Iran, an oil giant, in a gasoline squeeze

New York Times: As the threat of economic sanctions over Iran’s nuclear activities has helped push the price of crude over $78 a barrel, the country, the world’s fourth-largest oil exporter, is struggling with the cost of its gasoline imports. The New York Times

By NAZILA FATHI

TEHRAN, July 15 — As the threat of economic sanctions over Iran’s nuclear activities has helped push the price of crude over $78 a barrel, the country, the world’s fourth-largest oil exporter, is struggling with the cost of its gasoline imports.

With demand far outstripping its domestic refining capacity, Iran buys foreign gasoline for slightly more than 50 cents a liter (about $2 a gallon) and sells it at the pump for about 8 cents a liter (less than 40 cents a gallon), the highest subsidies in the region.

The discount prices have further encouraged consumption and cut into the country’s export windfall. Waste and pollution are rampant. The cheap gas is smuggled out to other countries at the rate of some two million gallons a day, according to one study by Parliament.

Months ago, Parliament acted to break this damaging cycle, reducing the budget for importing gasoline to $2.5 billion from $4 billion.

“We cannot use the income from oil to buy gasoline for over 5,000 rials per liter and give it to people for 800 rials,’’ said Ismail Jabarzadeh, a member of Parliament. “We have postponed making this decision for many years, but eventually the right decision should be made.”

Those funds will be exhausted by August, and the government must then either secure more money for the imports or begin limiting consumption. Without imports, drivers would have to consume 42 percent less gasoline.

Parliament and the government of President Mahmoud Ahmadinejad are still discussing options, including rationing domestically produced gasoline and selling imported gasoline at its regional price.

The minister of economy, Davoud Danesh-Jafari, said Monday that rationing would have to wait until at least December, the ISNA student news agency reported, so that the government could issue smart cards to track sales to replace its gasoline coupons, which are easily sold on the black market.

And while the government has publicly said it definitely intended to ration supplies, doing so would risk serious political and social consequences. Even the previous president, Mohammad Khatami, who encouraged liberalizing the economy, was afraid to raise gas prices or ration supplies, fearing inflation and social discontent.

In 1995, riots broke out in the working-class towns of Akbarabad and Islamshahr, near Tehran, after bus fares were raised. One person was killed and dozens were injured. But the possibility that the United Nations Security Council will impose economic sanctions on Iran over its refusal to freeze its nuclear activities has added a new pressure on the government to stop imports and raise prices.

“The government has no choice now to stop the import both because of the uncontrollable domestic consumption and because of security issues,” said Saeed Leylaz, an economist and political analyst in Tehran. “The government wants to voluntarily bring the consumption under control in case economic sanctions are imposed.”

Some fear that the mere idea of rationing gasoline will lead to higher transportation fares. Some worry that if, as has been suggested, cabdrivers get relatively large rations, they might sell the gas illegally, creating a black market and causing rapid inflation.

Taqi Rashidi, 62, a cabdriver in Tehran, said the government risked protests. “Passengers are already complaining about high prices,” he said. “They won’t remain quiet if taxi fares increase too.”

The signs of cheap gasoline are everywhere in Iran. The cheapest, most common Iranian vehicle, the domestically produced Peykan, gets just 12 miles a gallon. The Peykan was discontinued only last year because of its pathetic mileage and pollutant-laden exhaust.

As in other countries dependent on automobiles, traffic and pollution are major problems, and public transport is slow and insufficient. The government’s efforts to bar private cars from driving into downtown Tehran has done little to ease traffic or clean the air.

“Car factories are manufacturing 1.3 million cars every year, and they are all coming on to the streets,” said Mohammad Sadeq Jannan Sefat, a journalist in Tehran. “Cheap fuel has increased the appetite for these cars, and the government can no longer continue paying for it,” he added.