Iran, WTO, and Gasoline

A "looming battle" over what to do with Iran's dependence on gasoline imports (a strategic liability and a development problem that must be solved) and subsidies for gasoline consumption (necessary for the Iranian working class in the short term, but undoubtedly wasteful economically and environmentally in the long term) is a tough one for the President of Iran to handle. Iran's oil minister Kazem Vaziri-Hamaneh, who wasn't Ahmadinejad's choice, is a leftover from the Khatami era (a deputy oil minister at that time), and he, as well as his parliamentary allies, isn't really down with the President's economic agenda and may also be using this problem in a faction fight against the President and his allies.

• "A looming battle over those subsidies typifies Mr. Ahmadinejad's coming dilemma. In the fall, as part of its WTO obligations, the government plans to limit the amount of subsidized gasoline consumers can buy. Above that level, consumers will have to pay higher prices. That will raise the cost of living for Mr. Ahmadinejad's constituents by pushing up prices of nearly everything else in Iran's gas-guzzling economy. The government is already talking about dipping into the oil fund to continue financing the subsidies" (Bill Spindle, "Burning Oil -- Behind Rise of Iran's President: A Populist Economic Agenda; Ahmadinejad Wins Power Promising Lavish Outlays; Inflation Is a Major Worry; Crunch Time at Biscuit Factory," Wall Street Journal, Eastern ed., 22 June 2006, A.1).


• Iran could ration motorists to less than five liters of gasoline per day from September but will keep prices heavily subsidized to ward off inflation, Iran's Oil Minister Kazem Vaziri-Hamaneh said.
  
  Vaziri-Hamaneh said earlier Iran would have to ration gasoline from September 23 after parliament slashed the budget for importing the fuel. He said gas-guzzling Iran would end petrol imports but traders said they doubted Tehran could do so.
  
  Despite holding the world's second biggest oil reserves, Iran lacks refinery capacity and imports more than 40 per cent of the 70 million litres of gasoline it burns each day.
  
  Most gasoline imports come from western Europe, with trading house Vitol the leading supplier, market sources said. India has also featured as a key exporter, at times supplying up to 25,000 bpd.
  
  International traders watch major gasoline importer Iran closely for any sign of fluctuations in demand, but doubt the Islamic Republic will have the political courage to aggravate motorists by halting its 15 monthly tanker shipments.
  
  'Each car will receive a ration of less than five liters if rationing happens,' state television quoted Vaziri-Hamaneh as saying. 'Only taxis and public transport will receive more than the ration.'
  
  The government, in which Vaziri-Hamaneh is the most powerful minister, is due to issue its final verdict on gasoline rationing this week.
  
  Some economists had called for Iran to raise the price of gasoline to market levels or introduce a dual-pricing system under which motorists could pay unsubsidized rates for anything they bought beyond the ration. The minister dismissed this.
  
  'Announcing a sudden rise in the gasoline price will cause an inflation shock which society cannot take now,' he said, adding the real price of gasoline was 55 cents per liter, not the nine cents it fetches at pumps.
  
  Conservative Iranian politicians have dismissed fears that rationing could spark social unrest, stressing how Iranians accepted a coupon system during the 1980-1988 war against Iraq.
  
  But political analysts have expressed doubts that Iranians will be so stoical today. Most traded goods move by road and hikes in fuel prices and transportation have traditionally sparked sharp spikes in the cost of basic good.
  
  Iran's cheap gasoline culture chokes big cities with heavy pollution. Economists identify Iran's ubiquitous subsidies as one of the principal reasons for uncompetitive industry.
  
  Many officials have also argued that Tehran's dependence on imported gasoline threatens national security. It is a sensitive target for any sanctions imposed over atomic work.
  
  Iran has ambitious plans to upgrade refineries over the next five years and lift daily gasoline output to 120 million liters. But investment has been sluggish. (Reuters, "Iran Daily Petrol Ration under 5 Liters," 25 June 2006)