Iran's Gasoline Shortage
We Americans take things for granted. We don’t know how good we really have it, even when life seems terrible.
Take gas prices, for example. Anytime the price gets in the neighborhood of $3 per gallon, we all start moaning. The news media runs stories about the evils of Big Oil and there are calls for politicians to “do something” about the high price of fuel. Most of us grumble a lot about the problem but ultimately fill up our tanks anyway, regardless of the price. After all, we have places to go, right?
I don’t have the space here to fully explain the market forces at work that affect gas prices at the pump, nor do I have the economic expertise or the time. But let’s just take one key component of the process that I do know something about: refining capacity.
Oil, crude oil that is, must go through a sophisticated refining process in order to be converted into the various gasoline grades that you purchase at the pump. We have all heard the arguments that the USA lacks sufficient refineries in order to meet the growing domestic demand for gasoline. This is true and an even greater problem when you take the demands of other countries into consideration. The problem has been compounded by the rapid industrial expansion of large nations like India and China.
In Iran, refining capacity is so low (that is, below what is necessary to meet public demand) their president has implemented a nationwide policy of gas rationing. The policy went into effect on June 27 and resulted in widespread violence and riots at fuel stations. There were 17 stations reported with damages, a dozen of them burned by irate customers lined up to fill their tanks when some of the stations shut down.
The rationing is an attempt to reduce the $10 billion Iran spends on fuel imports. That’s right: IMPORTS. While Iran is one of the world’s largest oil producers, it must import refined gasoline in order to meet demand. More than half of the country’s gasoline is imported from other countries, due to a lack of refining capacity. They suffer the same problem as us
The country also participates in a socialized fuel program, selling its gas at an equivalent of 38 cents per gallon (and that’s AFTER a 25 percent increase in the national sale price implemented in May). The government loses money on the deal, selling the fuel to customers at below cost as part of the president’s platform of sharing Iran’s oil wealth with the poor. As a business model the program is set up to fail.
By forcing customers to ration their gas—allowing private drivers to buy only 26 gallons per month at the subsidized price—Iran hopes to curb annual losses on fuel sales and reinvest those dollars in refineries. Instead, it seems to be inflaming discontent for the president and will eventually serve as an economic drag on the nation.
Nobody likes high gas prices. I sure don’t. But at least we have the freedom to buy as much, or as little, as we want any day of the week. Not everyone has that same choice to make.
We can certainly complain about the cost of gas, and we should debate the reasons for it as well as the solutions. But our complaints should be made with a full understanding of how good we do have it, even when things seem terrible.
Take gas prices, for example. Anytime the price gets in the neighborhood of $3 per gallon, we all start moaning. The news media runs stories about the evils of Big Oil and there are calls for politicians to “do something” about the high price of fuel. Most of us grumble a lot about the problem but ultimately fill up our tanks anyway, regardless of the price. After all, we have places to go, right?
I don’t have the space here to fully explain the market forces at work that affect gas prices at the pump, nor do I have the economic expertise or the time. But let’s just take one key component of the process that I do know something about: refining capacity.
Oil, crude oil that is, must go through a sophisticated refining process in order to be converted into the various gasoline grades that you purchase at the pump. We have all heard the arguments that the USA lacks sufficient refineries in order to meet the growing domestic demand for gasoline. This is true and an even greater problem when you take the demands of other countries into consideration. The problem has been compounded by the rapid industrial expansion of large nations like India and China.
In Iran, refining capacity is so low (that is, below what is necessary to meet public demand) their president has implemented a nationwide policy of gas rationing. The policy went into effect on June 27 and resulted in widespread violence and riots at fuel stations. There were 17 stations reported with damages, a dozen of them burned by irate customers lined up to fill their tanks when some of the stations shut down.
The rationing is an attempt to reduce the $10 billion Iran spends on fuel imports. That’s right: IMPORTS. While Iran is one of the world’s largest oil producers, it must import refined gasoline in order to meet demand. More than half of the country’s gasoline is imported from other countries, due to a lack of refining capacity. They suffer the same problem as us
The country also participates in a socialized fuel program, selling its gas at an equivalent of 38 cents per gallon (and that’s AFTER a 25 percent increase in the national sale price implemented in May). The government loses money on the deal, selling the fuel to customers at below cost as part of the president’s platform of sharing Iran’s oil wealth with the poor. As a business model the program is set up to fail.
By forcing customers to ration their gas—allowing private drivers to buy only 26 gallons per month at the subsidized price—Iran hopes to curb annual losses on fuel sales and reinvest those dollars in refineries. Instead, it seems to be inflaming discontent for the president and will eventually serve as an economic drag on the nation.
Nobody likes high gas prices. I sure don’t. But at least we have the freedom to buy as much, or as little, as we want any day of the week. Not everyone has that same choice to make.
We can certainly complain about the cost of gas, and we should debate the reasons for it as well as the solutions. But our complaints should be made with a full understanding of how good we do have it, even when things seem terrible.
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