Iran moves to market pricing for fuel

Shift is designed to curb state spending and boost economy.

Tehran says it will sell less subsidised petrol and instead move to market pricing for the fuel. The move would support the Iranian government's plans to attract foreign investment to new Iranian refining projects. "After the implementation of the subsidy plan, gasoline will be sold on free market price," said Mohammed Rouyanian, the head of Iran's transportation and fuel management office, according to the official IRNA news agency.

Last week, at an oil conference in Bahrain, the Iranian deputy oil minister Shahnazi Zadeh said the government would guarantee to buy products from foreign-owned refineries in Iran at international market prices. As the country faces the threat of new UN sanctions over its nuclear programme, its president, Mahmoud Ahmadinejad, is under increasing pressure to cut government spending and stimulate the economy.

Cutting state subsidies on many staples, including fuel and food, is a big part of his plan for achieving that. Under Tehran's current rationing scheme, which sparked riots when it was introduced three years ago, drivers can buy 60 litres per month of subsidised fuel priced at 1,000 rials (Dh0.36) per litre. Beyond that, they must purchase fuel at a "semi-subsidised" price four times higher. The sanctions and domestic fuel subsidies have discouraged most foreign companies from investing in Iran's oil and gas sector.

Yesterday, Iran ended talks with Royal Dutch Shell and the Spanish company Repsol over development of two phases of its giant South Pars offshore gasfield, which is part of the world's biggest known gas deposit. The state-run Mehr news agency said a US$5 billion (Dh18.36bn) contract for the exploration and production work would instead be awarded to Iran's Khatam-ol-Osea group, which includes several companies owned by Iran's Revolutionary Guards.

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