Abu Dhabi: The slide in global oil prices will lead to a budget deficit in Iran, experts say. Brent crude, a benchmark for oil, has plunged more than 20 per cent since peaking in June at about $115 a barrel amid oversupply due to US shale production and lack of demand in the market. Brent inched lower on Monday, dropping further away from $86 a barrel.

Alireza Gharbi, Business Development Manager of the Tehran-based Iran Oil Gas Network, said the country’s budget for this year is set on the $100 per barrel oil price and this drop will lead to a budget deficit.

“Since the situation and parameters are kind of complicated, there is no specific strategy chosen by the Iran oil officials yet,” said Gharbi when asked what Iran would do as prices plunge.

Iran holds the world’s fourth-largest proved crude oil reserves and the world’s second-largest natural gas reserves, according to the US Energy Information Administration.

Despite the country’s abundant reserves, Iran’s oil production has substantially declined over the past few years, and natural gas production growth has slowed.

The international sanctions due to Iran’s nuclear issue have profoundly affected Iran’s energy sector. Sanctions have prompted a number of cancellations or delays of upstream projects, resulting in declining oil production capacity.

Kevan Harris, associate director at Princeton University’s Centre for Iran and Arabian Gulf Studies in Princeton said the government will have to run a current account deficit and reach into its development fund to make up the shortfall. “That’s not what they would prefer to do, given the current sanctions regime. But it is manageable, I think,” he said.

Another expert said that the best strategy for Iran would be to reach an agreement with the group of P5+1 countries (United States, Russia, China, United Kingdom, France and Germany) so that sanctions are eased and the country would be able to increase its production and export.

“This could reduce its budgetary gap and help Iran to regain its pre-sanctions market share,” said Sara Vakhshouri, President of US-based SVB Energy International, a global strategic energy consulting firm specialised in oil and gas industry.

She said that Iran will not push for production cuts at this month’s Organisation of the Petroleum Exporting Countries (Opec) meeting in Vienna.

“Therefore it’s not in Iran’s interest to push for Opec production drop, as its export is already at its minimum range and this country would not want to lose additional market share. Also, if Opec and Iran reduce their production, there is no guarantee that non-Opec producers would do the same,” she added.

Iran’s economy minister, Ali Tayyebnia, said on Sunday that if oil prices keep falling, the government will definitely make plans to head off a budget deficit problem next (calendar) year.

The minister said Iran will dip into the National Development Fund of Iran (NDFI) to make up for any possible shortfall. He was quoted on Shana, the oil ministry’s website in Iran.

Carole Nakhle, a non-resident scholar at the Beirut-based global think tank, Carnegie Middle East Centre, said that even if an agreement on Iran’s nuclear programme is reached, it would be premature to predict that the oil and gas markets will be immediately flooded with new supplies from that part of the world.

“Many technical and legislative bottlenecks remain. Iran might get some speedy concessions, but these are unlikely to reverse the oil and gas production and investment realities in the country, given that oil and gas projects require long-term commitments lasting decades. Furthermore, the removal of sanctions, especially the US sanctions, is a lengthy and complex process,” she wrote in an article on the centre’s website.