Political risks to watch in the UAE

In the opinion of AlertNet.

What can happen when wholesalers and retailers gladly cheat on trademarks and governments look the other way

Heh:

A twist has emerged in the story of Israeli citrus fruit reportedly sold in Iran in defiance of a ban on commercial dealings between the two enemy states.

It has now been revealed the fruit, a type of orange-grapefruit hybrid marketed as Jaffa Sweetie, were not Israeli in the first place.

The Sweeties were brought to Iran from China, where faking the origin of goods is a common practice.

The discovery of apparent Israeli origin caused a stir in Iran.

Outrage followed, distribution centres stocking the fruit were sealed and accusations were traded.

Such is the infamy of dealing with Israel that an Iranian official went so far as to accuse the opposition of a "citrus plot".

Ahmadinejad dodges shoe

Ahmadinejad and Bush have something in common:

When the Iraqi journalist, Muntazar al-Zaidi, hurled his shoes at the then-US president, George Bush, in December, Iranian officials declared him a hero and hailed his gesture as a mark of Islamic courage.

They were presumably less impressed this week when Iran's president, Mahmoud Ahmadinejad, was similarly targeted during a visit to the north-western city of Urumiye.

Ahmadinejad found the shoe on the other foot as he waved to the crowd from an open-top car on his way to give a speech at a local stadium.

An Iranian website, Urumiye News, reported that a shoe was hurled at the president as his convoy drove through a central square.

Gateway Pundit has much more.

UAE banks squeeze Iranian goodies

Strategy Page

In the United Arab Emirates (UAE), where much of Iran's foreign trade is handled, local banks are refusing to do business with the 10,000 Iranian trading firms based there. This has caused delays and cancellations of Iranian imports (over $9 billion worth from the UAE last year) and exports. This is being felt by the rule elite in Iran. There, the large extended families of the clerical leadership live the good life, and the goodies come in via the UAE. The sudden shortages of iPods, flat screen TVs, automobiles and bling in general, has been noticed in Iran, and is not appreciated.

The falling price of oil is producing another problem, national bankruptcy.

The problems would seem to be directly connected. If the UAE banks fear that the Iranian traders will be unable to repay loans due to a high risk of national Iranian bankruptcy, that gives them good reason to cut off the Iranian trading companies.

Picture of the day

Which dhow is steaming towards Iran?

(Gulf News image and table.)

Thanks to a loyal reader for the suggestion.

Iran's central bank chief resigns

From Gulf News:

Ahmadinejad, whose policies have been criticised by economists for fuelling inflation, has already changed the oil and industry ministers. Some analysts said those cabinet members had, like Sheibani, questioned some government policies.
...
Economic analyst Saeed Laylaz earlier said he expected Sheibani to be replaced because the governor opposed Ahmadinejad on issues such as the president's call to cut interest rates.

Bank rates were cut on the president's recommendation in June, a move criticised by economists at a time when inflation has surged to 16 per cent or more.
...
Ahmadinejad vowed to share out Iran's oil wealth more fairly when elected in 2005 but economists have blamed soaring prices on his government's spending policies which have been fuelled by windfall revenues from high oil prices.

Although public grumbling about the cost of living has risen, analysts say the government has a cushion of petrodollars to keep the economy growing, even if below potential.

Forbes:

No explanation was given for the resignation, which had been widely predicted in the Iranian media.

But Sheibani had reportedly been at odds with Ahmadinejad over a surprise government decision on May 22 to cut interest rates.

Both Sheibani and Economy Minister Davoud Danesh Jaafari were reported not to have been consulted over the decision, which many economists considered highly unwise in an economy which was already facing inflationary pressures.

Domestic politics is also heating up in Iran up as the country enters a crucial period leading to elections for the conservative-controlled parliament on March 14, 2008 followed by presidential polls in summer 2009.

The economy will be a top election issue and Ahmadinejad has been criticised for Iran's high inflation and for ploughing windfall revenues from high oil prices into expensive infrastructure projects.

