Now is that really a surprise?
=========== Tehran ===========
In Tehran, at the gas station during a protest against gas-rationing .
These pictures are being withheld by the terrorist-compliant MSM upon request from their masters in Iran.
Posted on 06/30/2007 5:58:55 AM PDT by Valin
Iran is battling widespread violent unrest in wake of a decision to launch fuel rationing. Riots erupted in major Iranian cities after the government of President Mahmoud Ahmadinejad introduced gasoline rationing. In many cases, rioters torched gasoline stations and state-owned banks in response to the huge lines.
The riots, regarded as the worst since student protests in 1999, have spread to Ilam, Shiraz and Teheran. On Thursday, rioters, accusing the government of corruption, attacked banks and business centers as police acknowledged that they had not been prepared for the wave of unrest.
[In Washington, Congress introduced a bill that would sanction any company that provides Iran with gasoline, Middle East Newsline reported. House sponsors said the fuel riots pointed to the vulnerability of the Ahmadinejad regime.] "The question is if our dear officials enjoy or benefit from causing such unexpected difficulties?" the Iranian daily Etemad Melli asked.
The government has deployed tens of thousands of police and security forces in Iranian cities to quell the violence. For the first time, Iranian protesters denounced Ahmadinejad, elected in 2005.
"Paying around $10 billion from the oil stabilization fund to compensate for the cost of importing oil in the past two years and then submitting to gasoline rationing is the mistake," former Iranian parliamentarian Hossein Marashi said. Deputy Oil Minister Mohammed Reza Nematzadeh pledged that the rationing system would be reviewed periodically. The Oil Ministry has determined that fuel rationing would save $9.5 billion per year.
"Gasoline rationing for private cars needs to be increased in the next six months," Emad Hosseini, spokesman for parliament's Energy Committee, said. "This issue should be reviewed by experts and adjusted based on the realities in Iran."
Iranian fuel consumption exceeds gasoline production by 75 percent. For years, Iran, which imports fuel from 16 countries, has heavily subsidized gasoline while parliament rejected government attempts to raise prices.
"If this parliament had not frozen the annual price hike for petrol we would not be facing the gasoline rationing now," Marashi said.
Next we will hear they are having a shortage of sand.
I wonder if the people realize just how much of their money has gone to finance Hizbollah or Hamas, how much money has ended up in the hands of thugs fighting in Iraq who are killing their fellow Muslims?
Is this a result of the embargo on Iran because of their nuke development?
Just curious.
If so, keep up the good work!!!! If they fight amongst themselves they will not have as much time to fight us.
Now is that really a surprise?
=========== Tehran ===========
In Tehran, at the gas station during a protest against gas-rationing .
These pictures are being withheld by the terrorist-compliant MSM upon request from their masters in Iran.
That it is. They have very little refining capacity, so they have to import most of their gasoline. Europe and the U.S. have severely restricted those imports.
Of course, there were better solutions than gas rationing, but no one in Iran understands Economics 101, so they did just what Hillary would have done and the impacts of the sanctions have been magnified.
The economically illiterate are the same the world over — and they never seen to learn from their mistakes.
Iranins are NOT Arab.
I believe it is.
True, but I wasn't making a point of their ethnicity but of their geographic location, in a oil rich area, which is dominated by Arab states, of whom, they are allied with.
They have plenty of oil, but they don’t have much in the way of refining capacity. All of the crude distillation units and petrochemical plants are broken-down, jury-rigged and very few of them operate at anything resembling full, designed capacity.
This could be killer. Cheap gasoline has been one of the few things the regime has counted on to buy off the mob.
Add it to all the discontent with mullah rule...
The tazi view them as ajam.
I was reminded of a song by (of all groups) Kiss:
“Burn B***h Burn”
(there must be something in my coffee this morning)
An interesting account of the challenges facing the rulers of Iran:
http://www.frontlinethoughts.com/pdf/mwo062907.pdf
Iran Out of Gas
But before we touch on the credit world, I want to briefly look at a development in the oil markets which I find intriguing. Dr. Woody Brock, in a recent paper on oil prices, wrote a rather interesting sentence, to wit, that Iran would not have net oil to export in 2014. I found that rather remarkable. Woody is very serious and sober-minded even for an economist, not given to rash analysis, but this was certainly a new idea to me. I knew they were importing most of their gasoline, as they do not have a great deal of refining capacity. As it turns out, there is much more to the story.
