Iran falling short of oil refining ambitions

By Simon Webb - Analysis

DUBAI (Reuters) - Sanctions and insufficient funding are thwarting Iran's ambitious plans to nearly double domestic oil refinery capacity to end its dependency on expensive imported fuels.

Iran has the world's second largest oil reserves but lacks the refinery capacity to meet its own transport fuel demand. OPEC's second largest crude producer imports around 40 percent of its gasoline needs, which it then heavily subsidises.

The United States has said fuel imports give it potential leverage in the dispute over Tehran's nuclear programme. Washington accuses Iran of seeking to build atomic bombs, a charge Tehran denies.

"Iran's political rhetoric is toward refining self-sufficiency to end this Achilles heel of gasoline imports," said Saad Rahim, analyst at Washington-based consultancy PFC Energy.

"But the obstacles are pretty significant. With the sanctions -- which companies would be willing to go in and build these refineries?"

U.S. sanctions forbid its companies and discourage those in other countries from investing in Iran's oil and gas sector, impeding Iran's efforts to source the technology it needs.

"Sanctions have led to limited technology transfer, higher operating costs, and a much slower pace of development," said Stuart Lewis, Middle East director at energy consultancy IHS.

Iran last year embarked on a multi-billion dollar, five-year programme to revamp and expand the refining system to 3 million barrels per day (bpd) from around 1.6 million bpd now. But analysts say state funding for the programme is inadequate.