Hamid Mollazadeh
As Iran approaches the submission of its annual budget bill to parliament, the debate over oil once again dominates fiscal discussions. Despite long-standing policy commitments to reduce dependence on hydrocarbon revenues, oil remains the single most influential variable shaping Iran’s budget, macroeconomic stability and policy credibility.
In this context, realism is not a rhetorical choice but a practical necessity. The number assigned to oil in the budget is a direct reflection of how seriously policymakers engage with global market signals.
For Iran, the oil price assumption embedded in the budget functions as a macroeconomic anchor. It affects not only projected revenues but also foreign exchange inflows, deficit financing, inflation expectations, and the government’s capacity to fund basic expenditures.
Past experience has shown that disconnecting budget assumptions from market realities carries a high cost. Overly optimistic oil prices have repeatedly resulted in revenue shortfalls, delayed spending adjustments, monetary expansion, and rising debt. Excessive caution, on the other hand, has sometimes constrained growth and limited fiscal flexibility. The challenge lies in striking a balance grounded in realism.
Need for Caution
Recent developments in the global oil market suggest that this balance must lean toward caution. Over the past year, oil markets have absorbed a series of geopolitical shocks—from regional conflicts to maritime disruptions—without sustaining high prices. While such events generated short-term volatility, their impact quickly faded. The reason is structural: global supply has remained abundant. Strong production growth in the United States, continued output from non-OPEC producers, and the gradual return of idle capacities have reduced the market’s sensitivity to political risk.
Price data reinforce this picture. In 2025, Brent crude largely traded within a relatively narrow band, hovering between the mid-60s and low-70s per barrel. Temporary rallies proved unsustainable and prices ultimately gravitated toward the lower end of the range. This behavior underscores a critical lesson for Iran’s budget planners: market peaks are not reliable reference points. Budgeting based on episodic price spikes risks overstating revenue capacity.
Principal Risk
Looking ahead, forecasts for 2026 further strengthen the case for realism. Major energy agencies and financial institutions anticipate continued supply growth alongside slower demand expansion, particularly amid uncertain global economic conditions. Many projections place average oil prices around $60 per barrel or lower, barring a major and lasting supply disruption. In this environment, the principal risk is not missing out on a price surge, but being exposed to gradual price erosion.
For Iran, whose fiscal structure remains sensitive to oil income, this outlook carries clear implications. A budget framed around optimistic assumptions effectively transfers global market volatility into domestic economic management. Conversely, a realistic oil price assumption can act as a stabilizer, reducing the likelihood of mid-year corrections, emergency financing, or inflationary pressures.
Prudent Approach
A prudent approach would anchor Iran’s budget oil price near recent market averages, roughly in the low-$60 range. Such an assumption aligns with observable trends rather than speculative scenarios.
Incorporating a downside buffer would further enhance fiscal resilience, allowing policymakers to respond to adverse developments without resorting to disruptive adjustments. While upside risks—driven by geopolitical shocks—cannot be ruled out, they should be treated as contingencies rather than the foundation of fiscal planning.
Ultimately, the global oil market is sending Iran a clear message ahead of the new budget year: realism matters. In a market shaped by ample supply, muted demand growth, and diminishing geopolitical premiums, sustainable fiscal policy depends less on hope and more on disciplined assumptions.
A budget built on realism may lack headline appeal, but it offers something more valuable—predictability, credibility and a firmer footing for economic management.
