A gas station that was burned during protests that followed authorities’ decision to raise gasoline prices, in Tehran, Iran, Nov. 17, 2019. (AP)

February 17, 2020

Iran’s Islamist rulers, who sparked deadly domestic unrest by raising gas prices in November, say their controversial move also has failed to ease fuel smuggling into neighboring countries such as Pakistan, largely because smugglers have shifted to diesel fuel from gasoline.

Iranian authorities tripled the unsubsidized price of gasoline Nov. 15 from 7 to 21 cents per liter, based on Iran’s latest unofficial rial/dollar exchange rate of 139,700 published by Bonbast.com.

The gas price hike, imposed as Iran’s finances worsened under U.S. sanctions, triggered days of nationwide street protests that authorities crushed in a violent crackdown, killing at least 1,500 people, according to U.S. officials. Iran has called that figure exaggerated without disclosing its own death toll.

Gas prices in Iran, a major global oil producer, have long been among the lowest in the world, a phenomenon that has spurred decades of smuggling of Iranian fuel into such neighboring countries as Pakistan and Afghanistan, where legally sold fuel has been relatively expensive. Iran’s government has publicly opposed such smuggling, which robs it of revenue from legal fuel exports.

The Iranian state news agency IRNA said in a Dec. 17 article that the November gas price hike had “raised hopes” for a reduction in fuel smuggling across Iran’s porous borders. However, the article quoted Majid Mohebbi, an anti-smuggling official in southeastern Iran’s Sistan and Baluchistan province, as saying the amount of Iranian fuel being smuggled into neighboring Pakistan and Afghanistan had remained as high as it had been before the gas price hike.

The IRNA article did not cite any estimate for the amount of Iranian fuel being smuggled out of the province, but another provincial economic official, Alireza Noura, previously estimated that 5 million liters of fuel were being smuggled into Pakistan and Afghanistan daily, according to a November 2018 report by Iranian news site Entekhab.

Iranian officials said the continued high levels of fuel smuggling stem from a switch in what is being smuggled.

Iranian lawmaker Ali Bakhtiar, spokesman for a parliamentary energy committee, told the parliament’s ICANA news site this month that there had been a significant shift in the type of fuel being smuggled, from gasoline to diesel. With the price of the latter fuel type remaining low at 2 cents per liter, Bakhtiar noted that diesel was now one-tenth the price of unsubsidized gas and comprised 80% of all fuel being smuggled out of Iran.

Before the November gas price hike, more gasoline was being smuggled out of Iran than diesel, according to Mehdi Aboui, a former deputy head of an intergovernmental task force on smuggling prevention. In September, the Hamshahri newspaper quoted Aboui as saying 30 million to 35 million liters of gasoline were being smuggled across Iran’s borders per day, compared to 15 million to 20 million liters of diesel.

Iranian smugglers also appeared to confirm a post-November shift to cross-border smuggling of diesel, in interviews reported by IRNA and Iran’s Sazandegi news site in December. The shift to smuggling of Iranian diesel also has been noted in Pakistan’s impoverished western Baluchistan province, which borders Iran.

In a phone interview with VOA Deewa, a Baluchistan-based executive for the state-owned Pakistan State Oil company said diesel has become the most smuggled fuel coming from Iran, with widespread smuggling networks delivering it to provinces across Pakistan.

The diesel smuggled from Iran, where it costs 2 cents per liter, is much cheaper than the diesel sold by Pakistan’s PSO and other licensed energy companies, which charge about 80 cents per liter, according to news site UrduPoint. Diesel is used to fuel Pakistani buses, trucks and other heavy vehicles as well as agricultural equipment and deep-well turbines used to pump groundwater to the surface.

Gasoline sold by licensed companies in Pakistan also is more expensive than in Iran, at 76 cents per liter versus 21 cents per liter, although the difference is less than it was before Iran’s November gas price hike. A year ago, licensed gasoline sold for 85 cents per liter in Pakistan versus 7 cents per liter in Iran, according to a February 2019 report by Iran’s Center for Strategic Studies.

In Pakistan’s Baluchistan, smuggled Iranian fuel is widely sold at so-called mini petrol pumps along highways and crowded city streets. Bayazid Khan, the owner of one such pump in the town of Kuchlak, told VOA Deewa that smuggled Iranian diesel typically sells for around 51 cents per liter, while smuggled Iranian gasoline sells for 65 to 70 cents per liter. The prices for both smuggled fuel types are cheaper than the prices for their Pakistani-licensed equivalents, but the discount for smuggled diesel is substantially greater.

“Smugglers will adjust based on perceived market preferences, and in Baluchistan and across Pakistan, there’s strong demand for a variety of fuels, not just gasoline,” said Michael Kugelman, a South Asia analyst at Washington’s Wilson Center, in an email to VOA Persian.

“The shift in fuels [to smuggled Iranian diesel] underscores both the versatility of the smugglers and the high demand for energy in Pakistan,” he added.

Kugelman said another reason for the failure of Iran to ease fuel smuggling to Pakistan is the strength of the smugglers’ supply channels.

“It’s easy to understand why this Iranian fuel smuggling is such a flourishing business. Baluchistan is rich in natural resources, but the Pakistani state exerts a heavy hand there and prevents locals, most of whom are poor, from accessing local energy resources,” Kugelman said. “For many local residents, supporting cheaper alternatives from Iran is a no-brainer. There’s a desire to purchase them and to help smuggle them.”

Fuel smugglers also appear to have benefited from permissive attitudes by officials and security forces on both sides of the Iran-Pakistan border.

Some Iranian and Pakistani lawmakers have expressed sympathy for the poor economic conditions that drive many people in their respective border regions into fuel smuggling as one of their only means of survival. Security forces of both nations also have been unwilling or unable to stop the smuggling, fueling perceptions that some seek to profit from the activity themselves.

The fuel smuggling also has come at a cost for Pakistan.

A Pakistani Senate committee estimated last May that the government was losing at least $350 million a year in tax revenue that was not being levied on the smuggled Iranian fuel.

Lives have been lost in recent years as well, as a result of dangerous nighttime driving by fuel smugglers seeking to evade Pakistani security checkpoints, and because of dangerous storage of smuggled fuel at mini pumps and other facilities without regard to safety precautions.

In one of the worst incidents of recent months, a truck carrying smuggled Iranian gasoline collided with a passenger bus in Baluchistan’s Killa Saifullah district in December, burning 13 people to death.

VOA

About Track Persia

Track PersiaTrack Persia is a Platform run by dedicated analysts who spend much of their time researching the Middle East, in due process we fall upon many indications of growing expansionary ambitions on the part of Iran in the MENA region and the wider Islamic world. These ambitions commonly increase tensions and undermine stability.