Gasoline Prices in Iran: Missing the Point

EghtesadOnline: Drawing parallels between average annual income in Iran and the neighboring states, some energy experts insist, rather strongly but strangely, that gasoline is indeed cheap in the country. They may have a point, but prefer to focus on the periphery and shun some important facts.

News ID: ۷۴۸۷۵۹

21 October 2019

Iranians on average earn $5,000 per annum. Gasoline is sold for 7 cents/liter, meaning 1.5% of car owners’ earnings is spent annually to buy 1,000 liters of fuel.

Statistics show the same figure ranges between 3% (in Saudi Arabia) and 50% (Pakistan and India) depending on annual income.

In Saudi Arabia, where gasoline is sold at 58 cents per liter, people on average earn $23,000 a year. In other words, barely 3% of their annual income is spent on 1,000 liters of fuel, according to Financial Tribune.

Although South Korea sells expensive gasoline (130 cents/liter), annual spending on fuel accounts for only 4% of the people’s earning. In South Kore yearly income is in the region of $32,000.

Newly released data by different sources namely statisticstimes.com show that car owners in China and Iraq spend up to 10% of their annual income on 1,000 liters of gasoline per annum. Average yearly income in these countries is $9,500 and $6,000 respectively, while a liter of fuel costs 100 cents in the world’s largest economy and 63 cents in the Arab country.

In Turkey, Iran's northern neighbor, annual salary averages $9,000 and gasoline is sold for 123 cents/liter. Translation: Owing a car in this country means that 15% of annual income should be spent on 1,000 liters of gasoline per year.

In countries like Pakistan and India where annual income is as low as $1,500 and $2,000, owning a car means spending 50% of yearly income only to fill up your tank. Gasoline is sold at 100 cents in India and 73 cents in Pakistan.

Based on these unambiguous facts and figures, some officials including Oil Minister Bijan Namdar Zanganeh say fuel tariffs need to increase. Should that not happen, rampant smuggling (10 million liters per day!) as well as domestic consumption (95 million liters/day) will persist and possibly get worse.

There is no denying that gasoline is inexpensive in Iran, but independent observers including Hadi Hojabrsadat say such a comparison is misplaced.

“Policymakers in Tehran are oblivious to the ground reality, one of which is the low-quality domestically manufactured vehicles sold at exorbitant prices,” the Mashhad businessman told the Financial Tribune.

Upside Down

Echoing the reasoning of most Iranians and their complaints that have fallen on deaf ears, he notes, “Things are upside down in our car industry. In most countries fuel is costly but car prices are reasonable and relatively affordable. Here it is the other way round. Add to this the bitter truth that all our home made new brand cars are both expensive and burn huge amounts of gasoline.”

When it comes to imported cars, one has to pay at least three times more in Iran. For example, the 2015 Honda Civic can be bought for $10,000 in neighboring Turkey. For the same vehicle one must pay at least $30,000 in Iran. Import of cars is banned in Iran for nearly three years.

Furthermore, comparison of public transportation in Tehran and Istanbul shows that providing people with decent public services is not very important in the former and much more needs to be done to encourage people not to use their own cars in the near permanently clogged capital.

Based on the latest data, there are 320,000 cabs currently operating across Iran, over half of which should have long been sent to the junkyard.

Regarding public buses and the subway, these are neither well-ventilated nor punctual and during rush hours it is difficult to get in, especially with baby in arms or with a small child.

Some officials keep on parroting that higher fuel prices will reduce consumption and they may be right. Nonetheless, the low-income strata will have to pay much higher prices as prices of most goods and services rise when fuel prices rise. As for the high-income groups, (officials included) they are the least bothered about how much gasoline costs or will cost in the future. Their priorities are wholly different.

Policymakers never forget to remind us that gasoline is “almost free” and so long as prices do not rise, the public will keep burning and wasting. What they intentionally refuse to mention is the plague of domestically produced gas-guzzlers and the ageing and inefficient public transportation system that has long outlived its usefulness.