Iran's President Concedes Economy Hurting Over Oil

Iranian President Mahmoud Ahmadinejad, speaks during the inaugural ceremony of the 15th Non-Aligned Movement Foreign Ministerial meeting, in Tehran on Tuesday July, 29, 2008.

(Hasan Sarbakhshian/AP Photo)

Iran's hard-line president has acknowledged publicly for the first time that his country's economy is taking a severe beating from tumbling oil prices, a damaging admission by a leader whose popularity is eroding ahead of a tough re-election battle next year.

Oil prices have plunged more than 60 percent since July as a faltering global economy dampens demand. Mahmoud Ahmadinejad said that will force the government of the world's fourth-largest oil exporter to make painful spending cuts, the official IRNA news agency reported Wednesday.

Ahmadinejad said his government would have to lower its expectations of oil revenues when planning next year's budget, which is largely financed by oil exports. International financial institutions estimate Iran needs oil at $90 a barrel to keep this year's budget balanced, but it is currently below $50.

"We have to leave a major part of our projects behind," the president said.

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Only a month ago, officials in the president's office said they planned to base the budget on an oil price of $50-$60 a barrel.

"But we are obliged to set it at $30-$35 because we do not decide the price of oil on the global market," Ahmadinejad said.

For months, the weakened president, who is seeking re-election in June, had sidestepped the country's troubling unemployment and inflation figures in his remarks on the economy. Instead, he took shots at the United States, which he accused of exporting financial problems to the rest of the world.

Just last month he boasted that even if the price of oil sank to $5 a barrel, Iran's economy would be fine. Now, the president says Iran's government has no choice but to trim spending and generous subsidies and to raise taxes.

Ahmadinejad was already under sharp criticism for his unpopular economic policies. In November, 60 economists wrote their third letter to Ahmadinejad since 2006 blaming him for skyrocketing inflation caused by the huge sums of oil money that his government injected into the country's economy. Inflation is currently running at 30 percent annually.