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August 15, 2010

Reports Indicate Growing Iranian Fuel Crisis Despite Official Denials

A top Iranian oil official is saying Monday that Tehran is not having problems purchasing gasoline supplies, despite tough new U.N., U.S. and EU economic sanctions.  Reports from both inside and outside Iran, however, indicate the Iranian government is struggling to cope with gasoline shortages. There have been scattered reports of long fuel lines and increasing prices.

Mohammad Ali Khatibi, Iran's envoy to OPEC, insisted Monday that new U.N., U.S. and EU economic sanctions "have not created any obstacles in [Iran's] procuring gasoline."

Mohammad Royanian, the head of Iran's national committee for transportation and fuel management, also denied over the weekend that fuel prices had risen.  He says that essentially the (official) subsidized price of fuel, as well as quotas, have not changed, and that they will not change until the government decides to implement the project of targeted subsidies.  Royanian added that talk of different prices now circulating is just a rumor.

Although Iran is the second largest oil-exporting nation in OPEC, its refining capacity has long been crippled due to deteriorating infrastructure and lack of investment.  For this reason, Tehran must import about one third of its domestic gasoline supplies.

Recent reports, however, indicate that U.N. sanctions imposed in June, along with unilateral U.S. sanctions, have prompted many of Iran's traditional suppliers of gasoline to curtail sales to Tehran.  France's Total and Russia's Lukoil, along with suppliers from Malaysia, India and China, all have cut or reduced fuel sales in recent weeks.

Meir Javedanfar, of the MEEPAS Center in Tel Aviv, says that even Turkey, which has maintained friendly ties with Iran, is now charging more for its gasoline exports to its neighbor.  "According to a recent Reuters report, Iran is now paying 25 percent above market prices for the purchase of gasoline from Turkey," said Javedanfar. "So, not only is Iran having less gasoline, it's having to pay more for its existing supplies from other countries."

Houchang Hassan-Yari, who teaches political science at Canada's Royal Military College, says that he has seen many videos of long lines in front of gas stations inside Iran, in addition to hearing similar stories from friends inside the country.  "It seems that people are panicking, and also despite the fact that the government tries to reassure them, the reality is that access to petroleum is not the same as before," said Hassan-Yari.

Hassan-Yari adds that he has seen unconfirmed reports that free market prices for gasoline in Iran have nearly doubled from around 40 cents a liter to around 80 cents.  That, he argues, is going to affect all sectors of the Iranian economy.

"When gasoline prices jump, it's going to immediately affect transportation in Iran," said Hassan-Yari.  "For example, sending goods from one point to the other is going to be affected; it's going to affect the work of farmers; it's going to affect the price when people go to stores.  It impacts people's movement in Iran, and ultimately it's going to put pressure on the government."

President Mahmoud Ahmadinejad insisted several weeks ago that international sanctions were not affecting the country's gasoline supplies and vowed that supplies would, in fact, increase.  Deputy Oil Minister Alireza Zeighami also said last month that Tehran would spend $26 billion to build new refineries.