Time to Organize Diesel for the Industry and Agriculture Sectors / The Price Difference Between Iran and Neighboring Countries Is 170,000 Tomans per Liter

According to Khabar Online, the newspaper Khorasan wrote: This price gap has turned the fuel subsidy from a support tool into a complex issue in Iran's economy; an issue on one side of which stand protesting farmers and dissatisfied industries, and on the other side an unanswered question about the fate of a huge volume of subsidized fuel: where exactly does this fuel go?

Fuel smuggling is one of the serious challenges of Iran's economy; but explaining this phenomenon merely by pointing to price differences is not enough. The more important question is how a fuel distributed at rates far below the market price can at once become a scarce commodity for domestic consumers and a profitable commodity in informal markets.

If the price of diesel in the free market is about 70,000 tomans and in neighboring countries more than 200,000 tomans, the economic incentive to divert fuel is considerable. However, the existence of this incentive alone does not prove that the fuel allocated to any specific sector has been diverted; to answer, one must examine its actual distribution and consumption path.

The report on the agricultural fuel quota in Khorasan shows an example of the complexity of this issue. According to the statements of the officials of this sector, the fuel quota of the Ministry of Agricultural Jihad at one point fell to 2.5 billion liters; a decrease which, they say, was related to a change in the basis for calculating the working hours of agricultural machinery. In these calculations, instead of about 14 to 14.5 hours for tractor operation, the figure of 10.5 hours was used as the basis. Provincial officials believe this change, without sufficient attention to the real conditions of agricultural activity, has led to fuel shortages in the provinces.

In Khorasan as well, according to the statements raised, the province's quota over several years went from about 250 to 256 million liters to 235 million, then 205 million, and finally to 153 million liters. Subsequently, there has been talk of the quota being reduced to 142 million liters and of calculations that bring the operational quota to about 123 million liters. These figures and time periods need final reconciliation with the allocation documents, but they present a picture of the difference between the declared need, the approved quota, and the fuel that actually reaches the consumer.

The problem is not only the amount of the quota; the path by which it reaches the farmer is also in question. Provincial officials say that in one case, about 15 million liters of fuel was allocated after follow-up, but the time limits of the systems and disruption in verifying information prevented its full distribution. Of about two million six hundred thousand liters that was managed, close to 350,000 liters also, according to their account, did not reach the consumer despite the necessary approvals. The bigger ambiguity concerns about 7 million 800 thousand liters of approved quota in an earlier period which, according to the same officials, tractors were unable to receive for various reasons. Their question to the distribution company is what ultimately became of this volume of fuel and why there is no clear way to track it. This claim, in itself, does not indicate smuggling; but it is exactly the point that reveals the necessity of transparency in the distribution network.

According to provincial officials, about 70 percent of the province's tractors are equipped with GPS positioning systems. However, in the distribution network, part of the fuel reaches the villages through Nissan pickup trucks and local intermediaries. If the quota is first registered for the tractor, then allocated to the distributor's card, and finally delivered in aggregate form, without precise recording of the amount delivered to each farmer, matching the allocated quota with actual consumption will be difficult. This very information gap can provide the ground for error, waste or diversion; a matter that must be clarified with data and auditing, not with blanket accusations. Industries are not satisfied with this mechanism either. When fuel is distributed at a subsidized rate, but part of the consumers complain of shortages or higher costs, the support policy faces questions in achieving its goal. If there is enough fuel, why does its legal consumer not receive it easily? And if resources are limited, on what basis are the quotas determined?

The solution is not merely to increase or decrease the quota. The government must verify the real needs of agriculture and industry using production data, the area under cultivation, machinery working hours and recorded consumption. It is also necessary that the path of each shipment be traceable from the moment of allocation to final delivery, and that the difference between the approved quota, the fuel loaded, delivered and consumed be publicly reported.
The diesel price difference inside the country and in neighboring countries strengthens the incentive for smuggling; but effectively confronting it is not possible without transparency in distribution and precise measurement of consumption.

The main issue is that the farmer should not pay the cost of weak oversight with fuel shortages, and industry should not be caught in a network whose official prices are far from the reality of access to fuel. As long as the final destination of subsidized fuel is not clear, one can neither defend the effectiveness of the subsidy nor expect the accusation of smuggling to disappear without institutional accountability. The distribution network must explain to the people clearly, transparently and in a loud voice how subsidized fuel, in this volume, disappears in the distribution network or remains in limbo.

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