How can it be that an oil-producing country must ration petrol?
by Maurizio d’Orlando
Mistaken political decisions and irrational economic demands of those who could build refineries have led Teheran to institute electronic cards to limit the use of fuel. The crisis is sparking the biggest domestic protests that Ahmadinejad has faced since being elected.

Milan (AsiaNews) – Petrol rationing has sparked the largest domestic protests in Iran against President Ahmadinejad since 2005, when he took power. Having only three litres of petrol available per day in a country which is the world’s fourth exporter of petrol, not only makes life difficult for individuals, it also prevents many from earning an income. Just consider, for example, that half of the 11 million residents of Teheran get around in collective taxis, the unofficial works of tens of thousands of people. And the owners and managers of pick-ups serving as bars and of mobile workshops cannot get along now.

The rationing has thus provoked irritation among the majority of Iranians, aggravated by the fact that Ahmadinejad himself had, during his electoral campaign, promised improvements in living conditions thanks to petrol. Anger erupted in attacks on petrol stations and clashes with police. However the unrest was practically ignored by very closely monitored news agencies, which only gave news about the backing of the Supreme Guide, Ali Khamenei, for the ration plan. People are reacting to the censorship of news by circulating ironic messages like one which says that “by order of the President, those who don’t have petrol can ask for it from the 17 million asses who voted for him.”

To many, and not only Iranians, it seems incredible that a country that is an oil exporter should be forced to ration petrol, through an updated and electronic version of cards reminiscent of the food and basic needs rations in use in European countries in World War Two. However, oil circles have been aware of the situation for some time now, not least because it is none other than one chapter of a saga unfolding across the world. The current high prices fetched by oil are largely due to a lack of refinery facilities to process crude oil. Refineries, it is said, cause pollution and so nobody wants them close to their backyard, not in Europe, not in the United States and not even in developing countries.

Although one may justifiably wonder if there are any human or even animal activities that do not pollute at all, even a tiny bit, and apart from the fact that modern refineries are far less polluting than older ones, the problem is that everywhere in the world, people aspire to move from place to place, preferring or being forced to use vehicles fuelled by petrol or gasoline. The problem of inadequate refining capacity was bound to emerge sooner or later, seeing that for years now, the political authorities of practically the whole world no longer allow the construction of new refineries and impose restrictions on the activities of existing facilities, to the extent that some companies are induced to close their plants. After all, one cannot pump crude oil extracted from wells into vehicle tanks.

Add to this the fact that the populations of many oil-exporting countries have been led to believe that, who knows why, they should get their fuel free: who in this world works always and completely free-of-charge? Building a refinery is not cheap, costing from one to three, four billion dollars. And yet for Iran, which must spend more than five billion dollars per year to import petrol, investing in refining would be very convenient.

If one considers that oil extraction plants have already been more than paid off, at the end of the day, for the Iranian state, the marginal cost of raw material, crude oil, is practically zero. Why hasn’t this been done then, one might ask? Perhaps people cannot make their calculations in Iran? Perhaps Iran, with the explosion in prices fetched by crude oil, does not have the financial resources to invest in refineries? It is evident that this is not the case.

It is several years since the Iranian government earmarked as a priority the upgrading of its refining capabilities to satisfy domestic demand, and it asked several international suppliers of plants to put forward their proposals. With the relatively few opportunities for contracts for new refineries, one would have expected a battle to win the tender for works. And yet this did not materialize, essentially because of two ranges of factors.

In the first place, Iranians think they know the entire oil and refining world. On the other hand, it was in Iran, in Abadan, that the Anglo Persian Oil Company (which later became the BP) built the world’s first big refinery, intended mostly for exportation purposes. In May 1914, the availability of this refinery prompted – just before the fatal attack in Sarajevo which killed the Archduke Franz Ferdinand – the then First Lord of the Admiralty of Britain, Winston Churchill, to win British parliamentary approval, with somewhat suspicious foresight, for the acquisition of 54% of the above-mentioned Anglo Persian. At stake was a conspicuous contract for the supply of fuel to the British Navy, which moreover was signed on the same date.

Iranian engineers have maintained sound technical knowledge and they know perfectly well the detailed costs of the components of a refinery. So, adding up the costs of individual components, they proposed conditions to potential international counterparts, which none however even dreamed of accepting. The point is that building a modern refinery, in a certain sense, can be technologically more complex than building an atomic bomb. It is not enough, in fact, to put the single components together; complex and hence costly coordination is needed. To use a somewhat strong comparison, a person is not the sum of arms, legs, head and other organs, but much, much more than that. The difference between how much was calculated as costs and how much was requested from western companies, which can boast of adequate experience, induced some in Iran to suspect either western capitalists of avidity or else that some high-ranking personality in the country, in cahoots with foreign companies, was working for his own personal interests, with the excuse of building a refinery. Corruption exists in the world of big international contracts, even if it differs from country and country, and is without doubt an evil. Thus it is right to seek at least to contain it within minimal and tolerable limits, seeing that it is unrealistic to aspire to eradicate it completely.

However, an even greater scandal than corruption, where this does not cross the narrow limits of what is tolerable, is indifference, doing nothing. This is the case of nations where reciprocal mistrust is generalized, where power struggles are intense and where everyone is prepared to run up to the judges to accuse others. This, it is to be supposed, is the case of Iran. In a country born of a revolution – the Islamic one of Khomeini – inevitable differences in views among people cannot emerge as different orientations of thought, so as not to contradict the official ideology that all are bound to honour. So power struggles become more intense than ever and a mere discrepancy of economic assessments immediately gives rise to suspicions that reciprocal mistrust is fuelling false certainties. So this excludes the option of international contracts.

The second range of factors that blocked and continue to block the upgrading of refining capacities is the economic model that the Iranian Islamic Republic has taken on. Private activity is restricted to small and, in certain cases, medium-sized enterprises. Large companies, especially of the oil sector, fall under the competence of the State. In this case too, immobilism therefore has a precise explanation. It is recognised that self-sufficient statalism has not only failed historically along the length and breadth of the world, by its very nature, it is rarely capable of concluding promptly and in the short-term complex projects at a contained cost.

One last consideration. In the oil sector, timings are long. Today, one must pay for the mistakes of yesterday. It takes many years to set up a refinery, to drill wells, to make oil fields produce or to lay down an oleoduct, or to build landing terminals. This is why if the problem of extending structures in the oil sector and the energy sector in general is not faced swiftly and decisively, the crisis will shift from acute to unmanageable in a short time. At that point, mankind will be able to do no more than blame itself for today’s foolishness.