2007 gasoline rationing plan in Iran

2007 Gasoline Rationing Plan in Iran was launched by president Mahmoud Ahmadinejad's cabinet to reduce that country's fuel consumption. Although Iran is one of the world's largest producers of petroleum, rapid increases in demand and limited refining capacity has forced the country to import about 40% of its gasoline, at an annual cost of up to $7 billion.

The fuel rationing originally triggered discontent in Iran, but, according to analysts quoted in the Western news media, the Iranian government is hoping that reducing gasoline imports will help insulate the country from international pressure related to its nuclear program. "We will greatly suffer if they (foreign countries) suddenly decide not to sell us fuel," said Iranian political analyst Saeed Leylaz. "Fuel rationing is a security-economic decision to reduce fuel consumption." In an interview Iranian president Mahmoud Ahmadinejad said: "They [Americans] had a plan and idea that is neutralized. They don't know our nation. They think if they refuse to provide us with gasoline, our nation would say we don't want nuclear energy."

Background

See also: Ministry of Petroleum of Iran

An increase in population since 1980 from 40 to 68 million people has pushed Iran’s gasoline consumption up by nearly 13 percent annually over the past five years. As a result the country consumes far more gasoline than its refineries can provide. Production stands at 10.5 million gallons a day, compared with daily demand standing at 18.5 million gallons. With 43 percent of its gasoline imported, Iran is the world’s second largest gasoline importer.

Iran's petrol is heavily subsidised, sold at about a fifth of its real cost. The price of 1,000 rials ($0.11) per litre makes Iran one of the cheapest countries in the world for motorists. The government maintains that the rich benefit from 70 percent of subsidies and that it is one of the primary reasons for changing the subsidies system.

Gas rationing plan

See also: National Iranian Oil Refining and Distribution Company

Iran took action to reduce its dependence on foreign gasoline through a three-pronged strategy which includes:

• Significant expansion of Iran’s refining capacity
• Securing gasoline imports from friendly allies
• Reducing the use of gasoline
• Development of the public transport system

A special committee set up by the government came up with a four-point program which includes:

• Conversion of most existing cars to run on natural gas within five years at a rate of 1.2 million annually. This will begin with conversion of 600,000 public and governmental cars to NGV.
• Phase out of very old cars (approximately 1.2 million) by 2010.
• As of June 2007, most of the newly manufactured cars will have to be able to run on natural gas.
• Within five years most of Iran’s 10,000 refueling stations will be retrofitted to serve natural gas.

The Iranian government provides incentives to CNG car buyers and has meanwhile decreased the gasoline subsides. It must be noted that Iran is the Middle East's leading car manufacturer. In 2005 Iranian automakers produced nearly one million vehicles including 884,000 passenger cars and 104,000 heavy vehicles, altogether worth $11.6 billion. The Iranian government aims to have most of Iran’s cars running on natural gas by 2015.

The restrictions began at midnight local time on Wednesday 27th of June (2030 GMT Tuesday) and are set to continue for four months. The rationing system, allows private drivers only 100 liters (26 gallons) of fuel per month at the subsidized price. Taxis get 800 liters (211 gallons) a month. Anything more than that will have to be bought at a higher price, which officials say will be announced within the next two months. The fuel rationing has triggered widespread discontent in Iran, but if it succeeds in reducing the amount of imported gasoline, it could help insulate the country from international pressure related to its nuclear program.

Based on the current rationing plan, each private car receives 120 liters per month at about 10 cents per liter. Currently, the price for non-rationed gasoline is almost 40 cents (Nov. 2008).

Prices in neighboring countries

In mid-November 2008, the prices super gasoline in the neighboring Afghanistan, Armenia, Azerbaijan, Pakistan, Turkey and the UAE were 105, 108, 74, 84, 187 and 45 cents per liter. Whereas, in Iran motorists are allowed 100 liters (26.4 US gallons) of gasoline each month at the subsidized price of about 10 cents per liter (37.9 cents per US gallons) and an unlimited amount at 40 cents per liter ($1.52 per US gallons).

