Iran: Lower Oil Prices a Tactic to Undermine Its Economy

Iran has accused fellow Muslim countries in the Middle East of plotting with the West to bring down oil prices as a tactic to further undermine its sanctions-hit economy.

With oil losing a quarter of its value since June, President Hassan Rouhani's administration has been scrambling for alternative sources of income to meet its forecast for revenue in the current budget based on an oil price of $100/barrel.

Speaking to conservative Shi'ite Muslim clerics in their stronghold of Qom late on Monday, government spokesman Mohammad Baqer Nobakht said "some so-called Islamic countries in the region are serving the interests of America and (other) arrogant powers in trying to squeeze the Islamic Republic."

"They (the West) have forced our oil production from 4 million bpd to 1 million bpd, and this recent fall of oil prices is their latest gimmick," he was quoted as saying by the semi-official Mehr News.

The oil price slide has been attributed to oversupply, signs of weak demand growth and the apparent reluctance of Saudi Arabia and other key producers of the Organization of the Petroleum Exporting Countries (OPEC) to cut output to lift prices. Brent crude oil held near $86 a barrel on Tuesday, having tumbled from over $110 in June.

While Islamic hardliners in Iran have been quick to blame Riyadh for the price falls, Rouhani and his moderate government have been careful not to antagonise their fellow OPEC member and regional rival in the interest of better future ties.

Under growing criticism for his "passive response" to the bearish oil market, the president ordered Oil Minister Bijan Zangeneh late last week to come up with "more effective use of diplomacy" to stop a further slide in crude prices.

Rouhani was elected by a landslide 14 months ago on a moderate platform but progress has been slow on both the economy and nuclear negotiations with the West, the outcome of which is closely linked to the economic outlook and reform as a political alternative in the Islamic republic.

The president himself has hedged his bets on resolving the 12-year nuclear dispute in tough talks with six world powers -- the United States, Britain, France, Germany, China and Russia, a prospect promising the lifting of sanctions and Iran's strong come back as a major oil exporter.

"We should not pin our hopes on high oil prices, but seek to compensate for falling revenues with bigger volumes of exports," Abbas Ali Noura, an ex parliamentarian, was quoted as saying by Qods Online.

Iran, OPEC's second-largest producer, is normally among the first members of the Organization of the Petroleum Exporting Countries to call for supply cuts to support prices. Iran needs relatively high oil prices to balance its budget, analysts say.

But in a change of tack, Iran has said this month that it can live with lower oil prices and that there was no plan for an emergency OPEC meeting to stop the slide in prices.

Some OPEC members, including Saudi Arabia and Kuwait, have indicated that the group is unlikely to cut output to support prices when it meet on Nov. 27.

Some analysts suggested Saudi Arabia was willing to absorb the impact of lower oil prices to help the West and weaken Moscow and Tehran position when negotiating over Ukrainian sovereignty or the Iranian nuclear deal.

Gulf oil sources dismissed the idea as pure fiction.

Riyadh had always said that it adjusts oil supply to accommodate its customers and not to drive the price.

(Reporting by Mehrdad Balali; Writing by Rania El Gamal; Editing by Hugh Lawson)