Iran to Cut Gasoline Subsidies

Iran’s state news agency IRNA reported today gasoline prices will be raised by 40 percent as of Tuesday as a result of cutting state subsidies. The price per liter for subsidized gasoline will now be 10,000 rials, or 35 cents ($1.32/gallon).

Iran Cuts Portions of Gasoline Subsidies

Rial Loses Value against Dollar on Fear of High Inflation

Iranian government announced that the second phase of subsidy reforms will begin on Friday 25 April. As part of the program, government’s subsidies of gasoline will be cut further than during its first phase.

Each car will be allocated 60 liters (15.8 gallons) of still-subsidies gasoline per month, at a cost of 7,000 rials per liter (28 cents per liter or $1.06 per gallon with a limit of 15.8 gallons a month). The new price represents a 75% rise in subsidized gasoline price from the previous 4,000 rials/liter. Every liter after the 15.8-liter monthly limit would now cost 10,000 rials (40 cents per liter or $1.50 per gallon, which would be the price people would pay most of the time.) 

The news of new gasoline prices and fears of higher inflation brought down the value of rial against dollar in open foreign currency exchange markets to its lowest level since Rouhani came to power in August. The Iranian currency was trading at around 33,000 per dollar today.

The second phase of subsidy reforms was to take effect in March 2012, but was pushed back over fear of high inflation. Iran consumes some 70 million liters (18.5 million gallons) of gasoline per day. 

Many economists believe that notwithstanding inflationary pressures, subsidy reforms are required to help bring back normalcy to a heavily subsidized economy.

Tehran Shutdown – Level of Pollution ‘Shocking’

The level of pollution in Tehran has reached a dangerous level. Witnesses describe it as shocking (jrezaian/WashPost/Twitter). The local radio is asking the Tehranis to stay home, saying going outside in the current conditions is suicide. All government buildings and schools are closed. The poor quality of domestically produced gasoline is said to be the major culprit.

Photo credit: Tehran, 5 January 2013 (Mehr News Agency/Majid Asgaripour)

Iran Rations Diesel Fuel

Iran will ration diesel fuel and will add methanol to gasoline in an attempt to manage its stretched fuel supplies, the country’s oil minister announced today. Domestic airliners will also need to pay cash for jet fuel.

The oil ministry is also targeting a surge in smuggling of government-subsidized diesel fuel across Iran's borders.

“The government pays huge subsidies to the energy sector, which has led to the sinister phenomenon of smuggling of oil products,” said Oil Minister Qasemi. “Low prices of fuel play an important role in rising smuggling, and that is why oil products distributor companies should enhance cooperation with security forces to curb oil products smuggling,” he added. (SHANA/Reuters, 14 November)

The subsidized diesel fuel is set at 4,500 rials a liter, less expensive that bottled water.

On gasoline, Qasemi said that it will be blended with about 35 percent methanol to make it go further.

Iran Not to Triple Gasoline Price

The Iranian government today denied it would treble the price of gasoline as part of the second phase of the government-subsidy removal reforms. On Friday, the speaker of Majlis, Ali Larijani, told reporters in Tehran that the government intended to do exactly that, to triple gasoline price to pay for monthly cash payouts. A statement issued by the office of President Ahmadinejad said the speaker’s comments were “entirely false.” [Fars News Agency, 7 May].

The Iranians now pay 7,000 rials per liter for gasoline, or roughly $2.20 per gallon at the official currency rate, after they use up their monthly allowance of 50 liters (13 gallons) at 4,000 rials per liter ($1.25 per gallon). Speaker Larijani said on Friday that the government wanted to increase the price to 20,000 rials per liter or $6.20 per gallon.

Blast and Fire at Oil Rig, Refinery

An explosion at an oil field in southern Bushehr province today killed an employee of the National Iranian Drilling Company and injured three. Mehr News Agency reported that the blast at Bibi Hakimeh oil rig happened when a huge amount of gas was released during drilling.

In a separate incident, the Shazand Oil Refinery in the central city of Arak was also hit a blast and a fire. No reports of casualty or damage were available.

