Iran Declares Gasoline Self-Sufficiency but Challenges Still Remain

During a grandiose opening ceremony attended by President Hassan Rouhani and Oil Minister Bijan Zanganeh, Iran inaugurated the third phase of its Persian Gulf Star Refinery in the energy-rich south February 18, declaring "self-sufficiency" in fulfilling national gasoline demand.

Located 25 kilometers west of the port city of Bandar Abbas, the refinery will enable Iran's average daily gasoline production to reach 105 million liters, according to official figures.

The facility, fed by condensate from the South Pars Gas Field in the Persian Gulf, converts light crude into gasoline and other byproducts. The launch of the third phase has been described as a gigantic step in a country whose economy is slowing the face of sanctions reimposed following President Donald Trump's withdrawal from the Joint Comprehensive Plan of Action (JCPOA).

Despite sitting on the world's fourth-largest proved crude oil reserves, Iran has been historically reliant on imports to meet domestic gasoline demand due to insufficient refining capacity.

The latest phase of the Persian Gulf Star Refinery has cost the country USD 4 billion, financed entirely by domestic investment, with no foreign loans secured for the project. While producing 45 million liters of gasoline and 15 million liters of gasoil per day, the refinery also delivers 3 million liters of aviation fuel, as well as 130 tons of sulfur. Iran's oil ministry expects to save USD 15 million per day as imports volumes are expected to fall. The savings are especially important for a government already struggling to supply foreign currency markets amid increasing international banking restrictions.

"Iran's gasoline production has made history with its giant leaps in the past five years," declared Zanganeh during the inauguration ceremony, adding that increased gasoline production would help Iran "to counter unilateral US sanctions".  

With the new refinery added to Iran's gasoline production cycle, Iran could feasibly export surplus production.  Yet uncertainty related to US sanctions as well as skyrocketing consumption at home in recent years seem to have made the government think twice about export plans. "We have intentionally decided not to export our [surplus] gasoline, because we are planning to maintain good storage,” Zanganeh added without elaborating further.

With Iran's budget largely dependent upon its oil income, experts have for long sounded the alarm on the long-term consequences of the country's single-commodity economy. Consecutive administrations have, therefore, pursued policies to make the economy less reliant on the sale of crude oil. While the goal is yet far from being met, the Rouhani government has focused on diversifying energy exports to include other, higher-value petrol products such as gasoline and gasoil.

"Self-sufficiency in gasoline and gasoil production and moving toward exports were targets set and pursued by the government of Hope and Prudence," reported Arman, a reformist newspaper. In a February 19 editorial, the paper noted that in the face of disruptions caused by the US pullout from the JCPOA, Iran's oil ministry had redoubled efforts toward the self-sufficiency in gasoline production and that more countries besides Iraq and Afghanistan are expected to join the list of Iran's gasoline customers.

The inauguration of the new refinery phase took place just one week after nationwide ceremonies to mark the fortieth anniversary of Iran's Islamic Revolution. State media outlets hailed "gasoline self-sufficiency" as an “achievement and blessing" bestowed by the Islamic Revolution upon the nation. "It came at a time of economic war being waged on our country, with the enemies going the extra mile to inject disappointment in [the minds of] young Iranians," declared a report from the Islamic Republic News Agency (IRNA).

The governor-general of Hormozgan province had earlier described the new refinery as a successful example of Iran’s push to establish a "resistance economy", a term coined by Iran's Supreme Leader Ayatollah Ali Khamenei. The concept has now evolved into a directive to all government institutions, a strategy to neutralize Western measures and a roadmap toward economic independence during sanctions times.

The leading contractor involved in the project was Khatam al-Anbia Construction Headquarters, known by the acronym GHORB. The company is an engineering, procurement, and construction firm with a near monopoly over Iran's mega projects. GHORB is affiliated with Iran's powerful Islamic Revolutionary Guard Corps (IRGC).

Saeed Mohammad, the company’s managing director, told Iran's state TV that the country's share in the enormous South Pars Field now exceeds that of neighboring Qatar. Mohammad also noted that the project was executed by an exclusively Iranian team with an average age of around 30 years old.

But even with the new refining capacity, worries persist that Iran's new gasoline self-sufficiency may be short-lived as domestic consumption continues to rise. The country’s average daily consumption last summer stood at 97 million liters, according to a report by the financial newspaper Donya-e-Eqtesad. Notwithstanding the total capacity of 105 million liters achieved after the inauguration of the third phase, the 9% annual consumption growth rate "will use up the stored gasoline,” the newspaper reports.

Consumption continues to rise because gasoline in Iran remains cheap. Despite rising inflation, Iran's government has in recent years maintained a cap on the price of gasoline. Experts lament the fact that with considerable subsidies allocated to gasoline, the government has not only failed to curb the consumption, but has in fact stoked it. President Rouhani's budget plan for the upcoming Iranian year offers no provision to reduce subsidies in order to reduce consumption.

The future of genuine gasoline self-sufficiency in Iran might be less bright than the development of the Persian Gulf Star Refinery suggests.

Photo Credit: IRNA