Iran, bracing for sanctions, presses its parliament for gas money

The Iranian government is struggling for parliamentary approval to purchase more gasoline for storage in preparation for possible sanctions that could spark a rise in gasoline import prices for the Islamic Republic, say oil officials and analysts inside the country.
 
"We heard that maybe in February they will announce another resolution in the Security Council, so storing more gasoline is to prepare for this,” says an Iranian oil ministry official, who spoke by phone on the condition of anonymity.

The US Senate is set to review proposed legislation sometime in January that would unilaterally sanction companies that give Tehran gasoline or tankers and insurance for fuel transports by preventing them from doing business in the US. If foreign firms targeted by the proposed US legislation ultimately adhere to the sanctions at a time when oil prices are on the rise, Iran could be faced with a major rise in procurement costs for the fuel.

Having to secure the country's fuel needs under any new international sanctions – designed to curb Iran's nuclear program – could drive up the price Iran will pay for its gas imports at a time when the Ahmadinejad administration is struggling to maintain the country's economic stability in the midst of major domestic political upheaval and a global economic downturn.

“They are bracing themselves for new sanctions,” says a Tehran-based analyst who asks not to be named due to the sensitivity of the issue.

Refining capacity in Iran, which has the lowest gasoline price in the Middle East, stands at roughly 1.6 million barrels a day and doesn't meet the country's domestic fuel demand. Despite a gasoline rationing program aimed at curbing consumption launched in June 2007, the country still has the highest rate of gasoline consumption in the region and must import more than a third of its gasoline needs. Iran's former refining chief said in a 2008 interview that the Islamic Republic pays between $35 billion to $45 billion a year to subsidize fuels such as gasoline, heating oil, kerosene, liquefied petroleum gas, or LPG, and fuel oil. Total daily gasoline consumption is around 17 million gallons, while daily domestic gasoline production stands at around 12 million gallons, according to Platts, an leading energy research firm based in New York.
 
The country is currently storing around two months worth of nationwide gasoline consumption in onshore and offshore storage facilities. Around half a million barrels of this figure are being stored in offshore storage tankers along the Persian Gulf, the oil ministry official says.
 
Tehran had some 7.7 million barrels of gasoline in both onshore and offshore storage in mid-April of 2009 to prepare for the summer in the run-up to the Iranian presidential elections. The country started to maintain a consistently “reasonable level” of gasoline in storage roughly three years ago in order to avoid having to purchase gasoline under pressure from suppliers charging a higher price. Should there be any decrease in the storage level, new purchases are then "rolled over" to maintain a consistent amount of gasoline in storage.
 
President Mahmoud Ahmadinejad's administration has been struggling to build inventories of the fuel but needs approval from the Iranian Majles, or parliament, to finance any more gasoline purchases, according to the oil ministry official.
 
The government said in early December it needs another $3 billion to pay for gasoline imports through the end of the Iranian new year in March 2010, according to local media.
 
"The problem is [we can't buy as much as we want because] ... we don't have approval from the parliament. We have already spent the money allocated by the state budget for gasoline. By law, parliament must approve it,” the official says.
 
The oil ministry official says that he expects Iran's parliament to ultimately approve an extension of the government's budget for gasoline imports. “Last year, we also had this problem and the parliament approved it. We have enough money. It's the matter of our budget,” he says.