Iran approves $508 billion budget for 2012

Sanctions-hit Iran has approved a $508 billion budget bill for 2012 that is 40 percent bigger than the one approved for 2011, The Associated Press reported from the official IRNA news agency on Monday.

According to IRNA, the budget increase is due to the sharp reduction in energy and food subsidies. Like other oil producing countries, Iran has benefitted by the sharp increase in global oil prices, which have topped $100 a barrel.

While the budget bill must be approved by a constitutional watchdog, President Mahmoud Ahmadinejad initially submitted a $540 billion budget to the parliament, the Majlis, on February 20, but lawmakers trimmed it to $508 billion over worries of stoking inflation.

In contrast to Saudi Arabia, which prefers oil prices for its budget to be around $50-55 per barrel, Iran is basing the oil price for its 2011/12 budget at around $81.50 per barrel, Reuters reported on Monday.

According to Iran’s governor for the Organization of Petroleum Exporting Countries, the price of oil will pick up again during the start of the summer season.

“We are basing the oil price in out budget which will be finalized in about two to three days at around $81.5,” the official, Mohammad Ali Khatibi, told Reuters in a telephone interview, adding that prices are expected to recover as the summer season approaches. That’s because people in many industrialized countries tend to take long vacation trips in cars.

Over the past week, oil prices had fallen by a record of more than $16 a barrel on demand worries and a move by investors to slash commodities exposures.

“One reason for the fall in prices is because the dollar gained strength, and to some degree a stronger dollar does compensate the lower oil price,” said Mr. Khatibi, who declined to directly comment on whether the current oil price is considered to be fair to both consumers and producers.

The 12 OPEC members hurried to fill supply gaps when unrest hit the oil-rich Libya.

“Currently the market is still well supplied and we all agree that there is no shortage,” said Mr. Khatibi.

OPEC is due to meet in June, and if supply remains at the current levels there will be no need to boost output, Mr. Khatibi added.

“We will continue to watch the market and the geopolitical and economic situation, but if there is no shortage in supply there is no need to increase OPEC supply,” he said.

On Friday, Brent crude fell $1.67 to settle at $109.13 a barrel in heavy trade, with volumes twice the 30-day moving average.

(Dina Al-Shibeeb of Al Arabiya can be reached at: [email protected])