President Obama has declared that Iran has until September to show positive steps toward demonstrating to the U.N. Security Council that its nuclear program is solely for civilian use. On the last Friday of August, the U.N. International Atomic Energy Agency (IAEA) released its latest report on Iran's nuclear-energy program, announcing that Iran has partly cooperated with the agency on allowing access to its nuclear facilities. However, the IAEA also reported that it "does not consider that Iran has adequately addressed the substance of the issues." U.S. State Department spokesman Ian Kelly said in response to the report, "It seems clear that Iran continues to not cooperate fully and continues its enrichment activities."
The newest IAEA findings may push the U.S. to more seriously consider implementing sanctions against the selling of gasoline to Iran by foreign companies, as proposed by Senators Jon Kyl and Joe Lieberman. But would that threat force Tehran to sit down at the negotiating table?
Most Iranian commentators do not think so. Although House Foreign Affairs Committee chairman Howard Berman called Kyl and Lieberman's Iran Refined Petroleum Sanctions Act "a sword of Damocles" hanging over the Iranians, the view from Tehran is quite different. In Tehran's daily newspaper Mardom Salari, columnist Hamid Reza Shokouhi recently wrote, "It is possible to turn this sword of Damocles into an opportunity for gaining self-sufficiency."
While the Obama Administration may think that a gasoline embargo, even a partial one, would pressure the Iranian regime to suspend its nuclear activities, Tehran may be hoping for just that sanction to help it with one of its longtime goals: reducing gasoline consumption. Indeed, the Iranian government, which has been subsidizing pump prices for years and keeping them well below the international market price (at a huge burden to the national budget), would love the U.S. to take the political hit for helping to end the subsidies.
Former President Mohammad Khatami stated that his greatest economic failure during his tenure was not reducing the massive subsidies the Iranian government spends to keep gas prices low. Every year, his government had to draw millions of dollars from Iran's special "rainy day" oil revenue reserve fund in order to pay out the subsidies. By 2003, the leaders today associated with the ongoing Green Movement opposition Khatami, Mehdi Karroubi and Ali Akbar Hashemi Rafsanjani all supported rationing gasoline in order to reduce domestic consumption and government expenditure.
Because anyone could purchase unlimited amounts of gasoline for about 30 cents a gallon, the benefits of the gasoline subsidy, as well as subsidies for cooking gas and electricity, were overwhelmingly going to wealthier Iranians, simply because they spent more on consumption. In 2005, the World Bank estimated that 94% of Iran's energy subsidies in urban areas were benefiting the nonpoor. In other words, those who least needed their consumption subsidized were getting most of the benefits. In the run-up to the 2005 presidential elections, all the candidates across the political spectrum, including the subsequent winner Mahmoud Ahmadinejad, promised to implement a reform of the gasoline subsidy program. Yet, as in the U.S., unlimited cheap gas was popular in Iran, and politicians were hesitant to touch it.
Finally, under President Ahmadinejad, a rationing program began in the summer of 2007. Every Iranian with a registered motor vehicle received a smart card that could be used at any pumping station. Up to 100 liters (26 gallons) a month could be bought at a still subsidized price of about 38 cents a gallon. After the 100 liters is up, drivers can pay a fixed price of about $1.50 a gallon for any additional gasoline, known as the "open price." (For comparison, U.S. gasoline prices averaged $2.63 per gallon at the end of August.)
Many Iranians were not happy with the new limits and prices, naturally, and several gas stations were torched in the initial days of the program. Today, fewer complaints are heard, but Iranians still use more gas than they can refine inside the country. Iran's domestic production of gasoline over the past year averaged 45 million liters a day, yet consumption has averaged 67 million liters a day, even after the rationing program was implemented. New proposals are being discussed in Iran's parliament to further limit the rationed amount, and would gain extra heft if any serious moves by the U.S. on a gasoline embargo start to occur. Of course, if that happens, Iran's government can easily blame the U.S. for future price increases at the pump.
With new refineries in construction thanks to incoming Chinese, Russian and Indian investment Iran predicts it will be self-sufficient in gasoline production by 2013. That seems a little optimistic, but further tough talk by the U.S. on a gas embargo may just help Iran reach its long-held goal a little faster.