Growth of gasoline smuggling in Iran brings government subsidies for energy sources into question


The growth of gasoline and diesel fuel smuggling in Iran has led to discussions related to another increase in energy prices in the country.
Iran's parliament imposed a ban on the implementation of the second phase of the plan to abolish state subsidies for energy sources. The first phase of the plan to abolish the subsidies was carried out in December of 2010. Some 450,000 rials ($15 at market rate) are transferred each month to the bank account of each person as compensation under this phase.
Currently, 1,000 cubic meters of gas cost 700,000 Rials in Iran, while a liter of gasoline sold by quota - three thousand rials, a liter of gasoline sold without a quota - seven thousand rials, a liter of diesel fuel sold by quota of 1500 rials, a liter of diesel sold without a quota is 3,500 rials.
The market rate of dollar in Iran today stands at over 30,000 Rials.
Thus, the price for gas, gasoline and diesel fuel on the free market in Iran, are respectively 18.73, 11.5 and 20.6 times lower than in neighboring Turkey. Low energy prices contribute to the growth of petrol and diesel smuggling.
According to official statistics, in 2009, prior to the first phase on removal of subsidies, 10 million liters of gasoline and diesel were smuggled per day from Iran. In 2011, this figure fell to three million liters per day.
The decline of Iranian rial by 40 percent compared to the dollar over the last four months increased the difference in energy prices, both within and outside the country.
"Smuggling of energy sources through various ways and means has intensified, thus, there is a need to raise the price of diesel fuel and gasoline," Iran's Deputy Oil Minister Ali-Reza Zeighami told today the Iranian news agency MEHR
On November 25, 2012, Zeygami said that six million liters of diesel and two million liters of petrol are smuggled from Iran on daily basis.
Iranian parliament forbade raising prices for gasoline and diesel fuel until the next Iranian calendar year (which begins March 20, 2014).
To bring the price of gasoline and diesel to the level of 2011, prices should be raised by at least 40 percent, as much as the course of rial has dropped.
According to official statistics, currently, the inflation rate in the country is 26 percent. Even according to statistics issued by the International Financial Institution in December, the inflation rate in Iran is at 50 percent. Hence, the increase in energy prices will further enhance the level of inflation, resulting in creation of a big problem, mainly for the industrial sector.
Due to sanctions, the industrial sector of the country is in bad condition. According to the International Monetary Fund, in 2012, Iran's economic development was -0.9 percent. The International Institute of Finance suggests that in 2012, the Iranian economy fell by 3.5 percent.
On the other hand, the difference in prices for energy resources within and outside the country is so large that even a price rise of 40 percent is unlikely to have a significant effect on the reduction of smuggling.
Thus, the question of whether to implement the second phase of the removal of subsidies or not will probably for a very long time remain the subject of disputes between parliament and the government.

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