I have said for years that I expect Iran to be the new friend of the US sometime next decade, as the regime is not popular and the country is growing younger. (Think China, once an implacable enemy.) I thought that the impetus would be the lack of freedom and knowledge of how the world is better off coming from the internet, but it turns out that it may be a desire for more freedom combined with economic problems which help bring about regime change, much as in Russia last century.
How could a country with the third (or second, depending on which source you quote) largest oil reserves in the world not be churning out ever more black gold? The answer, as it almost always is for such problems, turns out to be governmental and not economic in nature. Let’s start out with a few facts.
Oil provides more than 70% of the revenues of the government of Iran. The rise in oil prices has been a bonanza for the regime, allowing them to subsidize all sorts of welfare programs at home and mischief abroad. And one of the chief subsidies is gasoline prices.
Gasoline costs about $.34 cents a gallon in Iran, or 9 cents a liter. You can fill up your Honda Civic for $4.49. In the US it costs almost $40 (The price has risen since the chart below was made). In neighboring Turkey it costs almost $95. Look at the two charts below from the recent Foreign Policy Magazine. [see the link for the charts] Notice that Iran is spending 38% of its national budget (almost 15% of GDP!) on gasoline subsidies!
And this situation is likely to get worse. Let’s look at a rather remarkable peer-reviewed study done for the National Academy of Sciences by Roger Stern of Johns Hopkins University late last year. Stern’s analysis is somewhat political, in that he is critical of current US Iranian policy, but this is just one of several studies which show the same thing (http://www.pnas.org/cgi/reprint/0603903104v1):
“A more probable scenario is that, absent some change in Irani policy ... [we will see] exports declining to zero by 2014-2015. Energy subsidies, hostility to foreign investment, and inefficiencies of its state-planned economy underlie Iran’s problem, which has no relation to ‘peak oil.’ “
Iran earns about $50 billion a year in oil exports. The decline is estimated at 10-12% annually. In less than five years, exports could be halved and then disappear by 2015, predicted Stern.
Of course, you can go to a dozen web sites, mostly Iranian, which demonstrate that Iranian production will be double (or pick a number) by that time. The problem is, they all assume rather large sums of investment in the Iranian oil fields. Two projects which are “counted on” to be producing oil in 2008 have yet to be funded or started, as negotiations have broken down. Iran seems incapable of getting a deal actually done with a willing partner.
Part of this is a caused by the Iranian constitution, which does not allow for foreign ownership of oil reserves or fields. Instead, they try to negotiate to pay for investing in oil production. Called a buyback, any investment in an oil field is turned into sovereign Iranian government debt with a return of 15-17%. This is a very unpopular program at home, coming under much criticism from local government officials. Any deal that gets close to getting done comes under attack from lawmakers as being too good for foreign investors, so nothing is getting done.
Why not just fund the development themselves? They could, but the mullahs have elected to spend the money now rather than make investments which will not produce revenues for 4-6 years or more. They are investing around half the money needed just to maintain production, around $3 billion a year.
Let’s look at a quote from Mohammed Hadi Nejad-Hosseinian, Iran’s deputy oil minister for international affairs: “If the government does not control the consumption of oil products in Iran ... and at the same time, if the projects for increasing the capacity of the oil and protection of the oil wells will not happen, within 10 years, there will not be any oil for export.” That’s from their guy, not a Western academic.
When an Enemy is Self-Destructing, Stand Aside
Iran produced over 6 billion barrels of oil before the revolution in 1979. They now produce around 4 billion barrels a year. They are currently producing about 5% below their quota, which shows they are at their limits under current capacity. And production at their old fields is waning. The world recovery rate is about 35% from oil fields. Iran’s is an abnormally low 24-27%. Normally, you pump natural gas back into an aging field (called reinjection) in order to get higher yields. Iran has enormous reserves of natural gas. Seems like there should be a solution.
However, if the National Iranian Oil Company (NOIC) sells it natural gas outside of Iran, it turns a profit. If it sells it in the country, then it can only get the lower, dramatically subsidized price. Guess which it chooses. Even so, internal natural gas demand is growing by 9% a year.
