Automotive Industry in Iran - Fuel Rationing

Fuel Rationing

Demand is supported by the fixing of fuel prices well below market levels. Regular petrol in Iran costs IR800/litre (9 US cents/litre) and premium grade petrol IR1,100. The nation's abundant oil reserves have enabled the government to keep prices low (Iran is the second-largest exporter in OPEC). However, low prices have encouraged wasteful consumption and the smuggling of petrol into neighbouring countries such as Turkey, Pakistan and Afghanistan. Some 1.8 billion liters of oil products worth 10 trillion rials ($1 billion) are smuggled out of Iran per annum.

Given Iran's limited refining capacity, there has been a shortfall in petroleum products in recent years, requiring Iran to import an estimated 100,000 barrels per day (16,000 m3/d) in 2006/07. As a result, there is a recognition among many policymakers of the need to raise prices, and gradual increases have been implemented. However, these have tended to lag the prevailing rate of inflation, and given that raising petrol prices is politically difficult the provision of cheap fuel is likely to persist in the medium term, encouraging the purchase of vehicles. The government was nevertheless forced to take action in June 2007 when it announced both a petrol increase to 12 cents/litre and the imposition of fuel rationing, much to the chagrin of vehicle owners. The policy, which allocates 120 litres maximum per month (following revisions in December) to private car owners, will run until end-2008/09.