Iran Economy NewsIran faces fuel policy fears: IEA

Iran faces fuel policy fears: IEA

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AFP: Iranian energy policy is seriously constrained by several dilemmas over petrol rationing and concern about social unrest if fuel subsidies are reduced, the IEA said on Wednesday.

PARIS (AFP) — Iranian energy policy is seriously constrained by several dilemmas over petrol rationing and concern about social unrest if fuel subsidies are reduced, the IEA said on Wednesday.

Tehran has postponed reducing subsidies for fuel, leaving domestic demand high and petrol (gasoline) sold at “a huge loss,” the International Energy Agency said in a regular monthly report.

“There is reportedly strong disagreement within the political elite on whether to move forward, what to do with the potential savings and how to deal with unintended consequences, such as a probable surge in inflation and the ensuing social protests,” it said.

The IEA, the energy monitoring and strategy arm of the OECD, noted that Iranian petrol consumption was down 15.1 percent in July on a 12-month basis, apparently because of “toughened international sanctions” imposed over the country’s nuclear programme.

Petrol imports “plummeted by a third from June to July,” it said, adding that some sources suggested that they had fallen further in August and September to “perhaps a slow as 25,000 barrels per day.”

Iran was also believed to be paying substantially more than spot market prices.

The IEA said low user prices and limited refining capacity were among the factors behind demand for imported petrol.

“The rationing scheme put in place in mid-2007, weakening economic conditions and social and political turmoil have since helped curb imports somewhat” but they remained high at about 30 percent of demand.

The government has made announcements about tackling the problem but some observers believe this to be “posturing” because demand was too strong relative to refining capacity.

Iran was also likely to have difficulty in making the necessary investment in refinery capacity to boost domestic output because of the international sanctions.

Iranian oil output fell by 20,000 barrels per day to 3.68 mbpd in September, the IEA said.

Some buyers had cut purchases because of tighter banking and insurance regulation while some European companies, unaffected by such constraints, had reportedly increased purchases of Iranian oil.

There were some reports “that China has increased purchases of Iranian crude in recent months but volumes are down from year-ago levels, most likely due to state (oil company) NIOC’s uncompetitive pricing formulas,” the IEA said.

Chinese imports of Iranian oil in the first eight months of the year averaged 390,000 bpd, well below 2009 levels of 520,000 bpd for the same period.

“Iran’s problems selling its crude and its high volumes held in floating storage stem in large part to its over-the-market pricing for poorer quality grades, with new sanctions having had a smaller effect,” the IEA said.

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