Iran could cope with oil as low as $5, says Ahmadinejad

The IMF says that if the price of crude fell to $75 a barrel, Iran would face a current account deficit.

TEHRAN // Iran could live with an oil price as low as $5 per barrel, president Mahmoud Ahmadinejad was quoted as saying today, in comments at odds with the views of the International Monetary Fund (IMF) and economic analysts. The IMF said in a report in August that if the price of Iranian crude fell to $75 a barrel, Iran would face a current account deficit in the medium term that would be tough to sustain due to its financial isolation.

And earlier this month, when crude still traded at close to $70, a senior central bank official warned that Iran's economy would "face big problems" if the average oil price fell below a level of around $60 a barrel over the next four months. Like other major crude exporters, Iran is facing declining revenue as global oil prices have tumbled by two-thirds to $50 per barrel since July amidst a world financial crisis, after years of windfall gains that have boosted reserves.

But Mr Ahmadinejad, who is expected to run again in next year's presidential election, said the oil price fall would have no major impact on the economy of the world's fourth-largest crude producer, official media reported. "There was a time when the country managed on $9 a barrel. We can do it even if oil falls to $5," he said during a media fair in Tehran, state television said.

"Just as the world banking crisis has had no impact on Iran's economy, neither will the oil price have that much impact," the official IRNA news agency quoted him as saying. US crude traded at just below $50 per barrel on Friday and analysts say Iran will almost certainly have to cut spending in the 2009-10 budget unless the price bounces back to $70 or more, posing a challenge for Mr Ahmadinejad during an election year.

Iran is under tightening UN and US sanctions over its refusal to halt sensitive nuclear work the West suspects is aimed at making bombs, a charge Tehran denies. But Mr Ahmadinejad, who is facing growing criticism at home over his economic management and failure to rein in double-digit inflation, said planned reforms would limit the fall-out. "Contrary to some opinions ... that the drop in the oil price would have a deep impact on Iran's economy, through plans and projects it would almost have no impact ... particularly with the government's overhaul that is under way," he said.

He was referring to a government plan to rejig Iran's extensive subsidy system by focusing payments more directly to those in need. Critics say it risks further stoking inflation, which is running at almost 30 per cent year-on-year. The president, who often rails against the West, suggested that Iran's foes would suffer more from the turmoil sweeping the world economy. "We believe that the era of the arrogant countries' economic dominance has reached the end of the road and is on the verge of collapse," he said. Iranian leaders often refer to the United States and other Western powers as "global arrogance."

*Reuters