Plenty of Oil, but Few Refineries for Iran

Iranian police officers patrol part of the Caspian sea in front of an oil facility during the opening ceremony of the Neka oil terminal facility, outside the city of Neka some 190 miles (305 kilometers) northeast of the capital Tehran, Iran, Thursday, April 29, 2004. It may be flush with huge oil reserves and cash but _ ironically _ Iran depends on gasoline and diesel imports to keep its trucks and cars rolling because of a refinery shortage. That's one reason the country _ already beset with economic woes _ is desperate to avoid any possible U.N.-imposed economic sanctions over its nuclear program. "Oil is where Iran is most vulnerable," one analyst says. (AP Photo/Vahid Salemi) (Vahid Salemi - AP)

Closing the import tap could force Iran to either impose rationing _ as it did during the 1980-88 war with Iraq _ or raise prices and risk a backlash from a public accustomed to paying more for bottled water than gasoline.

Making up the refinery shortage would take years, meaning Iran would have no alternative fuel supplies if hit by U.N. sanctions. The United States and its European allies want sanctions imposed if Iran refuses to give up its uranium enrichment program, which is feared to be designed for producing nuclear weapons.

"Iran really does not have a lot of room to maneuver on the basic issue of refinery capacity and demand," said Narsi Ghorban, an independent energy consultant based in Tehran.

China and Russia, permanent Security Council members, have opposed sanctions, which is what _ effectively _ has pushed diplomats to the Vienna meeting to examine a set of economic incentives to sway Iran.

Iranian authorities have not budged on their stated determination to continue uranium enrichment and a peaceful nuclear power program as a "national right."

Iran's economy, however, could make a sweet trade and technology package from abroad enticing. The country suffers from sparse direct foreign investment and a creaky telecommunications system.

"Iran has a vision of being a regional economic and technological powerhouse. They know very well this vision will not be realized ... by domestic companies alone," said Siamak Namazi, managing director of Atieh Bahar Consulting, a Tehran-based firm providing economic surveys and analysis.

"High oil prices mean (Iran) is less reliant on outside financing. They have their own money. But that doesn't help the technology gap," he said.

Much of the blame, analysts say, rests at the top.

At least 80 percent of the economy is under the thumb of the ruling clerics, whose legacy includes hundreds of false starts such as unfinished bridges and roads. Official unemployment is about 16 percent, but some analysts place it above 30 percent. An estimated 25 percent of the nation's 65 million people live below the poverty line.

Strategic planning _ plotted in Soviet-style, five-year blueprints _ is only now starting to warm up to privatization and foreign investment.

But Iran has proven an unreliable partner in deals with French automaker Renault SA and Turkish mobile phone network operator Turkcell, for example, with whom big plans fell through because of bureaucratic or security intransigence in Tehran.

Many other investors have either pulled out of the Iranian market or put plans on hold on fears the nuclear standoff could lead to U.N. punishments or possible military action.

Yet that hasn't stopped everyone. Suitors keep knocking at the door for a piece of Iran's energy wealth, including its vast natural gas reserves. China's state energy company has signed deals for natural gas. India and Pakistan are negotiating for a possible pipeline from Iran's natural gas fields.

Those deals display the growing disregard for Washington policy. In 1996, the U.S. said it would consider sanctions on any company that invests more than $20 million annually in the Iranian oil and gas sectors. The threat was never enforced.