The new Iranian government has sounded the alarm on an emerging gasoline shortage that looks set to get worse unless new policies are introduced to clamp down on runaway demand growth.
Presenting a draft budget for the Iranian year starting on 20 March 2025, Iran's President Masoud Pezeshkian criticised the existing gasoline rationing system, calling it one of the major hurdles for the proposed bill.
Iran has, since 2007, allowed citizens to buy base levels of gasoline at subsidised prices and any additional at a higher price. But the system failed to cap demand and imports sufficiently.
In the proposed budget the government has signalled plans to ease shortages, but increasing prices is not on the agenda. A cut to subsidies in 2019 sparked nation-wide protests.
"Today the cost of [producing] gasoline — which includes refining costs, transportation costs, and gas station maintenance costs — is about 8000 tomans (80,000 rials)," Pezeshkian said. But consumers only pay 7.5pc of the actual price of gasoline, according to Iran's oil ministry.
Iran's gasoline consumption has reached a record high of around 750,000 b/d in the first seven months of the Iranian year that began on 20 March, according to the ministry. Domestic refinery capacity of 670,000 b/d has been unable to satisfy this.
To bridge the gap Iran has turned to imports, which has not been easy for the heavily sanctioned country that buys the fuel at market prices.
"Around 90 trillion tomans [$1.3bn at the free market rate] was spent to import gasoline this year, which could be increased to 130 trillion tomans [$1.9bn] next year if the [demand growth] trend continues," Pezeshkian warned.
Supply-side response
If Tehran is unwilling to raise pump prices it will have to add more supply.
Work in underway to bringing online an additional fourth train at the Persian Gulf Star (PGS) condensate splitter, and on a 60,000 b/d splitter that made up just one part of the now shelved Siraf project. Consultancy FGE expects these projects to be commissioned by the end of 2025 or early 2026 and "potentially close the gap."
The newly-appointed head of state-owned refining company NIORDC, Mohammad Sadegh Azimifar, said using CNG-powered vehicles could reduce the need for more gasoline production.
"There are good legal capacities in the country for the development of CNG, including the approval of the energy optimization fund," he said.
But CNG has lower mileage and energy content, and CNG filling stations are beset with long queues.
"If you have a CNG car, you can only drive it for a day and one will have to wait in long queues to get it refilled, only for it to last for another day", said FGE's Middle East managing director Iman Nasseri. Iran has sufficient reserves of natural gas and LPG, but both of these failed to emerge as a good alternative fuel, he said.
The Pezeshkian administration has repeated calls to increase use of public transport and modernise the country's vehicle fleet. But metros and buses are being utilised at maximum capacity and private vehicles are a favourable option in a country with the second-most discounted fuel prices in the world, Nasseri said.
Iran is yet to tackle rampant fuel smuggling, with market sources indicating gasoline continues to be illegally shipped to neighbouring countries like Pakistan, Afghanistan and Kazakhstan. Earlier this week, authorities seized around 220,000l of smuggled fuel in several warehouses in Mashhad.
While the administration strongly rebukes subsidies, with new vice president Mohammad Reza Aref calling them "unreasonable", they continue to look at solutions that does not include any increase in retail prices, in fear of a repeat of the 2019 protests. But with a lack of infrastructure to capitalize on CNG and limitations in public transportation system, the government may have no choice but to reconsider.