Both the industry and oil ministers issued stark warnings to Ahmadinejad over his economic policies after they quit.

Iran under pressure, self imposed, economically

From the Washington Post:

Rationing Fuels Discontent in Iran

A month after raising gasoline prices by 25 percent, the government began fuel rationing Wednesday, which sparked violence in Tehran. Angry Iranians smashed shop windows and set fire to a dozen gas stations.

With armed guards protecting gas stations Thursday, calm returned to the capital as motorists lined up to fill their tanks. But many were still seething. "Ahmadinejad promised paradise, but his government has made life hell for Iranians," Mohsen Nosrati said as he waited at a gas station in central Tehran.
...
This month, about 60 economists wrote to Ahmadinejad blaming rising prices on his mismanagement and flawed economic policies.
...
The international pressure has made it difficult to tackle one of the country's most significant economic problems -- gasoline subsidies that cost the government billions of dollars a year and encourage high demand. Iran is one of the world's biggest oil producers, but it does not have enough refineries, so it must import more than 50 percent of the gasoline consumed domestically. The rationing is part of a government attempt to reduce the $10 billion it spends each year to import fuel that is then sold at below cost to keep prices low.

The Iranian economy was mismanaged before Ahmadinejad came to power; he has only made it worse. International power (sanctions for Iran's nuclear program) have intensified the necessity of reform. While sanctions may have made reforms more difficult they also made them more likely.

The Iranian government has little trust among the populace. The people have learned that the most likely way in which the oil wealth of the country is shared with them is through price subsidies. Subsidies are wasteful of resources, but in the Iranian context (appropriate distrust of government) they make sense.

Everyone has a price; women half that of men

The New York Times reports:

Iran’s Islamic penal code, which is a parallel system to its civic code, says murder charges can be dropped if the accused can prove the killing was carried out because the victim was morally corrupt.

This is true even if the killer identified the victim mistakenly as corrupt. In that case, the law requires “blood money” to be paid to the family. Every year in Iran, a senior cleric determines the amount of blood money required in such cases. This year it is $40,000 if the victim is a Muslim man, and half that for a Muslim woman or a non-Muslim.

Iran: Crude reality :: WSJ

Some extracts:

Iran sits on one-tenth of the world's known oil supplies but is using so much energy these days it may start rationing gasoline as soon as next month.
...
As the country has grown wealthier selling oil and gas, Iranians have themselves become large consumers of energy. Government subsidies, which make energy nearly free to consumers and businesses, stoke the demand further. At the same time, a combination of Western sanctions and Iranian policies has discouraged foreign investment in oil fields, causing production to stagnate. The result: Iran's oil exports could dry up in as little as a decade, according to some who have studied the situation. That's a looming disaster for Iran, which derives about 85% of its export income from the sale of oil.
...
Once seen as little more than a giant petrol station to the world, Middle Eastern oil suppliers are now becoming some of the largest consumers of energy anywhere. They are attempting to diversify their economies, often by encouraging energy-thirsty industries such as refineries and processing of metals like aluminum. Meanwhile, record numbers of young people are growing up and establishing households. Already, the Middle East and North Africa's population of some 300 million consumes almost as much oil as 1.2 billion Chinese.

Iran, where a huge population bulge is reaching adulthood, is confronting the export crunch earlier and more acutely than others. Iran already consumes more oil than all but 15 other countries on earth, according to the International Energy Agency, which monitors the world energy market. In 1995, Iranians used the equivalent of 34% of the oil they pumped from the ground, exporting the rest. Last year they used 40%.
...
Iran will also have to keep ahead of Iranians' own thirst for gas and oil, which is growing at a double-digit pace. So far, it is losing the race.

Much of the problem is waste. A recent study by a parliamentary committee said that 18.5% of the country's electricity is lost before it even reaches consumers, due to rickety infrastructure, corruption and mismanagement.

