Russia Starts Sending Gasoline, Diesel To Iran

Russia has started exporting gasoline and diesel to Iran by rail this year for the first time since it lost its traditional customers over its invasion of Ukraine. 

Citing industry sources and exports data, Reuters said in report on Tuesday that in February and March Moscow supplied up to 30,000 tons of gasoline and diesel to its ally Tehran. Both countries are under Western sanctions that are pushing them closer in order to support their economies and undermine the punitive measures. 

Last autumn Russia's Deputy Prime Minister Alexander Novak announced the start of swaping oil products with Iran, but actual shipments only started this year, Reuters sources said. All the volumes were supplied by rail from Russia via Kazakhstan and Turkmenistan.

The report did not say why Iran is importing fuel from Russia, but the more plausible scenarios seem to be one of the following.

The Islamic Republic may need the fuel to be able to maintain its electricity generation and production of petrochemicals. Iran needs natural gas or diesel to run its power stations and refineries and is facing a serious shortage of both.

Another possibility is that Iran’s government or the IRGC are exporting the fuel to other countries. If this is the case, Moscow must have been selling the fuel very cheap leaving a margin of profit for Iran. 

One of the Reuters sources said that some gasoline cargoes were sent on from Iran to neighboring states, including Iraq, by truck. This strengthens the speculation about Iran trafficking the gasoline for profit.

The Islamic Republic has been reporting a substantial rise in domestic consumption of gasoline and diesel in recent months. The consumption of fuel in Iran, an oil producer with its own refineries, had exceeded domestic fuel production, especially in its northern provinces, Reuters quoted a trader in Central Asian oil products market as saying.

However, the question is how could consumption increase in a country gripped by high inflation, economic stagnation and rising poverty.

The unprecedented daily gasoline consumption of 144 million liters, repeatedly announced in late March and April, is 50 percent higher than Iran’s average daily consumption in recent years.

This could be an attempt to explain away imports of Russian fuel, while hiding the fact that the cargoes are actually being exported.

Head of National Iranian Oil Refining and Distribution Company (NIORDC) Jalil Salari said on February 22 that “the gasoline consumption is around 103 to 104 million liters per day, but the figure usually increases during Nowruz (New Year) holidays. However, considering that Nowruz coincides with the fasting month of Ramadan – when Muslims travel less frequently -- there may not be much change in gasoline consumption.”

But in March and April the government narrative changed, claiming a sudden jump to 144 million liters of daily consumption.

Russia had supplied small volumes of fuel to Iran by tanker via the Caspian Sea, as was the case in 2018, two traders familiar with the matter said. According to the report, Russian oil companies are currently interested in exporting diesel and gasoline to Iran by rail as exports by sea face high freight rates and a price cap imposed by the G7 countries.

However, the rail shipments face bottlenecks along the route too, with one of the sources saying that "We expect fuel supplies to Iran to rise this year, but we already see several issues with logistics due to rail congestion. That may keep exports from booming."