VZCZCXRO4060
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0037/01 1431358
ZNY SSSSS ZZH
P 231358Z MAY 07
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0127
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0120
RUEHDE/AMCONSUL DUBAI PRIORITY 0111
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0077
RUEHAD/USDAO ABU DHABI TC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

S E C R E T SECTION 01 OF 02 IRAN RPO DUBAI 000037 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  5/23/2017 
TAGS: PGOV ECON EPET IR
SUBJECT: IRAN TAKES THE HEAT FOR RAISING GAS PRICES 
 
REF: A. RPO DUBAI 0015, B. RPO DUBAI 0033 
 
RPO DUBAI 00000037  001.2 OF 002 
 
 
CLASSIFIED BY: Jillian Burns, Director, Iran Regional Presence 
Office - Dubai, Department of State. 
REASON: 1.4 (d) 
 
1.(S) Summary:  As of May 22, the price of gasoline in Iran was 
increased 25% to roughly 10 cents per liter, and gasoline 
purchases will only be allowed with "smart cards." Iran's 
Interior Minister Pour Mohammadi said that gasoline rationing 
would begin "early June," based on a quota system that will be 
announced by the cabinet "within days."  However, one contact 
who claimed to have worked on the smart card project said 
recently that the country lacks the communication structure to 
fully implement a fuel-card system.  The government has been 
threatening to decrease gasoline subsidies for years, which 
constitutes a huge drain on the annual budget, but until now 
failed to take this unpopular step.  Some contacts opine that 
President Ahmadi-Nejad made the tough decision in the face of a 
feared embargo against refined gasoline imports.  In the view of 
one Iranian expat economist, cutting off Iran's gasoline supply 
would be the only way to "get to the government," but at the 
same time, he was concerned over repercussions for the Iranian 
people.  He claimed that the government is actually "benefiting" 
from the current atmosphere of sanctions and international 
pressure and that it thrives under "crisis conditions."  The 
people are already bearing the brunt of the burden, he said. 
While we agree a cut-off of gasoline would have an immediate 
impact on the Iranian government, we would argue that it is 
better for the increasingly unpopular Ahmadi-Nejad government to 
be seen as the cause of increasing prices and decreasing 
supplies. End Summary 
 
Gasoline prices rise and rationing on tap 
----------------------------------------- 
 
2.(S) In a joint statement May 22, the Minister of Oil and the 
Minister Interior announced that gasoline prices rose 2 cents 
per liter, or roughly 25% to 10 cents per liter.  In addition, 
Iranian must now use a "smart card" to purchase gasoline.  They 
said that "all filling stations have been equipped with smart 
card systems and more than 90 percent of stations have become 
operational."  Pour Mohammadi told reporters that once all smart 
cards were distributed - within 10-15 days - "rationing would 
take affect."  While the cabinet has yet to announce the 
rationing system, the Interior Minister said "for the current 
year, two quotas have been determined for every five months." 
Presumably, the rationing would be controlled by the smart card, 
but according to an IRPO contact - who claimed to have been the 
consultant for the project - the country still lacks the 
communication infrastructure to take full advantage of a 
fuel-card system. 
 
Why ration now? 
--------------- 
 
3.(S) In a discussion with IRPoff, one Iranian expat economist 
said that the Iranian government has been "threatening to 
implement some sort of gasoline rationing system for years." 
This had presumably not been done, he said, because domestically 
it is very unpopular, particularly for a president like 
Ahmadi-Nejad who sells himself as a populist.  The Iranian 
government's current efforts to reduce gasoline consumption are 
probably in part to protect itself from a possible boycott and 
in part to decrease the money spent on subsidies (ref A). 
Depending on the rationing scheme set to be announced in the 
next 1-2 weeks, lowering fuel consumption could lessen the 
impact that any future gasoline boycott would have on the 
Iranian economy.  Current estimates suggest that Iran imports 
roughly 40% of its gasoline needs.  (Note:  Further complicating 
the situation is the reportedly high levels of gasoline then 
smuggled out of the country.  The consultant for the smart card 
project claimed to IRPO Director that his research indicated 
that two thirds of gasoline purchased by the gasoline stations 
he tracked ended up somewhere else other than the gas pump.  He 
said that when he presented his research to the Ministry of Oil, 
they asked him not to publicize these findings.  He claimed that 
the IRGC and others are likely involved in smuggling.  End note) 
 
An advocate for gasoline embargo 
-------------------------------- 
 
4.(S) The Iranian economist told IRPoff that President 
Ahmadi-Nejad only thinks about the economy when he is "forced 
to" under pressure, and that economic liberalization and growth 
are not a goal of the current administration.  He repeated the 
complaints of  other contacts that after the new administration 
 
RPO DUBAI 00000037  002.2 OF 002 
 
 
sidelined experts in the ministries, it lost the "capacity" to 
shape long-term economic policies.  Instead, he said, 
decision-making is reactionary.  The government tends to operate 
in crisis mode, and it applies short-term band-aids to long-term 
problems.  He predicted the government would continue to use oil 
dollars to bankroll short-sighted economic policies that are 
appealing to the public but not good for the long-term economic 
health of the country -- as long as it is "allowed to do so." 
The economist opined that oil dollars "cushion" the impact of 
the international sanctions for the government and that the 
consumers pay the increased costs associated with doing business 
with Iran (ref B). 
 
5.(S) The economist asserted - though with great hesitancy - 
that the only way to "hurt" the government would be to impose a 
gasoline embargo on Iran.  At the same time, he recognized that 
such an act would be very detrimental to the Iranian people.  He 
also predicted that critics of the West inside Iran would use 
such a move as "proof" that the West was lying when it claimed 
that its sanctions were designed not to hurt the Iranian people. 
 Nonetheless, the economist argued for an embargo because he 
believed that the financial pressure against Iran to date 
actually benefited the current government and its policy of 
isolationism.  He said the only way to "force" the reactionary, 
crisis-driven Ahmadi-Nejad government to change its behavior 
would be to put it in a position where it has no choice. 
 
6.(S) Comment:  It is clear that a sudden cut-off of gasoline 
imports to Iran - if enforceable - would cause an immediate 
effect in a country that is importing almost half of its 
gasoline needs.  However, it may not yield the desired effects. 
We have noted that contacts of all ages are increasingly blaming 
their country's political and economic difficulties more on 
their own government and less on external pressures.  If true, a 
gasoline boycott that caused immediate pain among ordinary 
people could reverse this trend.  It is preferable that the 
apparently increasingly unpopular Ahmadi-Nejad government 
directly takes the hit for higher prices and reduced supply of 
gasoline in Iran, not the international community. 
BURNS