Shazand Oil Refinery was inaugurated last February at the cost of more than $3 billion and is one of the largest refineries in the Middle East. It is the largest facility producing gasoline in the country.

Abadan Explosion an Accident – Majlis Report

An Iranian parliamentary inquiry into the explosion at Abadan Refinery during the visit of President Mahmoud Ahmadinejad has found not foul play or act of sabotage. The report by Majlis blames a gas linkage as the cause of the explosion and the ensuing fire that killed at least two people and injured dozens more. The incident occurred in a newly constructed part of the refinery that was to produce high-grade gasoline. Sanctions are in effect on the sale odf gasoline to the country.

Iran Lifts Restrictions on Fuel Delivery to Afghanistan

Iran announced today that it is lifting all restrictions on fuel trucks entering into Afghanistan. The partial blockade of trucks carrying fuel into Afghanistan started in mid-December and resulted in serious fuel shortage in the country. The Iranian action provoked angry demonstrations in front of the Iranian embassy in Kabul and its consulate general in Herat, and two weeks ago the Afghan Chamber of Commerce issues a resolution calling on Afghan businesses to stop purchasing Iranian goods and services. Last week Afghanistan started to import millions of tons of fuel from Pakistan to ease the fuel shortage and bring down gasoline prices in the country.

The Iranian government had said its actions were designed to prevent the delivery of fuel to US and NATO forces in Afghanistan, although it never explained why the action came nearly ten years after the NATO troops entered the country. The government also did not specify why it now believed that the fuel was not going to be delivered to NATO forces.

The lifting of the restriction by Iran announced today should bring normalcy to trade and business ties between the two neighbors.

Afghan Delegation Leaves for Iran - Discussing Fuel Ban

A high-level Afghan government and business delegation led by Finance Minister Omar Zakhilwal, and including the president of Afghan Chamber of Commerce, left Herat for Iran on Friday to discuss the Iranian ban on hundreds of fuel trucks from entering into Afghanistan at the Islam Qala border crossing in Herat province and other crossing points in western Afghanistan.

“The ban is in violation of international trade agreements and would be discussed with Iranian authorities by the Afghan delegation,” said Shafiq Bahrouzyan, a spokesman for Herat provincial government [Pajhwok, 29 January].

The Iranian action in the past two months has caused the price of gasoline and diesel shot up throughout the country. This week, however, the prices eased a bit after Afghanistan imported some three million tons of fuel from Pakistan. On Thursday diesel sold for 53 Afghanis ($1.17) a liter, as compare to 60 Afghanis last week.

Shazand Oil Refinery to Open

Iran will inaugurate Shazand Oil Refinery during the 10-day celebrations commemorating the anniversary of the Islamic Revolution (30 Jan -11 Feb). The refinery built in the city of Arak, reportedly the biggest in the Middle East, will produce gasoline with low exhaust emission standards.

Gasoline Consumption Down by 5%

The National Iranian Oil Refining and Distribution Company (NIORDC) announced today that the consumption of gasoline in the country during the Iranian calendar month ending 21 January was at 56 million liters. The figure compares to 59 million liters for the same period last year, or a 5% reduction in consumption in the first full month after the start of the subsidy reforms.

The subsidized gasoline price of 100 toumans a liter was replaced by a semi-subsidized price of 400 toumans a liter with a cap of 60 liters per vehicle per month. The disappointing meager reduction in consumption reported by NIORDC is probably because people were still using their old 100-touman allocations until they run out of them, something they are entitled to do. Observers expect the consumption level to go down dramatically when the use of the new semi-subsidized gasoline begins to constitute at least 75% of all consumptions, possibly within the next two months.

New Gasoline Prices Set to Go Into Effect

The government announced today that as part of its subsidy reforms and effective 21 January the price of semi-subsidized gasoline will be raised to 400 toumans per liter, a 400% increase over the current subsidized price of 100 toumans per liter. The use of semi-subsidized gasoline is however limited to 60 liters per month per vehicle. The price of non-subsidized (unrestricted) gasoline is set at 700 toumans per liter, also effective 21 January.

