EghtesadOnline: The latest rationing and doubling of gasoline prices that started out of the blue last Friday (Nov. 15) will annually generate up to $5.5 billion in export revenue for the government, a board member of the Iranian Oil, Gas and Petrochemical Products Exporters’ Association said.
“The National Iranian Oil Products Distribution Company’s output stands at 115 million liters per day, of which 95 ml/d is used domestically and the rest (20 ml/d) can be exported,” Hamid Hosseini was quoted as saying by IRNA.
Given the controversial rationing scheme and higher pump prices, current gas consumption is expected to decline to 85 ml/d in less than 90 days, consequently creating extra space for exports (possibly 30 million liters/day).
Hosseini opined that one liter of the fuel can be sold at 50 cents to neighboring states, earning an estimated $5.5 billion a year, or equivalent of the amount made from selling 300,000 barrels of crude per day at $50, according to Financial Tribune.
“Gasoline can be exported to Iraqi Kurdistan, Afghanistan, Pakistan, Armenia, some African states and Iraq.”
Besides domestic buyers, foreign companies and dealers can approach the international ring of Iran Energy Exchange where fuels are offered.
Regarding the excess production, he said “IRENEX is able and willing to help meet neighboring countries’ gasoline needs.”
Since mid-summer, the government started offering surplus gasoline on the energy bourse. Neighboring states are said to be the main buyers and officials have said there are plans to find new markets.
Exporting gasoline via IRENEX comes after official announcement that production had surpassed domestic demand and Iran had become self-reliant in producing the fuel that has more buyers in foreign markets.
Generating revenue from gasoline export can be a new source of income for the government to compensate for the ballooning budget deficit emanating from steep decline in oil exports (plunging from 2.5 million barrels per day to less than 500,000 bpd) due to the new US sanctions.
Moreover, increasing gasoline prices by 200% will annually add $2.5 billion to the treasury that is supposed to be used exclusively for public welfare (at least for now).
Prior to the price hike (when gasoline was sold at 7 cents), the government’s annual earnings from gasoline sales amounted to $31.7 billion. Now this will climb to $34.2 billion or 8% higher, which is (temporarily) being distributed among 18 million families (60 million people) in the form of cost of living or cash subsidies.
A Short-Term Plan
Nonetheless, economic experts and independent observers are of the opinion that transferring the surplus earnings ($2.5 billion) to the people is a short-term plan and the government's monthly payment of cash subsidies (revenue from higher gas prices) could come to an end soon as it struggles to fix the ever-increasing budget deficit.
Mehrdad Emadi, a senior economist at the Betamatrix International Consultancy in London and former advisor to the EU says even if the administration continues with the new payments it will be a recipe for disaster as costs of such populist moves outweigh the benefits.
“The new plan will definitely impose inflationary pressure on the low-strata who are already facing serious problems to make ends meet. So long as revenues are not diverted for developing infrastructure and creating jobs, paying cash handouts is, and will be, doomed.”
Hossein Raghfar, faculty member and economic expert at Alzahra University believes that the new scheme (rationing fuel) will not only raise production costs but also make life for the general public more, not less, difficult.
Criticizing policy and decision makers in favor of high fuel prices who keep warning about fuel smuggling, he said, “If they (the government) were really concerned about smuggling, they should have decreased the dollar rate (from 12,000 rials to 42,000 rials) instead of increasing gasoline prices by 200%.”
The government raised the USD rate from 42,000 rials in May 2018 to 12,000 rials now, a move that helped the government generate at least $30 billion.
The former journalist went on to say that the 200% rise in gasoline prices will affect low-income brackets, in particular fixed-wage earners, the most because energy bills account for 20% of their total wages. This for the rich is hardly 1%.