... subsidies make energy practically free in Iran, discouraging any serious energy conservation. Gasoline, for example, costs about 40 cents a gallon at the pump. That's encouraged an explosion of use, as Iranians add new cars while continuing to use fuel-guzzling old models. It has also encouraged a brisk smuggling trade as Iranians buy millions of gallons of fuel at the subsidized price and truck them into neighboring Pakistan, Turkey, Afghanistan and Iraq for sale at market rates.

Could Weak Oil Cost Venezuela, Iran Clout? :: Wall Street Journal

Link($):

Softening oil prices over the past few months have spurred hope in Washington that less revenue for oil-rich states could weaken the hand of governments the U.S. considers worrisome -- particularly those in Iran, Venezuela and Russia.

The three nations are potentially vulnerable: Oil-and-gas revenue accounts for between two-thirds and three-quarters of government income in both Venezuela and Iran, and only slightly less in Russia. So, a big drop in oil prices would slow economic growth and hit government finances, forcing them to cut back spending increases that have boosted the popularity of all three governments at home and emboldened them abroad.

But it is far too early to expect the changing economics of oil to have big political effects. For one thing, although the price of oil has fallen 28% since hitting an all-time high of $77.03 in July, it is still high by historical standards. The three nations, having weathered crises before, have all built up substantial currency reserves to cushion against a further fall in prices.

"Fifty-dollar oil doesn't put any of them in any grave danger," says Michelle Billig, director of political risk at PIRA Energy Group, a New York-based consultancy. "After all, it was only a few years ago that we were talking about an oil windfall for these places at $30 a barrel."
...
Unlike Russia, and to a lesser extent Iran, Venezuela has been much more reckless in spending its oil windfall. Last year alone, public spending grew 43%, widening the gap between total government income and outlays to about 1.5% of the total economy, according to estimates by Morgan Stanley.

So far, falling oil prices haven't dented Mr. Chávez's spending habits. Just last week, he announced a program to send 100,000 poor Venezuelans each year to vacation in Cuba. He also recently offered the army's services to build a road in Nicaragua at a projected cost of $350 million.

While economists agree that Mr. Chávez's free-spending policies may eventually shipwreck the Venezuelan economy, they say that won't happen -- if it happens at all -- for at least another year. The main reason: Venezuela has accumulated more than $36 billion of reserves.

But there are signs Mr. Chávez could be headed for trouble, even without a much bigger drop in oil prices. He recently ordered an increase in gasoline prices -- which the government has long subsidized -- to raise federal revenue.
...
As revenue has soared with oil prices, Iran's public-sector spending has expanded almost as fast. To pay for massive subsidies for most daily goods -- including gasoline, bread and heating fuel -- the government has borrowed in each of the past two years from a special rainy-day fund set up to retain some oil revenue for when prices fall again. But that spending has ignited inflation, now running around 15%.

Iranian President Mahmoud Ahmadinejad introduced a budget early last week that included a 20% increase in spending for the Iranian fiscal year that begins in March. He said the government, whose ultimate authority is held by a council of Islamic mullahs, would be able to add to its rainy-day fund if oil prices remain above $33 per barrel, the level the budget assumes for Iranian oil. But some private economists doubt the budget calculations and predict Tehran would again fall back on those surplus funds to finance spending.

Will Iran run out of gas?

Division of Labour provides us an excerpt from a LexisNexis transcript of an NPR interview. Start there (scroll to point 5). Then come back here for another excerpt:

Prof. STERN: It would be much cheaper for Iran to build new gas-powered electric power generation than to build a nuclear reactor. But the magic of the nuclear reactor for Iran is that Russia is willing to finance it. And Iran has scared off many other foreign investors in its energy sector.

INSKEEP: Are you saying, then, that Iran's pursuit of nuclear power of some kind is actually a sign of their desperation?

Prof. STERN: That's exactly what I'm saying, yes.

INSKEEP: So what does mean for the United States and it's allies as they try to pressure Iran into giving up its nuclear ambitions?

