Yep it is terrible. Gasoline is slated to rise from 34¢ a gallon to 43¢ a gallon in Iran.
Iranians are bracing themselves for a fresh round of belt tightening after their government voted to impose petrol rationing coupled with sharp rises in the price of fuel.
The rationing system will limit Iranians to 22 gallons (100 litres) of petrol a month, two full tanks for a typical family car. It is a direct result of President Mahmoud Ahmadinejad's adherence to an economic model, based on Iranian self-sufficiency, that has caused housing and other living costs to soar.
The basic price of petrol will rise by 25 per cent, but Iranians who need to use more than the permitted amount will be hit by rises of up to 450 per cent.
You know what rationing means. A black market. Nothing like a lot of corruption to keep an economy humming.
A. Jacksonian discussed Iran's oil industry in Oil Outlook. The short version - they are mining their oil industry for capital to spend on other things. Like keeping the people happy with low gasoline prices and building nuclear weapons.
It's hard to know what's really going on in an Iran full of Orwellian doublespeak. The Expediency Council is pursuing a 20-year plan to create an "Islamic Economy". At a recent conference of the Elite Society of Self-Sacrificers of the Islamic Revolution, economic discussions were pretty theological with calls for "economic jihad".
And yet, behind the scenes, it is becoming clear that all is not well inside Iran, even in the middle of an oil price boom. At 3.9 million barrels a day, oil production remains stubbornly below its level at the time of the 1979 revolution.
A complete failure to invest in refining and the hostility to the use of Western technology has ensured that Iran imports much of its refined oil from the United Arab Emirates (UAE). Rather bizarrely, petrol has recently been rationed in some instances and is subject to strict government control - a whopping 86 per cent price increase has been proposed. On current trends, Iran would cease to be a net oil exporter altogether in 2015.
Let me also note that Venezuela is on a similar course.
This seems to be extraordinary economic mismanagement. Despite a 20 per cent increase in the national budget last year, Mr Ahmadinejad had to go back to Iran's parliament, the Majlis, six times to ask for more money. Government expenditure is extremely high and rising - a pledge to reduce budgetary dependence on oil supplements by 10 per cent each year has been thrown aside as the government has resorted to using the Oil Reserve Fund as its piggy bank. Commentators speculate that Iran has inadequate foreign currency reserves to negotiate the demands of the coming year.
In fact, the extent of government borrowing from Iranian banks is jeopardising the solidity of the Iranian banking system. The borrowing increased by nearly 50 per cent last year and this swollen government sector carries significant knock-on inflationary implications. The official target for inflation is 9.9 per cent but the current rate is thought to be at least 20 per cent, and rising. In certain foods it is closer to 40 per cent and some fresh vegetables are disappearing in Tehran.
I covered the vegetable problem in Tomato Plot. It appears that socialism does not work. Not even when you have huge oil reserves to back it.
Not surprisingly, criticism of government policy is mounting - and it goes right to the top. Iran's supreme leader, Ali Khomeini, made an extraordinary intervention on economic policy last week, stating that Mr Ahmadinejad's "trial period is over".
Given the theocracy which is Iran, Mr Ahmadinejad has every reason to be worried. In taking on the US, he seems to be following Shakespeare by trying "to dizzy giddy minds with foreign quarrels".
I don't think the Iranian people will be very distracted. First off they are not too happy with being an Islamic Republic. Second off many are great fans of America and Israel. Persia once had a Jewish Queen, Esther, and they have not forgotten. Even if their rulers wish they did.
In any case it boils down to this. Iran is an economy run on the socialist model with a disdain for profit. Iran's moves in the Middle East are seriously harming its economy, while America hardly notices the cost of the current war. Our economic output last year increased enough to cover the whole Defence Department with money left over. This year it looks like we will have a similar increase. In Iran it is a race between nuclear weapons and economic collapse or revolution. I'm betting that nukes will not win.
H/T Captain's Quarters where A. Jacksonian has some interesting things to say in the comments.
The Anti-Idiotarian Rottweiler
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