 | Another story we've been following for a while. |
CAIRO, Egypt (AP) - Iran's decision to raise gasoline prices has thrown new light on one of its most entrenched problems - the danger a vulnerable, subsidized economy poses for a country under international pressure over its nuclear program.
Experts warn of the popular backlash that other countries have faced when dealing with the same need to raise long-subsidized staple prices, including in Indonesia which saw a wave of protests in 2005. At the same time, they doubt the 25 percent price hike imposed last week on Iran's gasoline will do much, on its own, to solve the country's underlying economic problems.
Even after Tuesday's decision to raise gasoline prices from the equivalent of 30 cents a gallon to 38 cents a gallon, Iran has some of the lowest gas prices in the world, and fuel remains cheaper than drinking water. Those prices have led to unnaturally high demand and have saddled the government with fuel subsidies that cost billions of dollars a year.
The demand also forces Iran to import more than half the gasoline it consumes because it lacks enough refinery capacity up - a glaring vulnerability as the U.S. and its allies look for pressure-points in negotiations over Iran's nuclear program. "The gasoline import issue is the Achilles heel for Iran," said Amy Jaffe, an energy expert at Rice University's U.S.-based James A. Baker III Institute for Public Policy. "It shows the vulnerability of their economy."
| I confess I'm amazed: don't we have a CIA? Can't we arrange for the Iranian gasoline refineries to have a couple of accidents? Isn't there anyone there that remembers Bill Casey? |
Consistently high oil prices over the past few years have helped the economy grow more than 4 percent annually and left Iran awash in petroleum money, masking the economy's underlying weakness. But the country lacks the investment it needs to reverse its falling oil production because billions of dollars are spent instead on subsidies for fuel, food, paper, fertilizer, pharmaceuticals and other products.
Outside experts estimate that Iranian energy subsidies alone, including gasoline and natural gas, amount to $30 billion, or 15 percent of the country's entire economy, and total subsidies are close to twice that figure.
Conservatives in Iran's parliament, especially those aligned with the country's national oil company, have long pushed for higher gasoline prices.
There has been sharp criticism of the government for withdrawing billions of dollars to pay for domestic expenditures, like the subsidies, from a fund it set up in 2000 to hedge against a future downturn in oil prices and invest in the energy sector.
"They have so much more revenue than they ever thought they would have," said Jaffe. "Yet at $70 per barrel, they were taking money out of the oil stabilization fund, not putting it in it. That's unsustainable."
Siphoning off this money in the current climate leaves the country vulnerable if oil prices fall and robs the oil sector of productive investment. Investment from outside Iran is also increasingly rare, as the U.S. pressures foreign oil companies not to do business in Iran.
President Mahmoud Ahmadinejad, who has promised to share Iran's oil wealth with the nation's poor, has opposed past attempts to increase gasoline prices and cut demand.
"He doesn't want to be the man who has to drink this poison," said Saeed Laylaz, a prominent Iranian analyst. 
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