Prof. STERN: If I were giving advice, that advice would be do nothing. I believe that Iran will be in a weaker position in three or four years' time. And if that's the case, they would be in a more conciliatory frame of mind, perhaps with respect to their weapons.

INSKEEP: Roger Stern, of Johns Hopkins University. Thanks very much.

GCC plus Egypt and Jordan

Washington Wire:

After numerous meetings over the last year with the six-nation Gulf Cooperation Council, plus Egypt and Jordan, the Bush administration wins a breakthrough — of sorts. The GCC Plus Two, a group the administration sees as a budding front against Iran, issued its first-ever communiqué.

But the statement leaves out any mention of Iran, referring instead to the importance of regional stability and the group’s “collective desire to prevent Iraq from becoming a battleground for regional and international powers.” The intentional omission reflects the sensitivity that that the Gulf countries of Oman, United Arab Emirates, Saudi Arabia, Kuwait, Qatar and Bahrain feel about provoking Iran, the region’s rising power.
. . .
In a slightly more pungent line, the group says it “welcomed the commitment by the United States as stated in President Bush’s recent speech to defend the security of the Gulf [and] the territorial integrity of Iraq.” Bush said in his Iraq speech last week that he was sending another aircraft carrier to the Gulf and would cut off Iranian networks in Iraq.

Also, Saudis pass on the idea of squeezing the Iranian economy by pumping up oil production. Of course, with oil already at $51/barrel, out-of-control governments like Iran and Venezuela will be squeezed and will have to discipline their spending and over regulation.

Iranian brain drain not stemming :: BBC

Quote:

The number of educated young Iranians trying to leave the country appears to have increased in the last year since President Mahmoud Ahmadinejad took office judging by the numbers sitting the IELTS exam.

The figures have increased two-and-a-half times this year over the same period last year, according to the Australian administrators of the test.

A year ago, the International Monetary Fund said Iran had the highest rate of brain drain of 90 countries it measured.
. . .
According to the IMF more than a 150,000 of the best young minds in Iran are leaving every year.
. . .
It will be months before these students can do their language test. Then they will join the long queues outside foreign embassies in Tehran.

And the cost to Iran of not stemming this brain drain - one government estimate put it at nearly $40bn a year.

Stern report on Iran

Iran's oil usage is growing at the fastest pace in the world. Its capacity to produce oil is declinging rapidly, and its reserves could be depleted in a decade.

I guess those in charge are focused on short term contentment of the domestic population. Nuclear power will not be able to replace all the domestically consumed oil. But nuclear weapons might.

UPDATE: Stern being interviewed on NPR; worth listening.

Great Man of History, Human Nature and Culture, and You

By now you probably know that you are Time Magazine Man of the Year:

The "Great Man" theory of history is usually attributed to the Scottish philosopher Thomas Carlyle, who wrote that "the history of the world is but the biography of great men." He believed that it is the few, the powerful and the famous who shape our collective destiny as a species. That theory took a serious beating this year.

To be sure, there are individuals we could blame for the many painful and disturbing things that happened in 2006. The conflict in Iraq only got bloodier and more entrenched. A vicious skirmish erupted between Israel and Lebanon. A war dragged on in Sudan. A tin-pot dictator in North Korea got the Bomb, and the President of Iran wants to go nuclear too. Meanwhile nobody fixed global warming, and Sony didn't make enough PlayStation3s.

But look at 2006 through a different lens and you'll see another story, one that isn't about conflict or great men. . . .

Carlyle - I have noted several times - also gave economics the label "the dismal science", for reasons you thought you knew. He was denouncing economics because it conflicted with his view that history is driven by great men and great races, whereas economics claimed races are equals but cultures and institutions exlained differences in the success of nations.


There are several related items in Sunday's Washington Post.

1. Culture Matters:

The war in Iraq has produced many casualties. One lesser-noticed one may be the death of an idea -- the idea that the culture of a nation or region can be transformed quickly by well-intentioned foreigners. The recent report of the Iraq Study Group scarcely mentions the grand goals of bringing democracy to Iraq, and instead contemplates a drawdown of U.S. combat troops. It seems that the notion of transforming the political culture of the Middle East has been drawn down as well.

