Iran: Gasoline Rationing Did Not Eliminate Smuggling

EghtesadOnline: Rationing gasoline and raising pump prices by 200% that started on Nov. 15 will have no substantial effect on curbing fuel smuggling, says a deputy chief of the Goods and Foreign Exchange Anti-Smuggling Headquarters.

News ID: ۷۴۹۱۸۹

15 December 2019

“Close to 10 million liters of fuel is smuggled every day, a big proportion of which is for diesel and gasoline accounts for a very small share (3%),” Abdullah Hendiani was quoted as saying by Energy Newcomes, a privately-owned domestic media group.

Diesel smuggling is more rampant because it has higher demand and brings fatter profits, he said.

A liter of diesel costs 120 cents in Turkey and 80 cents in Pakistan. The same fuel costs 2.5 cents in Iran meaning that transferring one liter of the fuel to the neighboring states can earn90 cents for the traffickers, while the profit margin for contraband gasoline is lower, according to Financial Tribune.

Although the new policy has pushed up gasoline prices (25 cents/liter), it is still much lower compared to neighboring states.

Elaborating on the issue, the official went on to say that one liter of gasoline is sold for 110 cents, 73 cents, 64 cents and 63 cents in Turkey, Pakistan, Afghanistan and Iraq respectively. Translation: despite the fact that the government had claimed that the new prices would curtail smuggling, the illegal cross-border trade is tempting to the extent that very few border residents, like those in Sistan-Baluchestan, can resist it (so smuggling will continue albeit with a lower profit margin).

Iran has the world's third-cheapest gasoline after Venezuela and Sudan. While one liter of gasoline in Venezuela and Sudan costs 1 cent and 17 cents, it is sold for 25 cents in Iran. The average international price for this fuel is 100 cents.

On Nov. 14 midnight the government decided to raise gasolines prices and sell it at two rates. As per a directive issued by the National Iranian Oil Products Distribution Company, private car owners can only buy 60 liters of subsidized gasoline every month at 15,000 rials (13 cents) a liter. Additional purchases cost double.

“Fuel smuggling is complicated and done in different ways which explain why it cannot be totally eliminated, especially when the price discrepancy is high,” the anti-smuggling official noted, saying that data on illicit fuel trade are largely guesstimates. He did not elaborate.

According to Alireza Sadeqabadi, chief executive officer of NIOPDC, hardly 3% of the confiscated smuggled fuel is gasoline while diesel constitutes the lion’s share.

Sedeqabadi said gasoline smuggling is less than one million liters a day and to prove his point he refers to numbers.

In 2016, Iranian motorists bought 75 million liters of gasoline per day. At that time Persian Gulf FOB price was 28 cents and each liter of gasoline was sold at 31 cents locally and this means smuggling was not worth the risk.

“Put simply, fuel was not smuggled at that time.”

Domestic gasoline consumption rises by almost 8% a year and total consumption reached 82 ml/d in 2017, 88 ml/d in 2018 and 94 ml/d in 2019.

“Now total consumption is 95 ml/d, of which 1 million is smuggled,” he said.

It merits mention that most smugglers conduct their illegal trade in the porous border regions like Sistan-Baluchestan where gasoline is sold via fuel cards and it is   amazing that fuel still finds its way out of the country.

The bottom line is that the lucrative illicit trade is carried out systemically and with the support of lobbies that are well placed and know how to dodge the law enforcement agencies.