Iran grapples with problems of cheap fuel

As western governments struggle to keep a lid on fuel prices, the leadership of Iran faces a very different problem: its petrol is just too cheap.

Heavy state subsidies ensure that Iranian prices start at just $0.03 a litre, a fraction of the $1.10 paid at US pumps or the $1.88 that motorists in the UK are charged to fill their cars.

Oil-rich Iran vies with Libya and Venezuela, which has proven oil reserves greater than Saudi Arabia, as the countries with the cheapest petrol in the world.

But now a widening gap between supply — which is limited by domestic refining capacity — and rising demand has forced the Iranian authorities to tap its strategic reserves and import petrol for the first time in a decade.

Iranian officials have said refined fuel demand has risen by a fifth since March but that limits on refining capacity have prevented the country from converting any more of its crude oil into products used in vehicles.

Read the article in full at Iran grapples with unintended consequences of ultra-cheap petrol | Financial Times (