ABSTRACT
I ran, one of the founding members of OPEC, has the world’s third-largest proven oil reserves and—by some estimates—the second cheapest gasoline in the world, after Venezuela. Iran’s oil industry was nationalized in 1950. Currently, a state-owned company, NIORDC, 1 is responsible for all activities related to refining, production of different oil products, and distribution throughout Iran, as well as marketing and exports. In spite of many years’ experience and good revenues, domestic gasoline production is currently not sufficient to meet domestic demand. One important reason for this is that Iran’s gasoline demand has been growing at an increasing rate due to factors such as population growth, increased incomes, and low prices of fuel. Excess demand causes several economic and environmental problems. On one hand, the government has been forced to import gasoline to supply the domestic demand; in fact, it devotes a sizable share of the national budget to this purpose (2% in 2009). Also, about 4% of the total budget share is devoted to domestic gasoline subsidies (by our own estimation). Iran has one of the largest subsidy schemes relative to its GDP in the whole world. Between 2007 and 2008, oil product subsidies amounted to US$ 32 billion, or about 11% of GDP (Ettelat 2008).
