Ramsco's Women Empowerment Initiative Recognized Among Top BRICS Businesswomen Practices for 2025    Egypt, Elsewedy review progress on Ain Sokhna phosphate complex    Gold prices end July with modest gains    Pakistan says successfully concluded 'landmark trade deal' with US    Egypt's FM, US envoy discuss Gaza ceasefire, Iran nuclear talks    Modon Holding posts AED 2.1bn net profit in H1 2025    Egypt's Electricity Ministry says new power cable for Giza area operational    Egypt's Al-Sisi, Italian defence minister discuss Gaza, security cooperation    Egypt's FM discusses Gaza, Nile dam with US senators    Aid airdrops intensify as famine deepens in Gaza amid mounting international criticism    Health minister showcases AI's impact on healthcare at Huawei Cloud Summit    On anti-trafficking day, Egypt's PM calls fight a 'moral and humanitarian duty'    Federal Reserve maintains interest rates    Egypt strengthens healthcare partnerships to enhance maternity, multiple sclerosis, and stroke care    Egypt keeps Gaza aid flowing, total tops 533,000 tons: minister    Indian Embassy to launch cultural festival in Assiut, film fest in Cairo    Egyptian aid convoy heads toward Gaza as humanitarian crisis deepens    Culture minister launches national plan to revive film industry, modernise cinematic assets    Rafah Crossing 'never been closed for one day' from Egypt: PM    I won't trade my identity to please market: Douzi    Two militants killed in foiled plot to revive 'Hasm' operations: Interior ministry    Egypt's EHA, Huawei discuss enhanced digital health    Egypt, Oman discuss environmental cooperation    Egypt's EDA explores pharma cooperation with Belarus    Foreign, housing ministers discuss Egypt's role in African development push    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Sisi launches new support initiative for families of war, terrorism victims    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



The self-inflicted vulnerabilities of Iran's economy
Published in Daily News Egypt on 22 - 02 - 2007

Ayatollah Ruhollah Khomeini once famously said: "Economics is for donkeys. Well, looking at the economy of Iran today it is clear that Iran could do with some more donkeys, in the guise of economists.
Iran has perhaps the largest combined oil and gas resources in the world. It has about 980 trillion cubic feet of natural gas, and about 132 billion barrels of oil. One cannot say that Iran is a resource-poor country, but it is a resource policy-poor country. The increasingly "conservative, yet risk-taking leadership is driving Iran's economy into the mud.
A major reason behind this is the huge subsidies for gasoline, diesel fuel, and electricity. Energy subsidies may represent as much as 15-20 percent of GDP, or about $35-40 billion per year. Iran also imports one-third of its gasoline needs to the tune of about $4-5 billion per year. The cost of gasoline in Iran is about 40 cents per gallon. This has prompted a huge and increasing demand for gasoline, well beyond what it would be if the price were in tune with the higher cost Iran pays for its gasoline.
The gasoline subsidy is also an indirect subsidy to Iran's automobile industry, which is pumping out 1 million cars a year into the already clogged streets of Tehran, Isfahan, and other cities. The auto industry employs about 500,000 people. So the argument goes that Iran should keep them employed at huge costs to the country's fragile economy. Each one of those auto jobs likely costs Iran many times the productivity of each of the workers employed. It would make more sense to move auto workers to more competitive industries. But that's not in the cards. Subsidizing gasoline and the auto industry has lead to vast increases in air pollution and subsequent health problems, especially in Tehran. So we must also factor in the health effects and costs of such subsidies.
Another cost is the "opportunity cost of the money for subsidizing and importing gasoline and subsidizing the non-competitive auto industry. Those funds could be going toward developing Iran's severely underinvested oil and gas industries. Maybe the donkeys are right.
Iran has part of the largest natural gas field in the world - what Qatar, which shares the field, calls the North Field, and what the Iranians call South Pars. About half of Iranian natural gas can be found there. Most Iranian oil is located in the southwest of the country, and there are very large new oil fields that have been discovered in the last few years, yet that have not been developed. One of the reasons behind this are the huge constraints imposed on outside investors: Due to very limiting buyback contracts, investors cannot share in the production and management of the oil fields that they develop.
As an example of the misdirection of resources, take the case of the Oil Stabilization Fund. The fund is designed to stabilize the budget by moving funds from high oil price years to low oil price years. However, it is often ransacked to pay for energy subsidies and gasoline imports. Yet by investing some $75 billion - or just over two years of energy subsidies - Iran could vastly increase its oil production to around 6 million barrels a day from its current 3.9 million barrels a day. For about $85 billion - or two and a half years of energy subsidies - it could bring up to speed its liquefied natural gas trains, pipelines, and production capacities.
Iran also "flares, or burns into the atmosphere, about 7 percent of its natural gas. This is way above the world average, and is a huge waste of resources. Some believe the electricity that could be produced from this flared gas would be equal to about three Bushehr nuclear power plants.
Iran's development of the entire nuclear fuel cycle, not just nuclear power plants, is another misdirection of resources that could bring huge risks to Iran, even destruction. This process will cost tens of billions of scarce revenues. Not even the United States has developed the full fuel cycle. Arguments that nuclear power is cheap get weaker when we divide the costs of developing the entire nuclear fuel cycle over each bit of electricity produced. Also, Iran has few uranium reserves. Reasonable estimates are that, given a 3,000 to 4,000 megawatt capacity for electricity production, Iran may have five to eight years of uranium in its own reserves. This has to be enriched, built into fuel pellets, put into fuel rods, and so forth.
Iran's argument for nuclear power is that it will have greater energy independence. How does that work when it will need to import uranium for its fuel cycle fairly soon? Another Iranian argument is that if it increasingly produces electricity with nuclear power, it can export more gas and oil. This would be a stronger argument if the Iranians first developed their oil and gas fields. But why set up the entire fuel cycle now, with all the political tensions this has produced and will continue to produce? Why not just develop the nuclear electricity plants, which Iran can do under the nuclear Non-Proliferation Treaty? Iran hid some of its nuclear facilities for years, until an opposition group let the cat out of the bag. Why hide those facilities if there was nothing to hide?
Iran is engaged in a terrible misuse of its resources. There seems little sense in subsidizing the nuclear industry, imports of gasoline, the auto industry, overall energy, and more, in a country that must make sound economic decisions on every issue, every day, in order to make its people better off. Economics is not for donkeys. It is for development, prosperity, and peace. It's time for Iran's leadership to smell the coffee and start developing their country, so it gets along better with its neighbors and the world. The leaders claim to exist for their people. I wonder.
Paul Sullivanis a professor of economics at the National Defense University and Georgetown University, both in Washington DC. He wrote this commentary for THE DAILY STAR


Clic here to read the story from its source.