The National Iranian Oil Company paid $80 billion in fuel subsidies in 2022, approximately twice its oil revenues in the same year.
According to data from the National Iranian Oil Refining and Distribution Company, a subsidiary of NIOC, Iran earned close to $40 billion by selling crude and petroleum byproducts in the last fiscal year that ended on March 20, IRNA reported.
Giving a breakdown, the report noted that Iran’s subsidies for gasoline in 2022 was close to $36.5 billion that equals 65% of the government's general budget in the current fiscal year (stated in March) at $53 billion.
NIOC’s subsidies for fuel last year ($80 billion) indicated a 15% rise compared to 2018 when the figure amounted to $70 billion and Iran was chosen as the largest fossil fuel subsidizer, leaving behind Saudi Arabia with $44.72 billion and China with $44.44 billion.
Moreover, the amount of fossil fuels consumed in Iran is 1.5 times the global average.
Iran was the fifth-largest crude oil producer in OPEC in 2021 and the third-largest natural gas producer in the world in 2020. At the end of 2021, Iran accounted for 24% of oil reserves in the Middle East and 12% in the world.
The average daily consumption of gasoline in Iran was around 100 million liters in 2020, of which 60 billion liters were subsidized fuel sold at 3 cents per liter, whereas the same amount of fuel is sold at 60 cents in international markets and close to 100 cents in neighboring states.
Put it simply, NIOC pays a massive $100 million in gasoline subsidies per day.
Optimization Plans
According to NIORDC, optimization of fuel consumption is the most effective approach to avert the ongoing tragedy that is very likely to force NIOC to resume gasoline imports.
As long as optimization plans, including the expansion of compressed natural gas development initiatives, are not taken seriously, the uptrend in fuel consumption will never stop, the report added.
The construction of a new refinery will cost NIOC at least $10 billion. Nonetheless, the execution of some optimization plans needs nearly $500 million.
NIORDC produces 110 million liters of gasoline per day, all of which are used domestically, leaving no space for exports.
Gasoline consumption in Iran has increased by 265% over the last three decades, while Turkey, Germany and France have reduced their consumption by at least 30% in the period.
Close to 250 million liters of oil derivatives, including diesel, gasoline, jet fuel and ship fuel, are used across the country per day, for which the government pays $220 million as subsidies.
Some countries are taking steps to curb subsidies. Tunisia, India and Mexico have adopted complete price liberalization for transport fuels. China, Indonesia and Oman have introduced mechanisms to automatically adjust domestic prices to keep them in line with international prices.
Middle East countries such as Saudi Arabia, Kuwait, Qatar, Bahrain and the UAE are working on reforms to align subsidies with a cost-recovery mechanism or market-based prices.
“Notable reductions in oil-related consumption subsidies over this period were observed in many countries in the Middle East, including Saudi Arabia, the UAE, Qatar and Bahrain, as well as in Colombia and Pakistan.”
CNG Consumption
According to Mohsen Johari, the head of Iran's Compressed Natural Gas Association, a plan has been proposed to NIOC to encourage motorists to use more CNG.
“Based on the proposal, all motorists with CNG-hybrid vehicles will be supplied with free CNG for three years,” he said.
Highlighting the short-term benefits of the scheme, the official noted that if implemented properly, the proposal will help reduce daily gasoline consumption by at least 20 million liters in the first year.
“The surplus gasoline can be exported and the Oil Ministry can generate $2 billion in revenues per annum, which is more than enough to cover the costs of all CNG stations,” he said.
“The free supply of CNG is expected to encourage more car owners to convert their vehicles to CNG-hybrid, which might encourage automakers to manufacture more hybrid vehicles.”
According to Johari, the government has no intention of increasing gasoline prices to compel people to use less fuel, as its inflationary effects will be catastrophic. However, the daily consumption of fuel is on the rise and the National Iranian Oil Company has already started to tap into strategic gasoline reserves to narrow the gap between supply and demand.
Iran has over 2,500 CNG stations and ranks fifth in global CNG consumption.
