Iran's oil minister said Wednesday his country is diverting funds from other sectors of its national budget to support its oil industry _ its main revenue source _ suggesting that at present prices the Islamic Republic was losing money on its crude.
Oil Minister Gholam Hossein Nozari's comments revealed an extra burden on the country ahead of key elections in which popular dissatisfaction with falling living standards is expected to play a large role.
"We have to bring money from other sectors to the oil sector," Nozari told the Fourth OPEC International Seminar.
He gave no figures but later told The Associated Press that while some fields were still profitable at that prices production at others had to be subsidized to maintain output at over 4 million barrels a day. Shutting down production could mean high restart costs if prices rise.
Crude prices have been bolstered by renewed optimism in stock markets, which oil traders often use to measure overall investor sentiment about the economy. While trading slightly lower Wednesday, the Dow Jones industrial average rose 2.5 percent Tuesday and the Standard & Poor's 500 index jumped 3.2 percent. Investors are trying to gauge whether the worst of the U.S. recession is over.
However, months of massive layoffs, falling global consumer demand and weak corporate profits are generating caution about whether the drop in crude demand has bottomed out.
A barrel of benchmark crude was selling Wednesday for $47.79 a barrel _ well up from prices just a few weeks ago but still only at a third of this summer's record levels.
About 60 percent of Iran's government budget comes from oil sales and the country last year drew up spending plans using $80 a barrel as a benchmark. But the drop in prices has reduced daily oil income from an estimated $300 million to just over $100 million a day.
The stunning fall of crude from its lofty summer highs of $147 a barrel has already forced Iranian President Mahmoud Ahmadinejad to introduce unpopular measures. He recently presented parliament with a sweeping economic package that calls for scrapping costly state subsidies for fuel, water and electricity and raising taxes.
The move is a risky one for Ahmadinejad, who already is facing public disenchantment over Iran's economic problems as he heads into June elections. Economists have warned that his plan will push up prices, worsening inflation now running at 28 percent.
Ahmadinejad had warned of the need for such a plan in early December, when he acknowledged publicly for the first time that tumbling oil prices were hurting the country, second in crude export terms only to the Saudis within the Organization of the Petroleum Exporting Countries.
But critics said the plan would worsen economic conditions _ lawmaker Emad Hosseini argued it would damage Iran's major industries, which are dependent on cheap energy. And Ramin Pashaifam, a central bank official, warned that the bill could push up the inflation rate to between 40 percent and 55 percent.
Another sore point in the proposal will be its call for a sales tax. In September, merchants closed their shops to protest a new sales tax and the unrest forced Ahmadinejad to order the government to suspend the levy.
The state of the oil industry is closely tied to Ahmadinejad's fortunes. He was elected in 2005 on a populist platform that promised to share Iran's oil revenues with every family, eradicate poverty and lower unemployment. But his popularity plunged as inflation and unemployment rose.
Official statistics put Iran's unemployment rate at 10 percent, but experts estimate it is really about 30 percent.
Potential candidates in the June presidential election have seized on Ahmadinejad's vulnerability, noting that Iranians are poorer and the economy is suffering. They have accused Ahmadinejad of squandering the opportunity presented by soaring oil prices over the past three years and failing to use the higher revenues to insulate Iran for tougher times.
The president has also drawn criticism for his hard line on the standoff with the U.S. and other major international powers over Iran's nuclear program, which has contributed to the country's isolation. Iran says it wants to generate nuclear power, but its critics say it is interested in making atomic arms
In Vienna, Nozari said his country had every right to develop nuclear power, despite its abundant oil reserves.
"All the countries are trying to diversify the sources of their energy," he said. "It is our national right to have access to all forms of energy."
