformist government and about one-third of Iran’s foreign exchange revenues over the past 30 years.

That legendary situation could have ushered the Iranian economy into a new phase of unprecedented prosperity, but populist measures and lack of clear policies have caused most of that money to be squandered. Now our budget has been based on oil sales for 100 dollars per barrel, but the politicians who have run the country in this way are not aware that the oil party is over and prices have begun to fall. The oil price hike was a special feast. Those who review world economy are aware that no basic change has been made in global economy to justify increase in oil prices from 40 dollars per barrel to 140 dollars per barrel in a short period of time.