Gasoline Politics: Irrational Everywhere

I read this article today and had to smile at the writers ability to capture the complexities extant in Iranian politics today, especially this graf:

[The] students also complain about the president’s failure to deliver economic growth and jobs. At last week’s protest, which coincided with a now infamous Holocaust conference held by the Foreign Ministry, students chanted, “Forget the Holocaust — do something for us.”

Here's one very concrete example of what Ahmedinejad hasn't done for the people of Iran, something he promised to do: fix the gasoline subsidy.

Iran, as we all know, exports millions of barrels of oil each year. Its revenues from oil are used for all kinds of social projects, national defense, infrastructure, and health care including a hefty pharmaceutical subsidy. Oil revenues are the prime source of income for the government of Iran--its lifeblood--as personal income taxes don't exist in Iran and the cozy relationship between the bazaaris and the mullahs makes it hard to collect business taxes. So, if oil is clearly Iran's blood then the country is bleeding gasoline, via a massive government subsidy the government can't solve. Iranians pay about $.25 a gallon. Not only is every single gallon of gas that cheap, but most of it is more than likely imported from the Gulf states and India. It's a policy as irrational as it is expensive. As Dr. Alhajji writes in the Energy Tribune:

The results of the subsidies are disastrous: demand continues to rise, efficiency declines, and gasoline smuggling has become a lucrative business. And all the while, the fuel subsidy becomes a bigger and bigger burden for the government.

The Majles, or Iranian parliament, has been threatening to cut the gasoline subsidy for some time now, but with the price of oil high and the refined product even higher the burden of subsidizing Iran's gas consumption is out of control. The subsidy will exceeding $4 billion this year (mind you, Iran's military budget is $6 billion) so it's easy to see the need for a solution is critical.

While I was in Iran the media reported that a compromise of sorts was rumored to have been reached (yes, rumored, this is Iran we're talking about). The Majles and Ahmedinejad supposedly cut a deal and reducing the subsidy to a fixed amount of liters, per person, per month at the subsidized price and everything over that amount Iranian drivers would be forced to pay prevailing global market rates. The flipside of the deal was apparently that Ahmedinejad would get the savings for his pet projects in the provinces ($2 billion ain't chump change).

However, many Iranian voters saw this as a 'Read My Lips' moment, especially as a tankful of gasoline of even the lowest octane is still more than day's wages, and penalized President Ahmedinejad at the polls. To compound the misery, the subsidy deal, I was told, fell apart before the election.

End result? Ahmedinejad's campaign promise hit the hard road of reality on election day. Further, Iran still doesn't have a rational gasoline policy and any decision to make it rational is a political non-starter. If all this sounds familiar, well, it should. It seems the United States and Iran have something more in common than just mutual loathing: we both have citizens who believe cheap gasoline is their birthright.