"Are the people of the Middle East somehow beyond the reach of liberty?" President Bush asked in 2003. "Are millions of men and women and children condemned by history or culture to live in despotism? I, for one, do not believe it." As his audience applauded, he went on to criticize the "cultural condescension" of skeptics who believe that Islam and democracy don't mix.

The president was, at best, half right. In the long run, the values of freedom may be right and true for all people in all societies. But the cultural values favorable to pluralism and entrepreneurship are indispensable to building democracy and capitalist prosperity.
. . .
Some cultures and some religions clearly do better than others in promoting democracy and prosperity. Iraq and Afghanistan show that, where culture is adverse, a blind belief in the power of freedom is a frail foundation for U.S. policy.

But culture is not destiny. The failures in Iraq and instability in Afghanistan do not prove that these or other countries are condemned to stagnation and political oppression. For politics to change, however, culture must change, too -- and that takes much more than dispatching troops, holding elections and writing constitutions.
. . .
Like other young idealists, I believed that President John F. Kennedy's Alliance for Progress -- a "Marshall Plan" for Latin America -- would make the region safe for democracy.

But as I encountered daily the intractability of Latin America's problems, it became clear to me that poverty and injustice were rooted in the region's values. I was learning what Federal Reserve Chairman Alan Greenspan would articulate years later, after the Russian economy collapsed in the late 1990s. "I used to think that capitalism was human nature," he reflected. "But it isn't at all. It's culture." The same is true of democracy.

2. Unlikely hypothesis: "Middle East. Former president Jimmy Carter defends his bestselling new book, which blames most of the problems in the Middle East on Israel. He's now planning a sequel, which blames most of the problems in "Ishtar" on some assistant producer named Mordecai Rabinowitz. In other news, Ahmadinejad insists he's never worked as a presidential ghostwriter."

3. Daniel Drezner examines the grand strategy of promoting democracy and free markets. About the Iraq Study Group he observes:

Two major public statements, coming less than a week apart, nicely capture the confusion besetting U.S. foreign policy these days.

The first is the report of the Iraq Study Group, released on Dec. 6. In good old-fashioned "realist" style, the report offers nothing about how to promote democracy and human rights in the Middle East, focusing instead on the single-minded, amoral pursuit of the U.S. national interest.

Just five days later, outgoing U.N. Secretary General Kofi Annan delivered his valedictory address, imploring Americans to uphold human rights and the rule of law in prosecuting the war on terrorism -- idealism at its purest.

4. Doubts about Iraqi leader's capabilities persist.

It would be more correct to say doubts about the Iraqi constitution persist. Just as doubts persisted about America's future under the Articles of Confederation. George Washington was a great president under the Constitution which strengthened the power of the federal government. You don't need a Saddam to govern Iraq, but a stronger central government is necessary.

Iran's cash cow drying up :: Business Week

Via Instapundit comes this story:

Iran's looming crisis is the result of years of neglect and underinvestment. As in other oil-producing countries such as Venezuela and Mexico, the government treats the oil industry as a cash cow, milking its revenues for social programs. It allocates only $3 billion a year for investment, less than a third of what's needed to get production growing again.

Compounding the pressure are policies that encourage profligate energy use. Gasoline prices are set at 35 cents a gallon, which has helped fuel 10%-plus annual growth in consumption, PFC Energy figures. The national thirst for gasoline far outstrips domestic refining capacity, so Iran will import about $5 billion in gasoline this year, or about 40% of its needs. The government is planning a $16 billion refinery building program to boost capacity by 60%. But unless Iran raises fuel prices, the new plants will just mean more consumption.

