Will Iran Dare Cut Gas Imports, Subsidies

Andrea R. Mihailescu, The Washington Times:

Iran, which relies on imports for almost half its refined petroleum products, plans to halt those imports and introduce gasoline rationing later this year, the government announced. The decision appears related to a plan to allow the nation's heavily subsidized gasoline to spike in price in order to reduce the smuggling of fuel to neighboring countries, a practice that aggravates shortages and costs the country billions of dollars every year.

Analysts think Tehran may be acting to reduce its vulnerability to any international sanctions on its gasoline imports over its nuclear program. But similar attempts to lift subsidies on key commodities in other countries have sparked widespread unrest, and one Iranian member of parliament has said the government will not dare to go ahead with its plan. READ MORE

Iran is the world's second-largest producer and exporter of crude oil, but its antiquated refineries are able to meet barely 60 percent of the domestic demand, according to government figures. Production stands at 10.5 million gallons a day, compared with daily demand standing at 18.5 million gallons.

Heavy subsidies -- which keep gasoline prices as low as 9 cents to 45 cents a gallon, depending on the quality and location -- meanwhile allow for huge profits on gasoline smuggled into neighboring countries, such as Afghanistan, Iraq, Pakistan and Turkey.

Iranian Oil Minister Kazem Vaziri Hamaneh announced June 23 on state television that the government planned to stop importing gasoline as of Sept. 23.

"As there is nothing provided for petrol imports in the second half of this [fiscal] year's budget ... the imports will naturally stop and petrol will be rationed," Mr. Hamaneh said.

Iran had been expected to spend $5 billion importing refined oil products in 2006. But the parliament budgeted only $4 billion for the purpose and, then in February, slashed that to $2.5 billion.

At the same time, the parliament backed a government initiative to limit the number of people permitted to purchase gasoline at subsidized prices, an initiative that has not been implemented.

In any event, prices generally will be permitted to rise in hopes of reducing the pressure on existing supplies by slowing the smuggling of Iranian gas into neighboring countries.

Iranian press last month quoted Gen. Ali Soltani, director of the campaign against economic crimes in Iran, complaining about the problem. "Every year, [310 million gallons] of refined oil products worth $1.18 billion are smuggled abroad," he was quoted as saying.

"Last year, we seized more than [13 million gallons] of oil products, which is equal to only 10 days of the trafficked amount," Gen. Soltani said.

Iraq, Iran's western neighbor, acted earlier this year to end a heavily subsidized gasoline program that was established during the rule of Saddam Hussein. Iraq also has become a recipient of Iran's cheap fuel.

The fuel smuggled from Iran is colored pink, while that from the refineries in Iraq has a clear color. Because substitution of inferior Iranian fuel is frequent, motorists typically smell and rub a sample of gasoline between their hands to see whether it has been watered down and color added before sale.

Afghanistan is another recipient of smuggled Iranian fuel. The Iranian newspaper Mardom-Salari cited the Baztab news agency on June 6 as reporting that nomadic tribes on both sides of the border are actively transporting oil products to Afghanistan. Fuel thieves typically carry barrels full of oil products across the border at night.

The newspaper said many passenger buses also have concealed fuel tanks. Fuel thieves also use animals as a means of transport.

The long Pakistan-Iran border also is wide open to smugglers, despite denials from Pakistani officials. Smugglers pass through the checkpoints unchallenged and untaxed.