POSSIBLE GASOLINE RATIONING IN IRAN

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 003999

SIPDIS

SIPDIS

E.O. 12958: DECL: 6/24/2016
TAGS: IR PREL PGOV ZP EPET ETRD
SUBJECT: POSSIBLE GASOLINE RATIONING IN IRAN

REF: DUBAI 00501

DUBAI 00003999 001.2 OF 002


CLASSIFIED BY: Jillian L. Burns, Acting Consul General, Dubai,
UAE.
REASON: 1.4 (b),(d)



1.(C) Summary: Iran's Oil Minister announced June 23 that on
September 23 Iran will stop importing gasoline and begin
rationing. The government says it will not raise gasoline prices
-- which are highly subsidized -- in order to prevent inflation.
A government spokesman dismissed an earlier proposal of a dual
pricing mechanism to reduce consumption. The Majles Energy
Commission head said that Majles members disagree over when and
how to implement rationing. In his view, rationing should only
begin once the government expands public transportation options
and converts cars to run on natural gas. He predicted the Majles
will likely fund additional gasoline imports through the end of
the Persian year (March 20). End Summary.

2.(C) Iranian Oil Minister Kazem Vaziri-Hamaneh declared June 23
that Iran will stop importing gasoline on September 23 and begin
to ration the remaining reserves. Economic Minister Davoud
Danesh-Jafari confirmed the administration's plan the next day.
These announcements follow Vaziri-Hamaneh's April 7 statement
that the government cut this year's gasoline import budget (the
Iranian year began on March 21) from $4 billion to $2.5 billion,
meaning that subsidies will run out by the middle of the year --
September 23. On June 26, Vaziri-Hameneh added that the
government may limit motorists to less than five liters per day.
Only taxis and public transportation vehicles would receive
more. In order to limit inflation, the government will not raise
gasoline prices.

No to Dual Pricing
--------------

3.(C) Government spokesman Gholam-Hossein Elham said June 26
that the government opposes a dual-pricing system. He did not
specify what he meant by "dual-pricing," but presumably he was
referring to a system where any gasoline purchased over the
monthly ration would be sold at a higher price. Atieh Bahar
Consulting -- a Tehran-based company -- reported that
Danesh-Jafari and the Majles members agreed to reject
dual-pricing. In a conversation prior to Vaziri's June 23
announcement, Koichiro Tanaka, a senior Iran analyst at Japan's
Institute of Energy Economics, told Acting Consul General that
if the government opts for a dual-price system, rationed gas
will probably be set at the current GOI subsidized price of 9
cents per liter (34 cents/gallon),and purchases beyond the
quota will be roughly twice that. He said he cannot imagine
Iranians paying more and certainly not market price (55
cents/liter according to Vaziri-Hameneh).

Debate in the Majles
--------------

4.(C) According to media reports on June 25 and 26, Majles
Energy Commission head MP Kamal Daneshyar said that Majles
deputies disagree over when and how to implement rationing. In
his opinion, the government should not start gasoline rationing
before it expands public transport by adding thousands of buses,
taxis, and minibuses; converts a significant portion of vehicles
from gasoline to natural gas fuel; and phases out dilapidated
vehicles. As this cannot be completed by fall, he predicts
rationing will not begin this Iranian year and that the Majles
will approve additional funding -- perhaps as much as 5 billion
dollars -- for gasoline imports. On the other hand, he said some
Majles deputies think rationing should start in September using
"smart cards" (reftel). Tanaka doubted Iran could produce the
supporting infrastructure for "smart cards" in the near future.
He thinks ration stamps or something similar would be used
instead. Atieh Bahar Consulting reported Vaziri-Hameneh said a
select group of cabinet ministers and Majles deputies will make
a final decision about rationing on June 29.

The Irony of an Oil-Rich Country Rationing Gas
-------------- -

5.(U) Even though Iran sits atop the world's second largest oil
reserves and is the fourth biggest oil producer (second in
OPEC),its refineries can only process around 40 million liters
of gasoline per day (LPD). It does not have the personnel,
expertise, or resources, moreover, to increase its refining
capacity substantially in the short to mid-term, according to
news reports and various experts. Iran's demand, meanwhile, is
some 70 million LPD, which requires it to import 30 million LPD
primarily from India via Western European traders

DUBAI 00003999 002.2 OF 002


(Netherlands-based Vitol is its biggest supplier). The
government buys gasoline on the world market and sells it
domestically at a huge loss, to keep prices low. Gasoline prices
in Iran are among the lowest in the world.

6.(C) Comment: Gasoline rationing is a surprising move for a
government that projects a populist image. The reason may be
simply to combat the major drain that gasoline subsidies have on
the budget. It could also be an attempt to preempt any threat of
sanctions on gasoline imports to Iran. The domestic political
fallout of gasoline rationing is unknown, but it is likely that
if the government rations gasoline without raising the price,
rent-seeking opportunists will easily find ways around the
system. Rationing will particularly hit hard the many Iranians
who use their personal vehicles as gypsy cabs after they leave
their official job, in order to make ends meet. Iranian
politicians have also not answered the question of the impact of
rationing on prices of goods, given that most traded goods in
Iran move by road.
BURNS