With spending $45.1 billion on fossil energy consumption subsidies in 2017, Iran ranked first globally, International Energy Agency reported Oct.29.
The value, which increased 55% year-on-year, equals to 10.4% of Iran’s annual GDP and 15% of total global energy subsidies.
The main reason why the value of Iran’s fuel subsidies had such a big increase in 2017 was because oil prices rose around 30 percent globally. Iran’s consumption of fossil fuels also increased, especially for power generation, as drought continued and hydroelectric power generation declined.
|Fossil fuel||2015||2016||2017||Y/Y change|
Why subsidy growth rates are not same for oil, electricity and gas?
As seen in the table above, oil subsidies grew much faster than natural gas, which Iran also uses abundantly.
IEA doesn’t explain why the subsidies growth amount is not same for oil, electricity and gas.
Gas price in international markets follow the fluctuation in oil prices but it always lags behind oil prices, by several months. As the calculation is made based on international prices, the table shows much bigger subsidies for oil.
Iran also increased gasoline imports by 4.5% year-on-year to 12.63 million liters per day during last Iranian fiscal year, which ended March 20, 2018, the official statistics of Oil Ministry says.
On the other hand, according to official statistics of Iran’s Energy Ministry, the country’s hydropower generation amount decreased by 1.2 TWh to 14 TWh due to drought and low water reserves at dams, but the thermal power plants’ generation grew 22.66 TWh to above 263 TWh last year. The fuel
consumption costs in power sector increased both from the value and volume of gas and oil products usage.
The 2017 figures are a dire warning for 2018. All factors leading to an increase in fuel subsidies last year have become more acute in 2018. Oil prices have increased further, while Iran’s currency has declined, making fuels more expensive. Hydroelectric power generation has suffered more as water reserves have declined, leading to an overall loss of 45% in power generation capacity.
Recently, Iran’s oil minister Bijan Zanganeh said that the government plans to limit subsidized gasoline supply to citizens. Currently, the gasoline price in Iran is around 10 U.S. cents per liter, while the figure in Pakistan, Afghanistan, Turkey, and Iraq is six to 10 times higher, paving the way for a smuggling boom.
IEA says that during last year, the global fossil fuels subsidies reached $300 billion, 12% more than the previous year. Most of the increase relates to oil products, reflecting the higher price for oil.
“Worldwide fossil fuel consumption subsidies almost halved between 2012 and 2016 (due to plunging oil price from above $105 in 2012 to about $45 in 2016 gradually), from a high point in 2012 of more than half a trillion dollars. But the estimate crept higher again in 2017”.
Currently the Brent benchmark oil price is about $77 per a barrel.