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Wednesday, May 31, 2006

Iran: Oil everywhere, but not enough to fill gas tanks

TEHRAN, Iran (AP) — Iran is flush with huge oil reserves and cash, but a refinery shortage leaves it heavily dependent on imported gasoline and diesel to keeps its cars and trucks rolling.

That’s one reason the country — already beset with economic troubles — is desperate to avoid U.N. sanctions over its nuclear program.

“Oil is where Iran is most vulnerable,” said Behzad Nabavi, a former lawmaker who also headed a state-directed oil company, Petropars. “It’s one of the great economic paradoxes.”

Concern over fuel supplies has become so serious that energy planners are considering an unpopular two-tier pricing system.

The plan would limit the amount of gasoline motorists can buy at the state subsidized price of about 32 cents a gallon and establish an unspecified market price for larger purchases. Planners believe that would help offset the cost of imports and curb consumption.

Even a moderate drop in gasoline or diesel imports as a result of sanctions would be a punishing blow for an economy with many soft spots — double-digit inflation, chronic unemployment and cumbersome state controls among them.

One of the possible sanctions under consideration Thursday at a meeting in Austria of the five permanent U.N. Security Council members and Germany will be an embargo on exporting refined petroleum products to Iran.

After a flurry of telephone diplomacy, Secretary of State Condoleezza Rice announced Wednesday that the Americans would be ready to join in talks with Iran over the nuclear dispute.

Iran has no shortage of oil in the ground or cash in hand.

Its oil reserves are estimated at second only to Saudi Arabia’s, and Iran is OPEC’s fourth-biggest producer of crude. Rising prices — now hovering around $70 a barrel — pushed Iran’s special petrodollar fund to a record $24 billion earlier this year.

What Iran lacks are sufficient refineries to keep pace with its thirst for fuel. Iran is almost fully dependent on trucks to move goods. The number of cars is rising each year as drivers from the baby boom decade after the 1979 Islamic Revolution take the wheel.

Iran imports more than 40 percent of its gasoline and diesel needs. It comes mostly from the Middle East but also from as far away as Venezuela.

Closing the import tap could force Iran to either impose rationing — as it did during the 1980-88 war with Iraq — or raise prices and risk a backlash from a public accustomed to paying more for bottled water than gasoline.

Making up the refinery shortage would take years, meaning Iran would have no alternative fuel supplies if hit by U.N. sanctions. The United States and its European allies want sanctions imposed if Iran refuses to give up its uranium enrichment program, which is feared to be designed for producing nuclear weapons.

“Iran really does not have a lot of room to maneuver on the basic issue of refinery capacity and demand,” said Narsi Ghorban, an independent energy consultant based in Tehran.

China and Russia, permanent Security Council members, have opposed sanctions, which is what — effectively — has pushed diplomats to the Vienna meeting to examine a set of economic incentives to sway Iran.

Iranian authorities have not budged on their stated determination to continue uranium enrichment and a peaceful nuclear power program as a “national right.”

Iran’s economy, however, could make a sweet trade and technology package from abroad enticing. The country suffers from sparse direct foreign investment and a creaky telecommunications system.

“Iran has a vision of being a regional economic and technological powerhouse. They know very well this vision will not be realized ... by domestic companies alone,” said Siamak Namazi, managing director of Atieh Bahar Consulting, a Tehran-based firm providing economic surveys and analysis.

“High oil prices mean (Iran) is less reliant on outside financing. They have their own money. But that doesn’t help the technology gap,” he said.

Much of the blame, analysts say, rests at the top.

At least 80 percent of the economy is under the thumb of the ruling clerics, whose legacy includes hundreds of false starts such as unfinished bridges and roads. Official unemployment is about 16 percent, but some analysts place it above 30 percent. An estimated 25 percent of the nation’s 65 million people live below the poverty line.

Strategic planning — plotted in Soviet-style, five-year blueprints — is only now starting to warm up to privatization and foreign investment.

But Iran has proven an unreliable partner in deals with French automaker Renault SA and Turkish mobile phone network operator Turkcell, for example, with whom big plans fell through because of bureaucratic or security intransigence in Tehran.

Many other investors have either pulled out of the Iranian market or put plans on hold on fears the nuclear standoff could lead to U.N. punishments or possible military action.

Yet that hasn’t stopped everyone. Suitors keep knocking at the door for a piece of Iran’s energy wealth, including its vast natural gas reserves. China’s state energy company has signed deals for natural gas. India and Pakistan are negotiating for a possible pipeline from Iran’s natural gas fields.

Those deals display the growing disregard for Washington policy. In 1996, the U.S. said it would consider sanctions on any company that invests more than $20 million annually in the Iranian oil and gas sectors. The threat was never enforced.

A snapshot of Iran’s economy:

OIL AND GAS: Iran is estimated to have between 7 percent to 9 percent of the world’s known oil reserves and about 15 percent of natural gas reserves. Energy exports are Iran’s main source of foreign currency.

TRADING PARTNERS: In Europe, Germany, France and Italy. In Asia, Japan and China. In 2000, the United States lifted a ban on some imports, including caviar and carpets, but maintains sweeping restrictions on business ties.

PROBLEMS: Direct foreign investment remains low because of laws requiring extensive local contracts and partnerships. The level of technology, including advance telecommunications, lags behind most other Gulf nations. Official unemployment is about 16 percent, but many analysts place the figure at 30 percent or more.

DEALS: Iran is expanding natural gas and crude oil exports to China and South Asia.
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