The consumption of gasoline and its related issues have been one of the important topics that have been of concern to the people and government officials over the past two decades. During this time, government officials have always resorted to the argument that gasoline consumption is on the rise and needs to be controlled, and have implemented pricing policies to reduce consumption. In the latest move on Thursday, September 10th, domestic media announced that the gasoline ration in citizens’ fuel cards has been reduced from 250 liters to 150 liters. After this announcement, speculation about another increase in gasoline prices has risen and despite government officials’ denial, it continues. Although governments have implemented price increase policies with the aim of reducing consumption, a historical review of gasoline consumption trends shows that price fluctuations have not had much impact on reducing consumption over the past two decades.

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Historical process

According to official statistics published by the National Iranian Oil Refining and Distribution Company, gasoline consumption increased from 13.7 million liters in the early years of the revolution (1357) to 32 million liters in 1375. This upward trend continued in the following years, reaching 73 million liters per day in 1386. In July 1386, with the implementation of the rationing policy, each liter of gasoline was allocated at a rate of 100 tomans, while free gasoline was sold at a rate of 400 tomans. Although the first government of Mahmoud Ahmadinejad tried to reduce consumption with this policy, its effects were only short-term. Gasoline consumption decreased by 12.5% to 64.4 million liters in that year, but in 1387 it increased by 3.8% to 66.9 million liters.

Mahmoud Ahmadinejad continued the policy of shock therapy in his second term as well. This time, he implemented an increase in energy carrier prices under the Economic Transformation Plan. On December 19, 2010, the targeted subsidy law was implemented in Iran, and the price of gasoline increased from 100 tomans to 400 tomans (rationed) and 700 tomans (unrestricted) per liter. Although this policy resulted in a 2.3% decrease in gasoline consumption in 2011, the increasing trend continued in the following years.

The next stage of increase in gasoline prices in 1393 (2014-2015) occurred with the implementation of the second phase of targeted subsidies in Iran, where the rationed gasoline reached 700 tomans per liter and free gasoline reached 1000 tomans. Interestingly, official statistics show that gasoline consumption did not decrease in this year and even its growth has been almost constant.

With the increase in gasoline prices in 1394, the rationing of gasoline was eliminated, but consumption continued to rise. The growth of gasoline consumption during the years 1395 to 1398 was 5.3%, 8%, and 10.4%, respectively, which is considered a new record in the past two decades. In 1397, with the launch of the Star Refinery in the Persian Gulf, the daily production of 47 million liters of gasoline reached zero imports of this product.

On November 24, 2019, the second government of Hassan Rouhani adopted a policy of increasing gasoline prices, according to which the price of rationed gasoline reached 1,500 tomans and free gasoline reached 3,000 tomans. This led to widespread protests in various cities of Iran. The government claimed that gasoline consumption had decreased by 16% to 75 million liters in the following month after the implementation of this plan, compared to 89 million liters before.

During the years 1399 and 1400, due to the presence of COVID-19 conditions and a decrease in traffic, gasoline consumption decreased. Meanwhile, the price of gasoline remained constant during these two years. With the easing of COVID-19 restrictions, gasoline consumption increased. Scattered statistical reports show that gasoline consumption in the country suddenly peaked at the end of last year and reached one hundred and one million liters on some days as COVID-19 restrictions became less strict.

According to Afshin Mahdavi, the planning manager of the National Iranian Oil Refining and Distribution Company, the average gasoline consumption in Iran has reached approximately 110 million liters per day in the past month. This is while the daily gasoline consumption during the same period in 2021 was only 87 million liters, indicating a 14% increase in gasoline consumption in the current year.

Vertical demand curve

In general, the number of cars, national income, and population growth are important and influential factors on demand and consumption of gasoline. According to the results of independent and university research in the country, gasoline is a low-demand commodity and has a vertical demand function (E=0). In other words, gasoline is not like ordinary goods that experience a decrease in demand with an increase in price, but rather the opposite, as the price changes, the level of demand for it does not decrease; in fact, demand does not have much sensitivity to price fluctuations; therefore, it can be said that the variable of price does not have much impact on gasoline consumption in Iran or there is a very weak relationship between price and gasoline consumption. In a cautious interpretation, changes in gasoline prices alone will not have much effect on the consumption of this product.