Not surprisingly, at 34 cents a gallon gasoline demand is rising 10% a year. This week, the government moved to ration supplies to about 22 gallons a month, which does not go far in the large cars preferred by younger Iranians. There have been riots, with people chanting “Death to Ahmadinejad.” They take their right to plenty of cheap gas seriously. There is also widespread smuggling. Ten barrels of gasoline (easily hauled in a pickup) taken into Turkey yields about $3,000 in profit in a country with about that much GDP per person. Let’s end with this section from Stern:
“Our survey suggests that Iran’s petroleum sector is unlikely to attract investment sufficient to maintain oil exports. Maintaining exports would require foreign investment to increase when it appears to be declining. Other factors contributing to export decline are also intensifying. Demand growth for subsidized petroleum compounds from an ever-larger base. Growth rates for gasoline (11-12%), gas (9%), and electric power (7-8%) are especially problematic. Oil recovery rates have declined, and, with no remedy in sight for the gas reinjection shortage, this decline may accelerate.
“Depletion rates have increased, and, if investment does not increase, depletion will accelerate. If the regime actually proceeds with LNG exports, oil export decline will accelerate for lack of reinjection gas. In summary, the regime has been incapable of maximizing profit, minimizing cost, or constraining explosive demand for subsidized petroleum products. These failures have very substantial economic consequences.
“Despite mismanagement, the Islamic Republic’s real oil revenues are nearly their highest ever as rising price compensates for stagnant energy production and declining oil exports. Despite high price, however, population growth has resulted in a 44% decline of real oil revenue per capita since the 1980 price peak. Moreover, virtually all revenue growth has been applied to pet projects, loss-making industries, etc. If price were to decline, political power sustained by the quadrupling of government spending since 1999 may not be sustainable. Yet we found no evidence that Iran plans fiscal retrenchment or any scheme to sustain oil investment.
“Rather, the government promises ‘to put oil revenues on every table,’ as if monopoly rents were not already the entree. Backing this promise is a welfare state built on the Soviet model widely understood as a formula for long-run economic suicide. This includes the 5-year plans, misallocation of resources, loss-making state enterprises, subsidized consumption, corruption, and oil export dependence that doomed the Soviet experiment. Therefore, the regime’s ability to contend with the export decline we project seems limited.”
Couldn’t happen to a nicer bunch of mullahs. If gasoline subsidies are 40% of the national budget now, what will they be in 7 years at a growth of 10% a year? Can rationing work? No, but it can slow the economy.
Stern concludes that Iran may need nuclear power as their energy supply is dwindling. I find this conclusion rather preposterous, since if they wanted more energy, all they would have to do is allow foreign investment or invest more of their own money in their own fields. If the developed world will simply apply firm sanctions, Iran will have to reconsider its nuclear program, as their ability to finance mischief will erode as the mullahs divert their resources to domestic needs in order to maintain their dwindling popularity.
The cost of their current policies cannot be lost on the youth and educated people of the country. There is almost 14% unemployment among college graduates. Iran looks to me like Russia did in 1988. They were in the process of self-destruction, although few recognized it at the time. Iran is a matter of time.
Sounds like rest of the oil producing nations of that region.
That is why I believe if we get Iraq to start producing at even near capacity we will drive those rest of the terrorist supporting nations into the ground.
Take away Arab oil and they go back to the 10th century where they want to be anyway.
This could be killer. Cheap gasoline has been one of the few things the regime has counted on to buy off the mob. Add it to all the discontent with mullah rule...
Yes, if Iran can be overthrown and replaced with a Western leaning leader, we will have removed yet another nation from the Axis of evil.
Thanks for the excellent article.
They need to purge the country of Ajabadabadoo.
1 Thanks!
2 “Of course, you can go to a dozen web sites, mostly Iranian, which demonstrate that Iranian production will be double (or pick a number) by that time. The problem is, they all assume rather large sums of investment in the Iranian oil fields.”
I seem to recall an article stating that China is going to build a refinery in Iran.
(as always, I reserve my god given right to be wrong)
Outstanding article. Thanks.
Take away the oil revenues, the ability to produce and refine it and you’re left with the “natural poverty” (thanks Hugh Fitzgerald at jihadwatch.org for the quote and thought) of Muslim countries.
more here...
http://www.jihadwatch.org/archives/017169.php#comments
Looks like the Iranian Govt are using the North Korean model.
Threaten to built a bomb and the aid will come flowing in to ease any unrest.
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