The Forum for Partners in Iran's Marketplace

July 2013, No. 67

Oil & Gas

Gasoline at Int'l Prices

In conditions under which increase in the rate of the US dollar has once again sparked smuggling of gasoline into neighboring countries and on the other hand due to the high cost of foreign trips a tangible increase in consumption of gasoline for internal trips is being sensed, the question is whether the next president would have a plan for reforming the fuel pricing system in the country? And a more important question is if one time we intend to get rid of our addiction to low-price gasoline, what would be a proper pricing framework to do so?

We have been used to inexpensive gasoline as such that we have not realized that for years a great part of the energy of senior executive managers in the country instead of being concentrated on using experiences of successful countries in their academic and rational planning for controlling inflation and unemployment, has been spent on focusing on several meetings to decide on the price of gasoline. In fact, how many countries in the world have agreed to set the price for domestically produced gasoline independent from international prices and in this way encountered economic and non-economic problems? And then form different organizations for the removal of those economic and non-economic hurdles?

Briefly speaking, the ecstasy of consumption of low-price gasoline has put us residents of big cities in the country in a  trance, so much so that even if we were stuck in heavy traffic jam for two or three hours a day, even if we muttered and complained about inhaling "pure lead" all throughout the year, even if we were among few world countries where air pollution was so serious that there would be no alternative other than declaring a few days as public holiday in major cities, even if each year we paid a cost equivalent to export of millions of barrels of oil for establishing walls on the borders in order to prevent smuggling of gasoline into neighboring countries and still those millions of barrels were smuggled, still we would not give up the "addiction to low-price gasoline".

But what is the solution?: It seems that as a first step we should recognize international prices and like the other 140 world countries where the price of gasoline and diesel oil is changed at gasoline stations every week (sometimes every day) in line with the world prices, at least accept the change in the price of domestic gasoline in line with the change in global prices. A basic and simple proposal is that for example put the price of gasoline at the Singapore oil bourse as the base and set the price for domestic gasoline at the beginning of each month equal to 50 percent of the average price of gasoline in Singapore bourse for the previous month. Therefore, after a year, at least the mental framework of all our citizens would get used to some changes in the world prices. In the next step, this 50 percent ratio could be changed to 60 or 70 percent in the next year and this increase in the ratio could be planned as such after three or four years the price of domestic gasoline would be equal to the price of gasoline in Singapore bourse.

However, the important point is that any time we want to give up the destructive addiction to "low-price gasoline" and get rid of some naive economic outlook in the field of pricing different kinds of energy which has long caused the fall of our economy, we have no alternative but to price gasoline on the basis of repeatedly changing international prices.

Interestingly, the deputy oil minister says the finished cost of gasoline is currently 12,000 to 13,000 rials. The message of this article is that in view of the Oil Ministry the price of gasoline should be above 10,000 rials.


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  July 2013
No. 67