Gasoline contamination

On Friday, 10th of Shahrivar, domestic media announced that the gasoline ration in citizens’ fuel cards has been reduced from 250 liters to 150 liters. After these speculations about a possible increase in gasoline prices, it was later announced that the reason for this action is that people do not consume more than 150 liters of 3000 tomans gasoline. Mohammad Mohajeri, a conservative political activist, claimed in his Telegram channel that gasoline is becoming triple-priced and argued that there is no reason for the reduction of the 100-liter fuel card and the ability to use fuel cards at gas stations at the requested amount simultaneously.

Some experts also consider these whispers as a calm beginning for the re-pricing of gasoline. Siamak Ghasemi, an economic expert, wrote in a note: “The path of increasing gasoline prices starts with three-tier pricing and gradually eliminates lower rates and highlights higher rates. The game has already begun, but the elimination of lower rates due to concerns about social impacts will be postponed to next year.”

Of course, the government officials also denied the increase in prices as usual, and some of the President’s deputies also spoke out against his opposition to the re-increase in gasoline prices. However, a closer examination reveals that such increases occur at levels higher than the executive branch.

Fuel smuggling control

One of the arguments used by policymakers in Iran to justify the increase in gasoline prices is the smuggling of petroleum products, especially gasoline. There is no accurate statistic on the amount of gasoline smuggling, but unofficial figures estimate this number to be around two to four million barrels per day.

After the reduction of gasoline rationing, Fars News Agency wrote in a news article titled “Unveiling the Thirteenth Government’s Gasoline Program/ Implementation of Non-Pricing Solutions to Combat Gasoline Smuggling”: “The Thirteenth Government does not have a plan to increase gasoline prices and use pricing tools, and only seeks to manage consumption and prevent fuel smuggling through non-pricing tools.”

This news agency claimed: “Based on the statistics extracted from the intelligent fuel system during the implementation of the 100-liter reduction plan for the free gasoline quota card in the month of Mordad, fifty-five million liters of gasoline were removed from the smuggling cycle, and it is predicted that in the month of Shahrivar, more than one hundred and fifty million liters of gasoline will be removed from the smuggling cycle and savings will occur.”

This claim by the government-supporting news agency is not verifiable, but it seems that aside from government smuggling, they are also concerned about losing income from gasoline exports; income that has been generated in the past three years from the gap between production and consumption of gasoline.

Unleaded gasoline

Until the construction of the Persian Gulf Star Refinery, the gap between gasoline production and consumption was compensated through imports. In 2018, with the launch of the Persian Gulf Star Refinery and a daily production of 47 million liters of gasoline, imports of this product reached zero. Iran’s gasoline exports revenue increased in 2019, peaked in 2020, decreased in 2021, and is expected to reach zero in 2022. This daily figure was approximately 5.3 million liters, which generated a revenue of three billion dollars for the government last year. Now, with the increase in consumption after the COVID-19 pandemic, the possibility of returning to the era of imported gasoline has been raised. The balance between gasoline production and consumption, which was predicted during the twelfth government, is now being achieved during the thirteenth government, depriving the government of two to three billion dollars in gasoline exports revenue. Therefore, it seems that the issue of reducing smuggling should

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Over the past three decades, various governments have implemented similar policies to reduce the consumption of oil products, especially gasoline: increasing prices. Although during these three decades, the policy of rationing and price growth for gasoline has not been effective in reducing consumption, it seems that the increase in oil prices and consequently gasoline has once again burdened the thirteenth government with this responsibility. Unaware that the pressure from possible rationing or price increases may lead to hidden costs for the government; costs that at times exceed the expectations of government officials.

Notes:

1- Statistics of Iran’s consumption of petroleum products, National Iranian Oil Refining and Distribution Company.

2- The country’s average daily gasoline consumption reached seventy-five million liters, Shana News Agency, 3 Dey month 1398.

3- Gradual Death of Iran’s Three Billion Dollar Income from Gasoline Exports, Fars News Agency, February 6, 2022.

4- Decoding the Government’s Gasoline Program in the Thirteenth Administration/ Implementation of “Non-Monetary” Solutions to Control Gasoline Smuggling, Fars News Agency, September 13, 2022.