Gasoline Rationing in Iran

IEA Monthly Oil Market Report May 2007 - page 15

In our last commentary on Iran’s gasoline market (Oil Market Report dated 11 October 2006), wespeculated about how the country would tackle its galloping gasoline demand, which had led to asignificant surge in imports (some 40% of total demand, given the lack of domestic refining capacity) andwhich was being prompted by possibly the cheapest retail prices in the world (as in many oil producing countries, cheap fuel is almost considered an entitlement). The issue was quite sensitive, we then argued, because the government had to balance financial imperatives (the growing burden of subsidies and imports) and political considerations (triggering social unrest by rationing demand and/or raising prices, which would also likely stoke inflation), not to mention the issue of tackling waste (spills at service stations and the poor fuel economy of most of the Iranian vehicle fleet).

The government, though, prevaricated for a few months, releasing instead extra funds in January 2007 (about $2.5 billion) to finance gasoline imports until March (the end of the Iranian fiscal year). In late March, however, both the Majlis (parliament) and the Council of Guardians finally approved a long debated scheme to ration supply and raise prices, which will reportedly be implemented from mid-May. Under the scheme, private car owners will be allocated 90 litres per month (300 litres for taxis), priced at Rials 1,000 per litre (approximately 12 cents) instead of Rials 800 per litre (that is, a 25% price increase). Supply above the quota will be priced at Rials 5,000 per litre (five times more than subsidized prices and roughly equal to gasoline’s import cost). In addition, the National Iranian Oil Refining and Distribution Company (NIORDC) intends to launch a five-year refinery upgrade and expansion plan, aimed at raising throughput to 2.9 mb/d from the current 1.6 mb/d.