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Iran Considers Gasoline Rationing
Sitting on a mountain of oil, the Iranians move toward gas rationing.
By Abbas William Samii
Weekly Standard
02/07/2007 12:00:00 AM

IRANIANS are among the world's biggest consumers of gasoline because the product is kept at an artificially low price through government subsidies. The Iranian cabinet decided in mid-January that it would try to reduce consumption by introducing gasoline rationing, and reports from the provinces reveal that rationing is already taking place. The measure will not be popular among the Iranian public. Concern about the potential effect of sanctions--relating to United Nations Security Council Resolution 1737, which was issued in late December due to concern over Iran's suspicious nuclear activities--may be behind the push for austerity measures.

According to the U.S. Energy Information Administration, 10 percent of the world's total proven oil reserves are in the Islamic Republic of Iran. In 2005, Iran produced approximately 5 percent of global crude production. Yet despite its status as a producing country, Iran has been importing gasoline and other refined products since 1982. Indeed, only the United States surpasses Iran in gasoline imports by volume.

Iranian consumers use so much gasoline--Tehran projects 75 million liters this year--because prices are kept at an artificially low level. Gasoline there costs approximately $0.40/gallon ($0.09/liter), but Minister of Economy and Finance Davud Danesh-Jafari said last summer that the real cost is roughly six times that amount--$0.57/liter.

President Ahmadinejad's cabinet approved a gasoline-rationing plan in early January. This was not the first such effort--an earlier one, in June 2006, fell by the wayside after fears arose of a public backlash. Then, the legislature approved the state budget's call for rationing, but the next month it instead allowed the government to withdraw an additional $4 billion to spend on fuel imports.

Iran's executive branch is showing greater resolve this time. Interior Minister Hojatoleslam Mustafa Purmohammadi, in a late-January discussion about the pending state budget, said that $2.5 billion would be required for gasoline imports if the legislature approves the rationing plan. "The government insists on rationing gasoline to keep prices stable and prevent economic problems," Purmohammadi said. He contrasted this with legislators' "opinion" that domestically produced gasoline should be rationed and imported gasoline should be sold at the higher, black market price.

President Ahmadinejad addressed subsidies and gasoline in a January 23 state television interview, saying that more than $15 billion was spent on subsidies so far this year. Gasoline subsidies cannot be eliminated right away, he said, because "all our economy is tied to this and it would create traumas in people's lives if we were to change our views, lift control over gasoline prices, allowing them to rise by up to 40-50 percent and then have to face all the consequences."

"The government cannot accept this kind of situation," Ahmadinejad continued. It would therefore be proposing alternatives, including natural gas-fueled vehicles and expansion of public transportation. Ahmadinejad predicted that gasoline subsides could be eliminated in five years, if his plan is adopted.

JANUARY REPORTS from the provinces indicate that gasoline rationing is already underway. An unnamed legislator from Kurdistan province told the Iran Press News that gasoline and diesel are being rationed, and therefore, transportation is hard to come by. An opposition website reported on rationing in the southwestern Sistan va Baluchistan province, its neighboring South Khorasan province, and the northwestern West Azerbaijan province, as well. On the Persian Gulf island of Qeshm, truck drivers were issued smart cards in connection with fuel rationing plans.

At the end of the month, national newspapers, including the pro-reform Etemad-i Melli, the conservative Hemayat, and the centrist Kargozaran, all reported that rationing was taking place in some of the border provinces. They explained that the rationing was meant to curb smuggling to other countries.

Such measures by the state are sensible, because smuggling certainly contributes to the high fuel consumption rate. Inexpensive Iranian gasoline is smuggled to Turkey and Pakistan and resold for a profit. Mohammad Reza Naqdi, who heads the Iranian government's Goods and Currency Anti-smuggling Headquarters, said in early January that in the first nine months of the Iranian year (which began on March 21, 2006), the smuggling of some $1 billion worth of fuel out of the country had been stopped.

PRESIDENT AHMADINEJAD submitted his budget for the coming year (which begins in March) on January 21, and it is not clear how legislators will react to his rationing proposals. Opposition is likely in light of general criticism of his policies.

The conservative deputy parliamentary speaker, Mohammad Reza Bahonar, criticized the budget and complained that the government lacks a proper economic strategy. Legislator Ali Asgari said Iran's enemies see the country's "sick" economy and are using this to apply pressure, while his colleague Ramezanali Sadeqzadeh said that legislators do not believe this budget would contribute to economic growth. The parliament held a closed session on 4 February to discuss the budget weaknesses.

A few days before Ahmadinejad submitted the budget, 150 out of the 290 members of parliament took the unprecedented step of sending the president an open letter on the economy and other issues. Among the eight points made in the letter was that the government must prepare for an end to gasoline imports. (Last summer, 50 Iranian economists submitted an open letter in which they criticized the president's economic policies and singled out the inefficient and unplanned payment of subsidies.)

President Ahmadinejad has shown a tendency to ignore advice. It is not clear if this is because he is a committed ideologue surrounded by intellectual fellow-travelers or because of personal arrogance. Indeed, the answer might be, "both." When asked if he turned to experts while making decisions, Ahmadinejad described himself as an "expert among experts" who has a "circle of friends who are like me."

On the one hand, the system's check-and-balances and the power of various unelected bodies, such as the Guardians Council and the Expediency Council, mean that the president can be over-ridden if his policies excessively damage the economy or impose undue hardship on the public. On the other hand, these same institutions could let the president take the blame if there is a popular backlash against fuel rationing or other economic policies.

Abbas William Samii is a regional analyst with the Center for Naval Analyses. The views expressed here are his own.

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