Iran's Economy Could Undo Ahmadinejad : Michael Theodoulou

The late Ayatollah Khomeini famously told an advisor worried about inflation that the 1979 Islamic Revolution was “not about the price of watermelons”. Today Iran’s firebrand president, Mahmoud Ahmadinejad, cannot be so cavalier about price of fruit and veg – let alone housing and petrol. Despite high oil prices, Ahmadinejad, the son of a blacksmith who portrays himself as a champion of the working classes, has failed to deliver on his populist election promises to raise living standards and share the country’s oil wealth more evenly. Earlier this month, a group of 57 Iranian economists, including academics and former officials, wrote an open letter saying his government’s policies had hurt growth and stoked inflation while his foreign policy “had not been constructive”, drawing UN sanctions in a row with the West over Iran’s nuclear programme. It echoed a missive issued by economists at the same time last year which also criticised Ahmadinejad’s government of economic mismanagement. Since then inflation has surged to more than 17 per cent, growth has continued to fall short of long-term planning targets and foreign firms have voiced increasing concern about investing in Opec’s number two producer. The decision to ration petrol is probably the most controversial economic reform since the revolution. It has been discussed – and put off – for a decade. Petrol consumption in Iran far outstrips the capacity of Iranian refineries, forcing Iran to spend billions of dollars on importing about 40 per cent of its petrol needs at international prices. Rationing has been seen as an economically essential measure that has been stalled for political reasons for a decade. Last year the Iranian parliament slotted $2.5 billion for petrol imports but spent $5 billion on imports to sell at subsidised prices. Much is smuggled to Iran’s neighbours where petrol prices are higher.
Subsidised petrol – it still costs just 5.5 English pence a litre – has also encouraged wastefulness. A quarter of a million litres of petrol is sploshed daily on to filling station floors daily by careless motorists. Hotels and offices can be icy from full-blast air-conditioning in summer and sweltering from lavish central heating in winter. Demand for petrol in Iran is growing by 11 per cent a year, compounded by a huge boom in car sales. Iran’s 8.5 million cars – many of them fuel-inefficient old locally-made Peykans, which are based on the extinct British Hillman Hunter – consume around the same amount of petrol as the 35 million cars on British roads. But the regime’s standoff with the international community over Iran’s uranium enrichment programme means there are now are compelling strategic and security aspects reducing Tehran’s dependence on imported fuel. America, which is leading the pressure on Iran over its nuclear programme, has said Tehran’s fuel imports are a point of “leverage”. Some Iranian economists believe sanctions on petrol imports could cripple the system within 48 hours, causing havoc. Some economists argue that the rationing scheme will still leave Iran heavily dependent on petrol imports and is also likely to add to high inflation. Political rhetoric focuses on refining self-sufficiency to end the Achilles heel of fuel imports. Iran last year embarked on a multi-billion dollar, five-year programme to revamp and expand its refining system to three million barrels per day from around 1.6 million bpd now. But analysts say state funding for the programme is inadequate while American sanctions and the nuclear row are hampering foreign investment.