Signup for our free newsletter:

Pain at the Persian Pump

Written By Brian Hicks

Posted May 24, 2007

This Tuesday, western news outlets reported the beginning of gasoline rationing in Iran with terse certainty. But the view from Iran is much more complicated, and shows the disarray of oil refining operations in the world’s number-three oil producer.

The Associated Press carried the story of Iran’s gasoline prices jumping by 25%, up to 38 cents (US) from just 30 cents per gallon. The hike, initiated by the Majlis (parliament) as part of a scheme to ration scarce and import-dependent Iranian fuel supplies, comes amid a doubling of housing prices and a tripling in the price of basic goods.

As in America, the middle class in Iran is getting squeezed by increasingly intense pain at the pump.

But the Persian state doesn’t have much of an excuse, given the Persian Gulf’s dominance in OPEC reserves and production rankings. Chalk this move up to inefficiency of investment.

The AP report also conveyed the shock shown by some drivers as they caught sight of the new prices for the first time. The drivers’ surprise is no surprise, given the national leadership’s penchant for hushing up bad news.

The Islamic Republic News Agency, which operates under the auspices of the Ministry of National Guidance, is the predominant foreign face of Iran’s media. On the pro-government IRNA website,, not a word about the increase was published.

BBC Monitoring, which translates foreign news sources into English, carried a "press menu" of Iranian newspapers and websites Tuesday showing a range of Iranian hot topics from praise for the country’s nuclear advances to promises of Israel’s demise. You know, the usual.

But buried in that normal chatter was official confusion and popular dissent. Interior Minister Mostafa Purmohammadi told Iranian national radio that from May 31 to June 5, the government would announce final quotas for the petrol (gasoline) rationing plan.

So why did they lift the price limit before a final decision was made?

According to the minister, the government at first decided to raise the price at the start of the rationing plan on May 31, but the speaker of the Majlis sent a letter to President Mahmoud Ahmedinejad urging the immediate implementation of the May 22 increase date set by legislators.

There are also voices of frustration in Iran, and not only about the petrol stations. In the newspaper Resalat, commentator Mohammad Kazem Anbarlu’i criticized former oil minister Bizhan Namdar-Zangeneh for news that Iran has had to import four to five billion dollars of refined oil products (gasoline) from 16 different countries to meet its needs. The commentator Anbarlu’i challenged the former petroleum chief for saying that Iran cannot economically produce gasoline.


The question with Iran–as with Venezuela, Bolivia and Zimbabwe–is whether the world’s loudest leaders can match their independent rhetoric with energy independence. How can Iran, more particularly, circulate record crude oil revenues without causing major price distortions in every corner of the economy, as is happening now?

When you set aside the food and fuel inflation rates around 16% and unemployment at 15%, the country’s political leadership, strangely, is moving in the direction of some market-based reforms.

According to Turquoise Partners, a research group based in Iran and London that specializes in the Tehran Stock Exchange, two of the largest Iranian companies (National Iranian Copper Industries Company and Mobarakeh Steel Complex) recently offered shares for public purchase for the first time.

Supreme Leader Grand Ayatollah Ali Khamenei is part of this plan to lower the government’s share of direct participation in the economy from between 70% and 80% down to 20% in the coming decade, and we must applaud this glimmer of realism in Iran’s domestic policy.

Even the move to rationing is not as interventionist as it sounds. Rather, the price hikes that took effect this week remove a massive subsidy that has allowed Iranians a relatively carefree attitude towards fuel consumption, even though other prices have been escalating.

And the problem of refinery capacity must be addressed along with the introduction of price flexibility. Of the 72 million liters per day of gasoline consumed in Iran, only 40 million are produced domestically. There is no excuse for a major OPEC player to be importing close to 50% of oil products of any kind.

Yet the removal of all of the country’s support mechanisms too quickly could have a crippling effect, setting off riots and even sectarian strife in the country’s dozen or so ethnic minority areas.

The last thing the Middle East needs right now is another war zone. But if you’re an oil bull, your nostrils had better be flaring.



Sam Hopkins

For more on energy markets worldwide, sign up for your FREE Orbus Intel e-letter by clicking here.