Wednesday, January 16, 2008

Iran's Energy Woes

Although Iran boasts the third largest oil reserves in the world (as of January 1, 2007), it has also become the world's second largest gasoline importer after the United States (see p. 6). Due to a substantial lack of domestic refining capability, Iran has been forced to import ever-increasing amounts of gasoline in response to domestic demand; which has also been steadily increasing since 1980.

Although this in and of itself would not prove economically disadvantageous, Iran heavily subsidizes its domestic gasoline prices. The Iranian government offers around a 90% discount on domestic gasoline (gasoline prices average around $0.42 per gallon), which leads to a substantial economic loss for the Iranian government, as well as unabated domestic consumption (see "gasoline importer" link above).

This situation is further exacerbated by Iran's booming population (due in large part to policies promoted by Khomeini during the Iran-Iraq War) and its attendant rise in car ownership. In addition, most Iranian vehicles are less expensive, older model (i.e. less energy efficient) cars.

Because oil export revenues account for nearly half of all government revenue, much of Iran's oil export revenue is used to finance its gasoline imports. Although Iran has repeatedly threatened to use its so-called "oil weapon," its own domestic energy woes prevent it from using its oil exports as leverage.

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