A fuel pinch

Iran, Jordan and Syria each need to cut fuel subsidies

The flip side of the Middle East oil boom has been the exponential rise of the costs that most of the region’s governments have faced in subsidising domestic energy demand


Iran’s move to curb fuel consumption through rationing was motivated to a large extent by national security considerations, as the failure of the domestic refining sector to keep pace with rampant increases in demand has made Iran increasingly dependent on imports of petroleum products. Prior to the rations going into effect at the end of June, Iran was consuming some 75m litres of gasoline per day, while its refineries were producing on 44m litres/day. The gasoline import bill in the 2006/07 financial year was more than US$5bn. The rations appear to have succeeded in moderating demand, although it is too early for a consistent to pattern to have emerged. However, the government has refused to make available extra fuel at market prices to drivers that have used up their rations, and has decided instead to double the 100-litre/month ration for private cars for the late-summer holiday season. The price of subsidised gasoline has been increased (from 9 to 12 US cents per litre), but this is still only a fraction of the effective import price of about 50 US cents/litre. The rations have, moreover, been presented as a temporary measure, to be imposed for four months. Ultimately, Iran will be unable to address the interlinked problems of subsidies and smuggling unless the basic price of gasoline is increased by a substantial margin.

The Economist