Gasoline Rationing Could Help Reduce Consumption in Iran

EghtesadOnline: The Majlis Research Center has announced that implementing the fuel rationing system saved the country as much as $100 billion between 2007 and 2015.

News ID: ۷۴۸۶۸۴

16 October 2019

“In 2006, the year before gasoline rationing system started, daily gasoline use was 74 million liters, of which 20 million liters were imported. A year later consumption declined by10 ml/d and the National Iranian Oil Company restricted imports,” the MRC said as reported by Energy Today.

Of the total savings ($100 billion), close to $75 billion was (saved) due to decline in domestic use and imports, the report said, noting that $25 billion was saved because some car owners started filling up their tanks with alternative fuels, namely compressed natural gas that was much cheaper than gasoline.

Gasoline rationing started in 2007 allowing motorists to buy 60 liters of subsidized fuel a month with a special card at 7,000 rials (70 cents) per liter (at the time one USD was worth 10,000 rials), according to Financial Tribune.

In May 2015, the government got rid of subsidized gasoline (20 cents/liter) in favor of a single price of 30 cents per liter.

Gasoline prices have changed 15 times since 1974, the last of which was in 2015 when the Rouhani administration decided to sell fuel at a single rate (10,000 rials per liter or 7 cents).

Persian Gulf FOB

Fuel prices were expected to rise gradually over the coming years to reach the Persian Gulf FOB prices ($1 a liter). That did not happen for reasons that were never made known.

Now that currency rates have shot up by four times compared to 2015, those who were against raising gasoline tariffs (all executive bodies, including the three branches of government) have come to the conclusion that selling gasoline at 7 cents per liter simply does not make sense, especially when it is sold for a dollar a liter in neighboring states like Turkey.

Critics of low prices including the NIOC claim that with such unreasonable prices, even if the fuel is not used domestically, it will be smuggled, and is already being smuggled in unusually huge quantities form the border regions.

Advocates of increasing prices including Oil Minister Bijan Namdar Zanganeh say reactivating the rationing system can help reduce consumption (by at least 10 million liters per day). Present consumption is 95 ml/d and output is around 120 ml/d.

NIOC has not imported fuel in the last 12 months and cannot do so because no funds have been set aside for the purpose in the annual budget.

“Moreover, we are exporting the fuel for the first time in NIOC’s history,” the official added, arguing that without a strong rationing system in place consumption will rise in the short run -- demand will outweigh supply, exports will end and the company will be compelled to resume imports.

Rising Consumption

Gasoline consumption between 2011 and 2017 has shot up 50% that is big enough to be registered in the Guinness World Record, the National Iranian Oil Refining and Distribution Company's CEO Alireza Sadeqabadi said.

"Such prohibitive consumption is simply not proportional to the number of cars in our country," he complained.

Iranians used 74 million liters of gasoline per day in 2015, which rose by 8% to reach 80 ml/d in 2016.

Consumption continued to rise in 2017 when the figure reached 88 million liters/d and NIORDC statistics show that since 2018 the level has exceeded 95 ml/d or 1.18 liters per capita.

It is reported that 12.4 million liters of gasoline in the capital Tehran and 16.2 million liters in the province are sold daily. Residents in Tehran Province consume more fuel than Poland, with its 40 million population and Turkey’s 80 million.

Only three countries, namely Germany, Britain, and Spain, consume more gasoline than Iran. This is while vehicle ownership per capita in Iran is 3-3.5 per 10 people while in Turkey it is more than 5 per 10 persons.

The government paid huge subsidies -- $51 million per day – for gasoline in 2016. But now it seems with the ballooning deficit that largesse will soon become a thing of the past.