Saturday, June 30, 2007

The Aftershocks of Gas Rationing

Watching the news clip from Iranian TV in the day following the gas rationing one would realize that reactions to gas rationing is far from homogenous. In the long queues in front of gas stations a reporter from Open Microphone show of Tehran TV asked people what they thought of gas rationing.

In response some asked that why government had not been constructing new refineries, some said that gas rationing was inevitable however government should have improved public transportation first. Some pointed out that people are burning more fuel waiting in these long queues than driving on streets. An ambulance driver told the reporter that he had received 12 liters, 3 gallons, the night before and already used it up in his first mission, so he had to cancel 5 calls out of 6 in order to come back to the gas station and to wait in the queue to receive fuel. One motorcyclist told the reporter: “I work on my motorcycle and I have a card for 30 liters per month how am I supposed to work with 1 liter per day?”

The aftershocks are not limited to consumers, according to Ham-Mihan reporting from car dealers’ district in Tehran, the demand for cars has fallen drastically and the market is in recession. Many observers are surprised to find out that despite gas rationing the prices of cars have increased, with Peugeot 206 type 2 experiencing the largest increase of 15% according to Ham-Mihan and 5% according to Sarmayeh (Capital) daily. Many expect a hike in the real estate and gold markets. Since the rationing reduces the demand for cars as a capital they expect an increase in demand for saving in the form of gold and real estate.

There is no doubt that demand for public transportation has increased. Keyhan daily reported that cab drivers are asking for higher fares. Although the Taxi Drivers Union has banned any increase in the fares. Iran’s taxi service includes hundreds of seasonal drivers, who do not have any license to transport passengers and they do this to create a second source of income. Since rationing has limited their quota to 100 liters per month the majority will not be supplying any service to the market. This causes a decrease in supply, while the demand has increased. Now many switch to public transportation for short distance trips to save their fuel ration for their long distance trips. Decrease in supply and increase in demand increase the equilibrium price in the market.
For time being government is committed to rationing policy without supplying any fuel at market rate for at least two months. Iran markets are still adjusting. And the streets of Tehran already are quieter.

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