BEIRUT

Commentary

Iran’s thirst for gas will not soon end

Visitors to Tehran are often struck by the city’s smog. It can be especially bad in the winter, when a temperature inversion caused by warmer air from the Caspian seeping over the Alborz mountains traps colder, polluted air. Breathing leaves many of Tehran’s 15 million people with asthma, more with headaches. Most shut the windows and stay at home when the smog is at its worst and schools and offices close.

The major cause is vehicle emissions, and Iranians’ love affair with the car shows no sign of ending. It is common to see whole families sitting on carpets picnicking on the grass verge beside the road next to their prized vehicle, still sometimes a Paykan, the now-discontinued model first produced in the 1950s and based on the British Hillman Hunter.

Naturally, Iranians feel they should benefit by birthright from oil reserves estimated at 157 billion barrels, 9.4 percent of the global total. New highways and tunnels around the capital have encouraged rich and poor alike to see mobility as a mark of success.

For better-off young people, the car offers both an alternative to a dearth of meeting venues and the means to sidestep Amaken, the branch of the police monitoring public places. Certain boulevards in Tehran are well known for young people cruising on a weekend evening and tossing pieces of paper with their phone numbers through the open window of another car.

But the price in pollution has been high. Such has been the concern over its effect on health that the government has recently said it will end the production of gasoline in petrochemical plants, which are really designed for other purposes.

The output from petrochemical plants has been increased in recent years in order to reduce imports. But their gasoline is of poor quality. The government wants to increase production from purpose-built refineries and says they will also produce more “Euro 4,” a less noxious grade of gasoline.

As well as the nation’s lungs, the government’s concern is economics. President Hassan Rouhani is committed to phasing out state subsidies of everyday items, including fuel, and the government increased prices at the pump by 42 percent in April to about 39 cents a liter, aiming to curb a deficit estimated this year at $30 billion.

Petrol rationing has been in place since 2007, but the previous government of President Mahmoud Ahmadinejad proved unable to deliver on commitments either to phase out subsidies or develop Iran’s own capacity for refining gasoline.

Back in 2007, Iran was importing, at an annual cost of $7 billion, 40 percent of the daily 75 million liters of gasoline being consumed. Even after a price hike from 9 to 11 cents a liter – which provoked angry motorist to torch a few Tehran gas stations – this was still perhaps the lowest rate in the world. But with Iran’s nuclear program referred to the U.N. Security Council the previous year, alarm bells were ringing in the leadership’s ears.

By 2010, when United States and the European Union introduced sanctions against Iran’s petrol imports, consumption was 65 million liters a day. And after prices rose further and subsidies were reduced, officials claimed consumption fell to 51 million liters.

The Ahmadinejad government also speeded up plans to boost domestic refining. But despite record receipt from oil sales – this was before fresh sanctions in 2012 halved crude exports – the government failed to invest the $46 billion officials said was needed to upgrade 10 existing refineries and build seven new ones.

The money was going elsewhere. Elected on a promise to “put the oil money on the “sofreh” (a mat on which Iranians sit to eat), Ahmadinejad horrified many economists by channeling resources into cheap bank lending, marriage loans and an array of pet projects, and by his failure to phase out subsidies.

All of which left Rouhani, elected last year, with a fiscal and economic challenge compounded by tightening sanctions. As the president himself said, a situation with “so much recession and inflation together” is unprecedented in the past 50 years, other than 1979, the year of the revolution

Hence the government faces a difficult balance in meeting its targets of reducing inflation to 25 percent and restoring growth (to 3 percent) by March 2015. Cutting spending to balance the books could deflate the economy, and the government must also make careful political calculations over public reaction to the price increases that will follow reductions in subsidies.

Mercifully, it is still just about possible to blame the previous administration. On taking office, Bijan Namdar Zanganeh, the new oil minister, ridiculed Ahmadinejad’s claims that Iran could attain national self-sufficiency in gasoline.

Despite rationing and price increases, consumption of gasoline rose from 62 million liters a day in 2012-2013 to 67 million in 2013-2014. And the decision to end the output of low-quality gasoline from petrochemical plants has left no alternative but to increase imports.

These imports, officials say, have reached 5.5 million liters a day, after averaging 3.5 million in the Iranian year ending March 2014, and will reach 10 million liters this Iranian year (March 2014-March 2015) in order to make up for the lost production of petrochemical plants – put at 6.2 million in 2013-2014. With Iran’s refineries producing 60 million liters a day, according to officials, this all suggests consumption is still increasing, although that may be moderated by April’s 42 percent price rise.

The government insists the increase in imports will be temporary. Indeed, Zanganeh has promised that imports will cease when new refineries at Isfahan and Bandar Abbas come on stream after March 2015. By then Rouhani hopes to have in place a substantial agreement with world powers over Iran’s nuclear program and some sanctions eased. But then again he may not, and if he doesn’t then keeping Iranians on the road will be harder still.

Gareth Smyth has reported from the Middle East since 1992, and was chief Iran correspondent of The Financial Times in 2003-2007. He wrote this commentary for THE DAILY STAR.

 
A version of this article appeared in the print edition of The Daily Star on June 02, 2014, on page 7.
Advertisement

Comments

Your feedback is important to us!

We invite all our readers to share with us their views and comments about this article.

Disclaimer: Comments submitted by third parties on this site are the sole responsibility of the individual(s) whose content is submitted. The Daily Star accepts no responsibility for the content of comment(s), including, without limitation, any error, omission or inaccuracy therein. Please note that your email address will NOT appear on the site.

comments powered by Disqus
Summary

Petrol rationing has been in place since 2007, but the previous government of President Mahmoud Ahmadinejad proved unable to deliver on commitments either to phase out subsidies or develop Iran's own capacity for refining gasoline.

Back in 2007, Iran was importing, at an annual cost of $7 billion, 40 percent of the daily 75 million liters of gasoline being consumed.

These imports, officials say, have reached 5.5 million liters a day, after averaging 3.5 million in the Iranian year ending March 2014, and will reach 10 million liters this Iranian year (March 2014-March 2015) in order to make up for the lost production of petrochemical plants – put at 6.2 million in 2013-2014 . With Iran's refineries producing 60 million liters a day, according to officials, this all suggests consumption is still increasing, although that may be moderated by April's 42 percent price rise.

The government insists the increase in imports will be temporary.


Advertisement

FOLLOW THIS ARTICLE

Interested in knowing more about this story?

Click here