An oil squeeze could spell trouble for President Mahmoud Ahmadinejad. The populist leader has won backing at home through generous handouts. Ahmadinejad has ratcheted up public spending this year by 21%, to $213 billion, on everything from aid to rural areas to housing loans for newlyweds. He has also promised some $16 billion in outlays from a special $30 billion fund set up to tide Iranians through future hard times. Without a healthy oil sector, Iran's social spending could bust the national budget--and reignite inflation.

Business Week headlines its story "Surprise: Oil Woes in Iran." It's not a surprise.

Interesting that despite the generousity, Ahmadinejad isn't all that popular back home. More: student protests.

Bodies of knowledge

Washington Post, page A01:

Medicine didn't have much of a reputation back then [1807]. . . . And anyone serious about the study of anatomy had to get bodies -- somehow.

Without dissections, the only way medical students could really learn was in surgery, said Ronn Wade, director of the Maryland State Anatomy Board. "And they didn't have anesthesia then. It's kind of hard to learn anatomy when you're trying to cut something out [and] the patient's screaming and yelling and hemorrhaging."

U-Md. was the first school in the country to make dissection compulsory, Pitrof said. But it wasn't until the late 1800s, with a growing recognition of the importance of medical education, that Maryland legislators made it legal for the medical school to use unclaimed bodies.

In some countries, scientists were allowed to use bodies from poorhouses or of criminals hanged from gallows. But there was plenty of grave robbing, too -- enough so that wealthy people sometimes put slabs of stone over tombs or hired guards to stay by grave sites until the bodies could decompose.
. . .
You'd think selling bodies would be ancient history. But despite long-running programs allowing people to donate their organs and bodies after death for medical science, this year a black market of body parts made headlines nationally and internationally. In a case in California, for example, hundreds of bodies were illegally carved up.

With growing demand for tissue and bone, some corpses were disappearing, with organs and other body parts sold to medical research facilities, tissue banks and the like.

Hmmm. Seems like the Washington Post would want to more carefully research a page 1 article even if it is a puff piece. As recently posted at Marginal Revolution,

One of the most bizarre aspects of the organ shortage is that it is illegal to pay for cadaveric organs for use in transplants but it is legal to pay for cadavers. That's right, it's illegal to pay people to donate their organs for the purpose of saving lives but medical schools can pay people to donate their bodies so that plastic surgeons can practice their nip and tuck.

Oddly, just a week ago the Post ran an article by experts pointing out that the sale of cadavers is legal. An extract:

Medical schools routinely pay for the cremation or burial (often with elaborate memorial ceremonies) of the people whose bodies were donated to them for medical research and student training. In contrast, it is against federal law to offer any compensation for transplant organ procurement, including paying for organ donors' funeral expenses. This creates a bizarre asymmetry in the treatments of organ and whole body donations.

Given the current cost of funerals, the savings from donating bodies to medical schools can be substantial. This is especially true in states with funeral industry--protective regulations that are intended to keep out low-cost competitors. Those states provide us an opportunity to test empirically the effects of compensation on whole-body donation and, in turn, to extrapolate whether there is any merit to the criticisms of organ donation compensation.

If potential whole body donors respond to financial incentives, then we ought to see more body donations in stringently regulated states where funeral prices are higher. That is, in fact, what the data show.

Aside. Some of the best nose jobs in the world are performed in Iran because surgeons get a lot of practice. Here's why:

Iran's strict Islamic dress code has backfired in at least one big way.

Some young Iranian women are more obsessed with their appearance than their counterparts in the West.

And, as CBS News Correspondent Elizabeth Palmer reports, they're lining up in record number to improve on the look nature gave them with cosmetic surgery.

The most popular form of plastic surgery in America is liposuction, but in Iran, where the female form is kept largely under wraps, women prefer to spend their money where they can show it off.

So Iran, where the morality police used to confiscate eyeliner and lip gloss, is now the nose job capital of the world.

Iranian men are joining in.

Iran Restricts Broadband Speeds to Save Islamic Culture :: PRMinds

From PRMinds comes this RNCOS press release:

Islamic government of Iran is debarring Internet links of high-speed as an effort to dampen its internal political clashes and to battle against the western culture’s influence.

