Iran Adjusts to Gas Rations; Will Economy Survive? After three weeks of gasoline rationing, there is far less traffic on the city's streets, and the government is saving millions of dollars each day in subsidies for cheap gasoline. But drivers are frustrated, and economists fear that Iran's economy could suffer.
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Iran Adjusts to Gas Rations; Will Economy Survive?

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Iran Adjusts to Gas Rations; Will Economy Survive?

Iran Adjusts to Gas Rations; Will Economy Survive?

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ROBERT SIEGEL, host:

Gasoline rationing has been in effect for more than three weeks now in one of the largest oil-exporting countries - Iran.

Although Iran exports oil, it must import much of its gasoline, which the government then sells at insanely low prices. It's not that there are shortages of gasoline in Iran, it's just that the government decided it could not sustain the enormous subsidies that make gas so cheap.

But the rationing is creating new problems, as NPR's Mike Shuster reports from Tehran.

(Soundbite of vehicles passing)

MIKE SHUSTER: This is Valiasr Street, the main north to south boulevard in Iran's capital, something like the Fifth Avenue of Tehran. It's 9 a.m. on a weekday morning. Usually at this time, traffic is so thick and snarled that no one is moving. Not today.

On this morning, traffic is moving briskly. It's fair to say that there are less than half the automobiles on Valiasr Street than there were just a few weeks ago before the beginning of gas rationing. And one other very noticeable difference, the air over Tehran is much clearer. The change has been astounding.

It was a very necessary step, says Hamid Zaheri, a former oil ministry official, now manager of Crescent Petroleum, Iran.

Mr. HAMID ZAHERI (General Manager, Crescent Petroleum): We have been spoiled with cheap energy.

SHUSTER: Gasoline right now costs under 40 cents a gallon. Last year, it was even cheaper. Gasoline is cheaper in Iran than nearly anywhere else in the world. But Iran does not produce anywhere near all the gasoline it consumes. It easily buys 40 percent of its gasoline supply from outside Iran at world prices.

The government makes up the difference to the tune last year of more than $5 billion. And according to Hojjatollah Ghanimi-Fard of the Oil Ministry, that gasoline bill is rising and will soon be unsustainable.

Mr. HOJJATOLLAH GHANIMI-FARD (Director for International Affairs, Iranian Oil Ministry): And for this year, we had predicted that if there would not be any sort of rationing, the need for the importation would be $7 billion. If this could be continued for the coming year, it could be even $8. And we could predict that for some five years from now, a big chunk of our income from the export of the crude oil had to be spent for the importation of the gasoline.

SHUSTER: For decades, success of governments in Iran could not muster the courage to raise gasoline prices to anywhere near a realistic world price, fearful that higher prices would spark riots and challenges to the government's authority. So until now, there was no disincentive to drivers to buy unlimited amounts of gasoline.

At the same time, the number of automobiles on Iran's roads doubled in the past 10 years and continues to grow. The gas guzzling could soon cripple the government's ability to function says Hamid Zaheri.

Mr. ZAHERI: We have to think of the future as well. I mean, if we continue with this consumption, we may not be able to export any oil in 15 years.

SHUSTER: There is another effect of low gasoline prices that actually may be undermining Iran's national security, with the price of gasoline so low in Iran but 10 times higher just across the borders. As many as two million gallons of gasoline a day were lost to smuggling says oil economist, Ali Shams-Ardekani. And that was financing illegal activities such as the trade in drugs and guns.

Mr. Ali Shams-Ardekani (Oil Economist): It was adding to criminal gangs. And as a matter of fact, on the borders of Pakistan and Afghanistan, in my opinion, Iran was contributing to those sworn enemies of Iran and the people of Iran, including the al-Qaida people.

SHUSTER: So in late June, the government finally acted, announcing that for the indefinite future, drivers would be able to purchase just under 25 gallons of gasoline per month. Taxis and commercial drivers have been allotted a larger ration. The effect was immediate and troublesome for most drivers in Tehran such as Azad(ph) and Hassan(ph), who were filling up at a gas station the other day on Khorramshahr Avenue in central Tehran.

AZAD: (Through translator) From the traffic and pollution point of view, it's very good. But to both with the car and to go around, no, it's difficult.

HASSAN: (Through translator) We are all the time worried that maybe something happens, you need to drive so you cannot use all your ration. This is going to affect badly on the industry people farming and agriculture and anybody who is working all over the city.

SHUSTER: The government is reluctant to admit that there might be a negative effect on Iran's overall economy. But Haida Purian(ph), editor-in-chief of Iran Economics magazine says this rationing is bound to decrease Iran's rate of economic growth.

Mr. HAIDA PURIAN (Editor-in-Chief, Iran Economics Magazine): We are already seeing some negative effect on transportation, on tourism. On Caspian Sea, in the resort areas usually at the summer it's very full of people, now, it's been reported that few people travel to this area.

SHUSTER: The government could have chosen to reduce gasoline consumption by gradually raising prices. But apparently, the political risks of that were considered far worst than the impact of rationing.

Mike Shuster, NPR News, Tehran.

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