Iran expects lower oil revenues

In order to circumvent Western sanctions and continue selling its oil, the Islamic Republic of Iran maintains a 'ghost fleet' off the coast of Singapore waiting to unload this cargo in China, which has become one of Tehran's main customers.

According to an RFE/RL investigation, Iran is offering China a steep discount to purchase its sanctioned oil, shaving 12-15 per cent off the price of each barrel to make it worthwhile for Beijing to take responsibility for circumventing sanctions.

Additional costs also include ship-to-ship operations to offload the oil, middlemen, hidden money transfers and renaming the oil to mask its Iranian origin and make it appear to come from a third country, according to the investigation. For this reason, the Iranian "ghost fleet" has been increasing in recent years to deliver crude oil to the Asian giant.

The Iranian regime is almost entirely dependent on Beijing, putting it "in the weak position of having to rely on a single external partner that is willing to deal and engage with Tehran", as Spencer Vuksic, director of the consultancy Castellum, is quoted by RFE/RL as saying.

Nevertheless, Tehran has praised its foreign trade, claiming that oil revenues had contributed to a positive trade balance during the first eight months of 2023.

However, according to data collected by the media outlet, the oil and gas sector - which accounts for the bulk of the Iranian economy - will not be enough to save the current budget of around $45 billion that was approved last year.

The Iranian fiscal year, which follows the Persian calendar and will end in March, is expected to end with a significant deficit. For the time being, when presenting the draft budget to parliament last December, President Ebrahim Raisi acknowledged a deficit of $10 billion.

Similarly, Iran's draft budget for 2024-2025 reveals a significant decline in oil and gas export revenues and an increase in domestic energy prices.

Although the deficit could be much larger (up to $13.5 billion, the largest in Iran's history) by the end of the fiscal year, according to Radio Farda. This is because only half of the expected oil profits were brought in, as oil prices were lower than expected, as well as additional costs and discounts related to Tehran's oil trade with China.

Iran expected to export 1.5 million barrels of oil per day (bpd), but ultimately exported only 1.2 million bpd in the first eight months of the year, according to Radio Farda.

On the other hand, while budget expectations were based on oil selling at $85 per barrel, the price of crude fell below $75 per barrel in December and has fluctuated wildly recently amid tensions in the Middle East over shipping.

In total, Radio Farda estimates that Iran lost some $15 million per day in potential revenue through its trade with China, which accounts for more than 40 per cent of the Iranian budget.

To fill this gap, Iran is expected to raise taxes on wealthy individuals and companies, while Dalga Khatinoglu, an expert on Iranian energy issues - quoted by RFE/RL - says Tehran will try to increase revenues by raising domestic energy prices.

On the other hand, in addition to low revenues, Iran faces competition from Russia for oil, another major customer of China, which, due to Western sanctions, has also diverted some of its oil to Asia.

Operations to stop illicit trade in goods from sanctioned countries have also been intensified. "There is a continuous refinement of sanctions programmes to include and expand sanctions against those involved in evasion, and that includes sanctioning so-called dark fleets," Vuksic explains, noting that the number of targeted sanctions against Iranian individuals and entities increased by more than 1,000 last year.

"My expectation is that governments, including the US, will take action against these dark fleets, especially facilitators and [ship] owners when they are identified," he adds.

Recent developments in the Middle East, as well as growing regional tensions, could also affect Iran's financial situation. In this regard, it is worth noting that Chinese imports of Iranian oil dropped significantly in October, when the Israel-Hamas war began, which involves Tehran as it supports and finances the terrorist group.

Also worsening the trade relationship between Iran and China, Reuters reported that oil trade between the two countries had stalled after Tehran withheld supplies and demanded higher prices.