Fuel smuggling

See also: Smuggling in Iran, Iranian automotive industry, and Foreign trade and economic relations of Iran

According to Iranian counter-smuggling authorities, 17 percent of daily fuel production equivalent to some 40 million liters (10.6 million US gallons) were being smuggled out of the country every day in 2009. This is while most of the smuggling concerns gasoline and diesel fuel, whereas Iran imports both of these to the tune of 30 million liters (7.9 million US gallons) every day. Smugglers are using "lakes of fuel", underground pipelines to neighboring countries and oil tankers on the Shatt al-Arab waterway. Facilities such as the Martyr Rajai Port Complex in Hormuzgan province are reportedly used by the IRGC to export state subsidized gasoline outside the country. Fuel smuggling has increased by 232 percent compared to last year's figures. Iran says its naval security forces have confiscated ten oil tankers smuggling 4,600 tons of Iranian fuel out of the Persian Gulf in 2008.

Immediate reactions to gas rationing plan

Some lawmakers were urgently drafting a bill to stop rationing. Private cars will get 100 litres of gasoline a month but less if they also burn compressed natural gas, state TV said. Drivers have complained that the amount is too little. All gasoline is already sold using electronic "smart" cards, but some drivers have not received them. Officials say the cards will reduce the possibility of a black market in fuel.

Iranians were given only two hours' notice of the move that limits private drivers to 100 litres of fuel a month. There is anger that the government did not give people more notice. At least 12 petrol stations have been torched in the Iranian capital, Tehran. "Guns, fireworks, tanks, [President] Ahmadinejad should be killed," chanted angry youths, throwing stones at police.

Long term reactions to gas rationing plan

As of mid 2008 the Gas Rationing Plan was regarded as a total failure, due to the reasons below:

• Investment of millions of dollars in infrastructure.
• Infrastructure that is unsecured, open to theft, and slow creating bottle necks at petrol stations.
• Creation of a black market for petrol - to bypass limitations on purchasable liters.
• Increase in price of petrol.
• Not reducing traffic due to lack of public transport.
• Cause of general inflation due to cost of living.

Oil Minister said the gasoline rationing scheme has helped the country curb consumption by up to 20 million liters a day or $4 billion (2008). Consumption rates approach 22.5 million gallons (85.2 million liters) per day without the restrictions.

Critics acknowledge that rationing did bring consumption down by around 16 million liter a day. Then again, extra quotas for various government organizations, individuals with special needs and some businesses, as well as a 100-liter bonus for ’summer holidays’ allocated by the government reversed the initial fall in consumption. According to Iran-Daily:

Consumers under 45 different categories are now receiving additional gasoline rations.

In the early stages of the plan, traffic was reduced, gasoline consumption went down, there was less pollution and people were adapting to the change in fuel consumption patterns. However with the announcement of extra quotas, the initial achievements were destroyed.

In June 2009, Oil Ministry announced that Iran has so far saved $8.5 billion through the nationwide fuel rations program. Regarding the fuel rationing program, if the plan had not been executed, Iran would have had to import 33 million liters of gasoline per day in 2007-8 and 44 million liters in 2008-9. With the implementation of the plan these figures reduced to 18.9 million liters and 21.6 million liters per day, respectively.

End of the gas rationing plan

See also: Iranian targeted subsidy plan

By July 2010, Iran had managed to save 11 billion dollars since the rationing began, thanks to the gasoline rationing plan, which has spared the need for excessive imports of the commodity. In June 2010, it was announced that after the implementation of the new subsidy reform plan, gasoline will be sold on "free market price". The start of the gasoline subsidy cuts will coincide with the beginning of the second half of the Iranian year on Sept. 23, 2010. At that time, the 2007 Gas rationing plan will come to an end.

References

• Ahmadinejad’s Gas Revolution: A Plan to Defeat Economic Sanctions by Anne Korin and Gal Luft, December 2006

See also

• Iran's nuclear program
• United States oil politics
• 2007 Iranian petrol rationing riots
• The Iran Sanctions Enhancement Act of 2007
• Rationing