Iran gasoline rationing seen boosting inflation

TEHRAN (Reuters) - Iran had to take steps to curb surging gasoline consumption, analysts said on Wednesday, but relying on rationing rather than hiking official prices is still likely to stoke inflation by creating a black market for fuel.

The No. 2 OPEC oil producer, which lacks adequate refining capacity, introduced rationing on Wednesday in a bid to curb costly imports, a sensitive issue when the country faces possible harsher U.N. sanctions over its atomic plans.

Imports, which cost $5 billion or so last year, have been climbing sharply because of hefty subsidies that analysts say encourage waste and a thriving smuggling trade.

"Basically the problem is an economic one ... but of course on top of that there is the additional worry that sanctions may be extended," said Iranian energy analyst Mehdi Varzi, adding a black market in fuel at higher prices was "inevitable".

The introduction of rationing followed heated debate between parliament, which wanted to curb consumption with higher prices, and the government, which wanted rationing as it feared that price hikes would push up inflation, already at 17 percent.

Parliament, the press and the public are increasingly grumbling about rising prices, so further increases could add to the government's critics.

In an early indication that inflation may rise anyway, taxis hiked fares by 20-80 percent, the official IRNA news agency said, even though a gasoline black market has yet to develop.

Under the scheme introduced early on Wednesday amid chaotic and often violent scenes at pump stations, private motorists receive just 100 liters of fuel a month priced at 1,000 rials a liter, roughly 11 U.S. cents -- some of the world's cheapest.

No provision has been announced for drivers to buy extra fuel, even if they are ready to pay market prices at the pumps.

STORING UP PROBLEMS

"In the end this had to be done. People can't continue to get unlimited subsidized fuel," said Hatef Haeri, chief executive of business consultancy ICG.

But he said motorists would end up paying higher prices for fuel above the rationed amount -- legal or not.

"Either they are going to offer (extra fuel) at a high price or there is going to be a black market at a high price. Either of these is going to have a impact on inflation," he said.

For now, drivers can buy up to four months fuel in advance, which officials said would give them flexibility to manage usage. But critics said it was storing up problems for later if drivers used up their allocation too quickly.

"After three month, a shortage of fuel will appear. There will be a lot of problems ... and then the government will be forced to revise its decision," said Saeed Laylaz, a former senior civil servant under the previous government, adding frustrations could translate into social unrest.

At least two gasoline stations were torched after the rationing plan was announced on Tuesday. Some drivers scuffled as they queued to beat a midnight deadline.

But Laylaz, like others, said some action needed to be taken even if he disagreed with the government's approach.

"Continuing the previous situation was impossible," he citing economic reasons and worries about energy security.

Western nations are pressing for tougher U.N. penalties on Iran which they accuse of seeking to build atomic bombs, a charge Tehran denies. The United States, Iran's arch foe, has said gasoline imports provide "leverage" over Tehran.