Government of Iran is limiting the download speeds of Internet to keep its younger generation away from outside influences that can undermine its Islamic culture. The service providers in the country have been instructed to restrict download speed to 128 Kbps. It will make the download of foreign music and video from Internet difficult.
. . .
Recent report by RNCOS, “Middle East and Africa Broadband Sector Analysis (2007)” puts forth that in many of the Middle East and African countries, the government has imposed strict restrictions and censorship on Internet use. Countries like United Arab Emirates, Syria, Saudi Arabia and Iran have been observing online ban though some relaxation has been given off late. This tight ban is bound to hinder the progress of broadband market and Internet access in these areas.

Iran MPs add $2.5 bln to budget for fuel imports :: Reuters

Quote:

Iran’s parliament voted on Wednesday to add $2.5 billion to this year’s budget to finance more gasoline imports, staving off the threat of politically sensitive rationing.

Lawmakers in gas-guzzling Iran had originally slashed the budget for fuel imports to $2.5 billion from $4 billion for the financial year to March 2007, but high oil prices meant the amount approved was spent well before the end of the year.

Iran is the world’s fourth largest crude oil exporter but lacks refining capacity and has to import 40 percent of the 70 million litres of gasoline it burns each day. All fuel is then heavily subsidised at the pump for motorists.
. . .
If imports stopped, the government had suggested fuel rationing, a sensitive move in a country where cheap, abundant gasoline is considered a national right.

“There will be no rationing this Iranian year. Parliament will decide about rationing next year,” Iran’s Oil Ministry Web site SHANA reported after the vote.

Importing gasoline is costly for Iran because it subsidises fuel, whether produced domestically or abroad, so that drivers pay the equivalent of just 9 US cents a litre at the pump.

Such cheap fuel -- when international prices have been soaring -- encourages waste and a thriving trade in contraband fuel to Iran’s neighbours, economists say.

Yes, that's what economists say.

Iran resumes gasoline imports

ALARAB ONLINE:

Fuel-hungry Iran has bought several cargoes of gasoline for delivery in September, which oil traders say may mean Tehran is still financing imports, despite a threat to stop and impose politically risky fuel rationing.

Iran's reliance on imported gasoline could be a weak point were it subject to international sanctions in a dispute with the West over its nuclear programme.

Even without sanctions, the rising cost of the fuel drains away the OPEC nation's oil wealth.
. . .
Iran has been spending billions of dollars a year to feed a an expanding fleet of cars featuring many carefully maintained 1960's models that burn rapidly through the costly imported gasoline, lavishly subsidized at a price of 9 cents per litre."They cannot resist the demand," a trade source said.

Over the past two years, the republic has been one of the world's largest consumers of imported fuel, buying between 15 and 20 cargoes of gasoline per month, amounting to 189,000 barrels per day.

That is roughly 1/6 the volume imported by the biggest buyer of the world's excess gasoline, the United States.

But this year, Iran's government called a halt to the expensive subsidies and said Iran would have to get by on its own refining capacity, capable of satisfying only about 60 percent of its 70-million-litre-per-day gasoline needs.

The fuel import budget was capped at $2.5 billion in the year to March 2007, down from $4 billion the previous year.
. . .
Trade sources say Iran's imports have also varied recently with its success in combating smuggling.

The subsidies fuel a burgeoning black market, re-selling the imported gasoline to Iran's neighbours, which can run to a rate of 10 million litres per day, according to one estimate.

The fuel leaves for Iraq, Pakistan, the United Arab Emirates and other Gulf countries by all available means, including makeshift underwater tanks tied to vessels departing Iran, and even on camel back.

Iran is afraid of its own people. It would be so much wealthier if it had the trust of its people to rationalize gas prices, and redeploy the subsidies to money better spent. But it doesn't have that trust. So it uses continues to subsidize gasoline, a transfer that is easily seen and widely dispersed - and not so easily corrupted as would be other government spending. And create international tension to incite more fervent internal support.