Washington and the European Union have stepped up sanctions on the Islamic Republic, alarmed by its disputed nuclear program.

Iran earned up to $100 billion in oil revenue last year but an EU embargo set to come into force in July could put a major dent in future income.

The president has also faced criticism inside Iran for his handling of the economy, particularly over his withdrawal of generous food and energy subsidies in favor of cash handouts - a move that critics say has fuelled inflation and increased hardship.

Iran's National Development Fund - which is currently valued at around $35 billion - was set up by Ahmadinejad's government last year to collect some of the proceeds from the country's oil and gas industries for the benefit of future generations.

A minimum of 20 percent of its reserves is supposed to be invested abroad.

"Taking into the account the upward movement of oil prices, Iran's National Development Fund could reach 55 billion by the end of the (Persian) year (March 2013)," The Iranian state news agency quoted the president as saying during a visit to north-eastern Iran.

"For the first time in history ... (the) government has been able to save a proportion of its oil revenues while previous governments spent all revenues every year," Ahmadinejad said.

Ahmadinejad added the 20 percent of oil revenues set aside in the past would increase to 23 and 26 percent in the following two years.

Previous governments had contributed to the Oil Stabilization Fund which was created in the year 2000 to support the national budget during oil price fluctuations. Its funds have been transferred to the National Development Fund.

Sanctions against Iran aim to hurt Iran's energy industry and its financial sector, forcing oil companies to choose between buying Iran crude or continuing business in the United States. Companies that want to continue trading with Iran have encountered increasing difficulties in meeting oil payments.

The International Energy Agency recently said that the wide-ranging sanctions against Iran could reduce its oil exports by as much as 1 million barrels per day, or 40 percent, from the middle of the year.

Western powers have ratcheted up sanctions to force Tehran to abandon uranium enrichment which they suspect is part of a program to development nuclear weapons. Iran has repeatedly denied the accusations.

Iran is due to hold further negotiations with Western powers next week in an effort to find a solution but the time and date of the talks have still not be finalized.

(Reporting By Marcus George; Editing by Andrew Heavens)

• A Permanent Economic Emergency