Washington Post Foreign Service
 

By Karl Vick
Monday, July 4, 2005

Iran Guzzles Gas at Its Own Cost
Fuel Is Kept Cheap, but Oil-Rich Nation Has Less to Sell Abroad

TEHRAN -- At Station No. 11, where the afternoon air is a thick bouquet of the unleaded that drips, splashes and pools from the tanks of motorists hastening to fill up, a looming billboard reminds Iranians of a truth easily overlooked in this land of 40 cents a gallon, guaranteed: Gas costs money.
 

"A waste of national wealth," reads the caption on the giant cartoon posted at service stations across Iran, a public service announcement showing a distracted motorist absently keeping the pressure on the trigger as the nozzle moves from pump to tank. The gasoline puddling on the ground is drawn like dollar bills fluttering from an open spout.

"People can't understand how valuable petrol is," said Ebrahim Mirzaei, an attendant at the government-run service station in south Tehran, where a steady stream of motorists lined up at a half-dozen pumps for fixed-price, heavily subsidized fuel. "It's so cheap, people don't care."

As gas prices at U.S. stations hover above $2 a gallon -- approaching the recent historic highs that polls show many Americans rank as a truly grave concern, above the war in Iraq -- the scene at Station No. 11 gave fresh meaning to the phrase "oil-rich Middle East."

"It's full!" Mirzaei hollered at a man heaving his weight on and off the rear of his pickup truck, apparently trying to force air out of the tank he had just topped off, but mostly sloshing gasoline onto the pavement. "Why are you shaking it?"

Wealth is relative, however. The pump beside the pickup read 22 liters, nearly six gallons. The price: 17,600 rials, or $2. That's 30 cents shy of what Rassoul Kariman, another attendant, said he earns in an eight-hour shift darting among the pumps.

"Cheap?" he said, "Very expensive, for me."

His may be a paltry income even in a country with a per capita income of $2,000. But it goes a long way toward explaining why Iran's government spends billions artificially holding down the price of gasoline.

Especially in an election year.

"Every time we have an election, they freeze the price," said Siamak Namazi, managing director of Atieh Bahar Consulting, a Tehran firm that explains Iran's heavily centralized, extremely opaque economy to potential foreign investors. "And we do have quite a few elections."

Last year, it was a freshly elected parliament that voted to forgo a scheduled 20 percent rise in gasoline prices, locking in place the 2004 price instead.

Last month, Iranians swept into the presidency Mahmoud Ahmadinejad, a hard-liner who campaigned as a humble public servant painfully aware of the economic plight of ordinary people. Having promised to hike payouts to the poor, the newly married and the retired, he appears unlikely to subject Iranians to the brutal realities of a world petroleum market where oil prices last week hit $60 a barrel.
 

"If they stop it here, it's reasonable," Reza Goodarzi, 53, said of the price as he put his daily eight gallons into the taxi he drives 10 hours a day; the fuel costs run a little under $3. "I hope they don't raise it."

"Americans are rich maybe," said Mahmoud Seifollahi, a construction worker, after filling the pickup, loaded with a shovel, gravel and a dust-covered teenage boy. "We are very poor."

Iran's government pays dearly, however. The country may boast 10 percent of the world's oil reserves and natural gas fields second only to Russia's. But every ounce of gasoline sold at Station No. 11 at a fraction of the world market price is an ounce Iran does not get to sell abroad. And at least 80 percent of the country's export revenue -- and perhaps 50 percent of its national budget -- comes from selling petrochemicals to foreign markets.

"There's a huge opportunity cost, because they could be selling that at world prices," said Ben Faulks, an analyst who follows Iran for the Economist Intelligent Unit, a consulting firm based in London. And every time the price of crude climbs, "that implicit cost gets larger."

That helps explain why, despite record high oil prices, Iran routinely runs a net deficit.

Another reason: The oil-rich country pays billions to import gasoline.

Because Iran's refineries can pump out only 10 1/2 million gallons of gasoline a day, and Iranian motorists burn 17 million gallons, the gap is filled by gasoline purchased at full price from other countries.

The bill is huge. The $4.5 billion Iran's parliament recently authorized to buy imported gasoline is up 50 percent from the last fiscal year, and now stands at almost 8 percent of the national budget, according to Faulks' calculation. The additional money was found in a rainy-day account -- one funded by the sale of Iranian crude at windfall prices.

"It's very clear if oil prices weren't so high, they couldn't afford to keep it," Namazi said of the generous subsidies that keep gas at 40 cents at the pump.

The whole oily tangle might appear to undercut Iran's oft-stated rationale for developing nuclear energy. While U.S. officials accuse Iran of covering atomic weapons, Iranian officials argue that the country needs nuclear energy so that it can sell more oil abroad, rather than burning it in Iran or spilling it. At Station No. 11, so much gasoline escapes onto the ground and into the warming summer air as fumes that new employees go home wretchedly ill. "The first few days, you get headaches and vomiting and that sort of thing," said Kariman, 19. "Then you get used to it."

Remedies lay somewhere in the unseen future. The six pumps sport the simple aluminum nozzles commonly seen in the United States in the 1960s, before environmental regulations required accordion fittings to contain fumes and valves that shut off the pump when pressure signaled the tank was full. The billboard looming overhead at Station No. 11 also advises that a quarter gallon of gasoline contaminates 1,300 cubic yards of air.

Iran's notoriously inefficient automobiles contaminate much more; Tehran has some of the worst air pollution in the world. When manufacture of the national sedan, the Peykan, was discontinued last year, fuel efficiency was a stated reason, along with pollution.

But the clunky fuel-guzzlers still account for most of the cars on the road, and were seven of the nine vehicles waiting in line for a slot at Station No. 11 on a recent day.

"The price in comparison to other countries is really cheap," said Mirzaei, clutching a thick wad of rials. "But people are still grumbling and nagging, saying petrol is too expensive."

Many politicians concede that the subsidies will have to be phased out eventually. But with the national coffers constantly replenished by the sales of crude oil that Iran does manage to export, most efforts at politically painful "structural reform" have slowed, a recent study by the International Monetary Fund found. And both Iran's conservatives and reformists are struggling to remain credible to a public that polls show is less and less inclined to support either side, or even to bother to vote.

"Right now you've got a lot of elections and you have a lot of money," Namazi said. "Why tick anyone off?"