Abstract
As an oil exporting country, Iran heavily depends on the revenues generated from
the sale its oil to the world. Oil revenues currently constitute about ninety percent
of the nation's foreign exchange earnings, and serves as the most important
determinant of all economic activities in the country. The dependency on oil
incomes is anticipated to continue in the future, however, with the given proved
stocks of oil and the country's potentials to instal higher production capacity, the
rapidly increasing demand for oil in the domestic market may soon create
undesirable consequences by severely limiting the availability of oil for export
purposes. This is a factor of major concern for Iran as a developing country whose
development plans and projects are to be met remarkably through the exports of its
oil.
The present study reviewed the domestic pricing policies for oil products in Iran and
investigated the effects of these policies on the rapidly increasing demand for oil
which has been experienced in the past few decades. The varying effects of these
policies which have for a long time persisted on an artificially low domestic prices
were examined in relation to the role of the world market structure for oil. Also,
the alternative policies for optimal pricing of oil products based on the opportunity
cost of the oil consumed in Iran were introduced in order to control and moderate
the current rate of increase in demand for oil, thereby securing a longer availability
of oil for both domestic consumption and export purposes. The opportunity cost of
the oil was in turn analyzed under both competitive and non-competitive scenarios
for the world oil market. In the non-competitive scenario, the role of OPEC policies
and strategies which might restrict the total production and/or exports of oil from
Iran were discussed and their impacts on the opportunity cost of the oil used in the
internal market were examined. In another attempt, the opportunity cost of oil and
the opportunity cost of foreign exchange were used to determine the amounts of real
subsidies paid by the government on four main petroleum products induding
gasoline, kerosene, gas oil, and fuel oil consumed in Iran every year. The real
subsidies paid in the years surveyed in this research were derived by applying the
appropriate exchange rate for dollar to the international price of each product in any
given year. The results of this study revealed that the nation could increase its
revenues and promote the overall welfare of the country by optimally pricing of its
oil for the internal consumption.
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