Oil prices dropped to record lows on March 9, 2020, which had a direct impact on national markets in the region, especially those of oil-producing nations. Although initial outlooks do not suggest that Iran will be greatly impacted by the drop in global oil prices, owing to the stability of its exports, kept at very low levels due to sanctions (fewer than 100,000 barrels a day, according to sources), and its apparent lack of dependence on oil revenues (the presidential aide and head of the Planning and Budget Organization has stated that no more than 8% of the public budget relies on oil exports), the Iranian markets have nonetheless responded clearly to the price drop. On Monday, March 9, the Iranian stock market lost 15,000 points (around 2.8%) in value during trading. It lost a further 2.8% in the early hours of Tuesday, March 10, equating to a total drop of 5.9% in less than two days, despite government attempts to enforce binding laws to limit market losses and support the market artificially.

Repercussions of oil price drop

Although initial outlooks may suggest that Iran will not be affected by the drop in oil prices, owing to its low level of exports as a result of sanctions, and its policy of non-reliance on oil revenues in the public budget, closer observation reveals the opposite to be true.

1. Direct oil revenues: Despite their decline, oil exports remain an important part of the Iranian public budget. In the budget, the Government expects to sell around 700,000 barrels a day at $55 a barrel, providing revenues of $14 billion, of which $11 billion goes into the public budget, representing around 19% of the budget. If oil prices remain at $30 a barrel, however, the most optimistic predictions show a deficit of 40-45% in expected revenue, assuming even that Iran can export this much oil. In this scenario, the expected budget deficit would be 8.6%. The Government would have to close the gap by doubling the official exchange rate (from 8,500 tomans to the dollar to 17,000 tomans to the dollar), which would have a serious impact on the cost of goods and services. Moreover, given that Iran was planning on selling its oil at a significant discount, the impact is likely to be even greater. Assuming that the expected price of Iranian oil (after applying the discount and after deducting the costs associated with returning oil dues to the Iranian economy) is $25 a barrel, Iran will face an even greater deficit in revenue even in the optimistic scenario, equivalent to more than 10% of the public budget. Taking into account the current volume of oil exports (120,000 barrels), the shortfall in revenue between predictions based on the expected price ($55 a barrel) and predictions based on the actual price ($35 a barrel) will be $1.2 billion.

2. Indirect oil revenues: In addition to affecting direct oil revenues, the decline in oil price will have a significant impact on government revenues from indirectly linked sectors:

a. Gas exports: Iranian revenues resulting from gas exports will be affected by the drop in oil prices. In the draft public budget for the coming year, $4 billion in revenue was expected to come from gas exports, primarily to Iraq and Turkey. Assuming that the drop in oil prices has a direct impact on gas prices, Iran will face a decrease of around $1.75 billion in revenue from gas exports, equivalent to 3% of the public budget.

b. Petrochemical exports: Total government sales of petrochemicals according to the public budget (and factual data) total around $17 billion, of which $12 billion is from exports. Although it is difficult to calculate the exact impact on the Government, $7.3 billion in revenue from petrochemical exports is due to  be lost as a result of the drop in oil prices, which will have a severe impact on the Iranian economy in several ways:

- The Government will lose a significant proportion of its revenue from tax on petrochemical exports, which have traditionally been handled by private sector companies. While the current public budget predicts $5.4 billion in revenue from this sector, if current prices continue this figure is expected to drop to $3 billion.

- Revenues from petrochemical exports account for a significant proportion of the petrodollar. The Government relies heavily on its ability to pump the petrodollar into the currency market during difficult times, and to compensate for budget deficits by selling it at a free price on the market. The drop in petrodollars will mean that the Government will lose this important mechanism.

c. Domestic oil sales: Revenues from domestic oil sales are also greatly affected by the drop in global oil prices. While Iran produces around 2.1 million barrels of oil per day, it exports only 120,000 barrels, meaning that 1.95 million barrels are sold to domestic companies, bringing in a revenue of $39.1 billion. The loss of this revenue will have a two-fold impact on the Government:

- The decline in oil prices has a significant impact on the public sector budget (amounting to 1.98 quadrillion tomans). Assuming a loss of 143 trillion tomans in revenue from the sector, the budget deficit will be 7.5%.

- More importantly, in the draft public budget for next year, the Government expects to receive 88.8 trillion tomans in revenue from oil sales to public sector companies, accounting for 18.3% of the total budget. The 43% price drop in oil will lead to a budget deficit of 38.2 trillion tomans, equivalent to 7.9% of the budget.

d. Fuel prices: According to the public budget, the Government expects to receive between $3.5 billion and $4.5 billion in income from selling 20 million liters of automotive fuel per day, accounting for 7% of the public budget for the coming year. It is unclear as to what extent this sector has been affected by the decline in oil prices, but if prices do remain low the Government is expected to lose around $1.72 billion in revenue from this sector, leading to a 3% deficit.

e. Private sector debt: Lastly, in next year’s budget the Iranian Government is relying on its ability to swap out 40 trillion tomans of debt to private sector companies in exchange for crude oil, meaning that it plans to send 234,000 barrels of oil per day to such companies at an approved price of $55 a barrel. The drop in global oil prices will naturally have a significant impact in this area, leading to losses of up to 17.2 trillion tomans, equivalent to a 3.5% budget deficit.


The exact impact of falling oil prices on the Iranian economy cannot be accurately predicted for several reasons, primarily the lack of transparency about the state of the economy. It is clear, however, that the economy in general, and the public budget in particular, will be greatly impacted, despite assertions by Iranian officials that, owing to sanctions against the oil sector, the Iranian economy is largely immune to fluctuations in oil prices, as a result of its isolation and introversion.

If oil prices remain low in 2020, the public budget will experience a deficit of up to 31.6%, in addition to the deficit caused by other factors, owing to losses in various areas: fuel sales (3%), oil exchanged for debt (3.5%), sales to domestic companies (7.9%), petrochemical export tax (4.2%), gas exports (3%), and oil exports (10%), according to the draft budget.

After the Government, the stock market will experience the greatest impact, owing to losses by petrochemical companies, one of the key pillars of the market, and by banks, the biggest owners of such companies. According to expert estimates, on March 9 and 10 alone, the stock market experienced 106 trillion tomans (approximately $7.1 billion) in losses.


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