Fuel Consumption Cut by 20%

The government announced that fuel consumption has fallen by a fifth since it began slashing energy subsidies earlier this month. Subsidized gasoline price quadrupled on 19 December, with unrestricted price raised by 700%.

Post-Subsidy Iran: Fuel Consumption Falling

Iran’s Ministry of Economy announced today that in the first nine days of the subsidy reforms the fuel consumption across the country has fallen.

"In the past nine days, our petrol (gasoline) consumption which was about 60 million liters (13.1 million gallons) a day is now at 55 million," Deputy Economy Minister Mohammad Reza Farzin told AFP correspondent in Tehran [AFP, 27 December].

"The oil ministry says that diesel consumption, which was at 54 million liters, is now at 40 to 41 million liters," Farzin said, adding that cooking gas consumption had dropped by six percent and water by five percent.

"We are spending 100 billion dollars in subsidies every year from a gross domestic product of 400 billion dollars. We have realized that low energy prices cannot deliver social welfare; it can't reduce poverty. We are determined to use the resources for managing prices more efficiently."

New Gasoline Prices

The government announced the gradual removal of gasoline subsidies. The price of subsidized gasoline is increased 400% to 400 toumans a liter ($1.44 a gallon), with a limit of 60 liters (15.8 gallons) per vehicle per month. The price of unsubsidized (unrestricted) gasoline is set at 700 toumans a liter ($2.40 a gallon). The new gasoline prices were first reported by Uskowi on Iran in September.

Gasoline Price Set to Increase by 700% - UPDATE

Iran’s minister of economy said today in Tehran that as part of the government subsidy reforms and their removals, the price of gasoline will be set at 700 toumans a liter ($2.52 a gallon). This would be a 700% increase in the price. The removal of energy sector subsidies, including the gasoline, was expected to go into effect last week, but has been postponed without any explanations or any dates for their implementations. The comments by the minister of economy was an indications that the subsidy removals will indeed take place.

Source: Kayhan, 1 December 2010

UPDATE- ISNA reported on Thursday that the minister of economy has denied Kayhan's story. We understand that Kayhan will reject the denial and would insist that the minister made the remarks on tape.

Uskowi: The story, the denial, and the expected rejection of the denial are an example of the early mismanagement of subsidy reforms. The government has not published any details on the program or any date certain for the start of its first phase, and different ministers in the past four months have offered their own understanding of the program, often contradicting each other. The fear is the mismanagement on the part of the government would hurt the chances of success of a program vital to the country's economic development.

Iran to Sue Europe Oil Firms Over Refusal to Refuel

Iran is suing oil companies in The Hague for refusing to refuel its Europe-bound flights, a top Iranian aviation official said today.

“Iran is taking legal measures and the issue has been raised in The Hague tribunal and lawyers have been appointed to pursue the issue,” said Farhad Parvaresh, the CEO of Iran Air [AFP, 30 October].

The ban on refueling includes airports in London, Amsterdam, Stockholm and several German airports. Iran Air flights from Europe now are making stopover at Vienna where Austrian oil firm OMV still refuels its planes.

Iraq major importer of Iranian gasoline

Iran began exporting its gasoline in September with Iraq being the first customer. To date Iran has exported 32 million liters of gasoline, reports Mehr News. Iraq, Afghanistan and Armenia were the major buyers of Iranian gasoline, while Iraq’s imports accounted for 47 percent of the total figure. Iraq has been the major importer of Iranian gasoline since the country began to export domestically produced fuel, Iran’s Customs Administration reported. The report shows that 32 million liters of gasoline worth 370 billion rial (some $37 million) have been exported to foreign countries, the Islamic Republic of Iran News Network reported.

This all comes after Iran was importing around 30-40% of its domestic gasoline needs prior to the latest US sanctions that warned any provider that sells gasoline to Iran would lose the large American market. The US strategy was openly discussed and debated for over a year before being passed by the US Congress giving Iran a large heads up and preparation time for the eventuality prior to sanctions taking effect. It can also be argued that the efficiency that that results in the Iranian energy market as the greater population and firms reduce their excess consumption (due to higher prices) can be attributed to the same sanctions. President Obama, you are owed a fruit basket of appreciation!

Source: Mehr News