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Iran Exports, Oil Earnings Hurt By World Crisis

Inflation in Iran has risen to nearly 30 percent
TEHRAN (Reuters) -- Iran is being hurt by the financial crisis because of falling oil prices and a world downturn that will damage non-oil exports, an official said on October 26, even though Iran's economy was relatively isolated.

Iranian officials are voicing more concern about the impact of the international financial turmoil after initially brushing off the impact on Iran, which has an economy that has become increasingly isolated because of U.S. and UN sanctions.

Many Western banks have scaled back or cut dealings with Iran because of sanctions imposed over Iran's disputed nuclear work. But the world's fourth-largest oil producer has watched crude prices tumble and now expects to see other exports hurt.

"Even though the Iranian economy is to some extent less tied in to the world economy, the first impact [of the crisis] on the Iranian economy is a drop in the oil price," Kamal Seyyed Ali, head of Iran's export guarantee fund, said.

International crude prices have tumbled from $147 a barrel in July to around $65 a barrel on October 25. Some economists say Iran needs $70-$75 a barrel, or more, to balance its books.

In the comments reported on state radio, Seyyed Ali said a recession in the world economy would also hurt other exports. "This issue constitutes a major challenge for the country's non-oil exports," he said.

Iran's main exports aside from oil include carpets and pistachio nuts but they are relatively modest. Central bank figures for the year to March 2008 showed oil and gas exports at $81.8 billion compared with non-oil exports of $15.6 billion.

The government has ordered the economy, commerce, and agriculture ministries to "evaluate the impact of the global financial crisis on the Iranian economy", radio said. Each ministry has set up a committee to study the issue, it added.

Elections Next Year

Central Bank Governor Mahmoud Bahmani meets MPs on October 26 to explain the impact of the crisis, radio reported.

A central bank official has already said the drop in oil prices, a result of deepening global economic slowdown, rang an "alarm bell." Former President Akbar Hashemi Rafsanjani said Iran should be prepared for the economic "tsunami."

The impact of the crisis will add to the challenges facing President Mahmoud Ahmadinejad, who is expected to seek a second four-year term in the June 2009 presidential elections.

His government is already under fire by critics for squandering Iran's windfall oil earnings and making the economy increasingly dependent on crude. Critics say his spending spree is the reason inflation has soared to 29 percent.

Ahmadinejad took office in 2005 promising to spread Iran's oil wealth more fairly.

Labour Minister Mohammad Jahromi said expansionary government policies of the past three years had given the state a bigger role, Sarmayeh newspaper reported on Sunday.