Monday, July 04, 2005

Iranian Price Subsidies Mask True Costs

Two dollars to fill up a gas tank? It's everyday reality in Iran, where the government keeps the price of unleaded artificially low.
The country may boast 10 percent of the world's oil reserves and natural gas fields second only to Russia's. But every ounce of gasoline sold at Station No. 11 at a fraction of the world market price is an ounce Iran does not get to sell abroad. And at least 80 percent of the country's export revenue -- and perhaps 50 percent of its national budget -- comes from selling petrochemicals to foreign markets.

"There's a huge opportunity cost, because they could be selling that at world prices," said Ben Faulks, an analyst who follows Iran for the Economist Intelligent Unit, a consulting firm based in London. And every time the price of crude climbs, "that implicit cost gets larger."

That helps explain why, despite record high oil prices, Iran routinely runs a net deficit.

Another reason: The oil-rich country pays billions to import gasoline.