|Iran, a World Leader in Production of Oil, Considers Rationing Gasoline|
|Topic||Elasticity ; Supply and Demand|
|Key Words||Iran, oil, gasoline, subsidy, price control, rationing.|
|News Story||Iran subsidizes its citizens' gasoline consumption, such that the price paid by consumers is only 1/5th the actual market price. But now it's considering not only removing the subsidy, but also rationing gasoline consumption. Why? Because while Iran has lots of oil, it's missing that middle step between crude oil and gasoline - refining capacity.
Iran has only enough capacity to meet about 60% of the country's demand for oil. As a result, it must import gasoline at world prices to meet the demand. It's costing the Iranian government dearly, and as a result of the subsidy, a significant amount of gasoline smuggling is going on. The government is considering solving the problem by lifting the subsidy, and rationing gasoline consumption. The government has also considering "smart cards," which will ration gasoline by price. That is, individuals can purchase a rationed amount of gasoline at the subsidized price, but then can purchase additional gasoline at the world import price.
Iran is in the process of boosting refining capacity, but that supply increase is still a few years away. It's been estimated that slowly phasing out the subsidy will reduce consumption by 20%, but consumers are more concerned about the price increase. Poor consumers look at the gas subsidy as a way of redistributing the wealth from oil revenues across the country. It appears that, regardless of country, no consumer likes having a subsidy taken away.
|Source||"All Hands to the Pump." The Economist. March 22, 2007.|
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