Venezuela and Iran

OPEC is the Organization of Petroleum Exporting Countries, a cartel which decides how much oil is produced, and at what price it is sold. The US has lost its ability to influence OPEC members because of the Iraq War and the presence of anti-US countries like Venezuela and Iran in the cartel, which have formed an alliance of their own.

Keeping oil prices high has allowed both these countries to become very rich. According to Bloomberg, Venezuela's $182 billion economy has expanded an average of more than 12 percent in the past four years -- the highest growth rate among Latin America's biggest economies. Despite the high oil prices Venezuela and Iran sell gas to their citizens at very cheap rates.


In Venezuela the price of gas is 12 cents a gallon, while Iran provides it at 42 cents a gallon. The Iranian price is actually a 20% increase from the original low price; Iran also introduced rationing of fuel last year, limiting most Iranians to 26 gallons of gasoline per month. And this was only because Iran lacks the capacity to refine all of its petroleum into gasoline for consumption, although it is the fourth largest crude oil producer in the world.

Still 42 cents a gallon is way better than most other countries!

The income from high oil prices has not benefitted both countries. While government subsidizes fuel prices, inflation has hit other essential goods like food. Inflation in Venezuela is at a staggering 29% while in Iran it is a comparable 24%!

What this means is that price-controlled staples are often in short supply in Venezuela. Beef production declined last year even as consumer demand surged. As per Bloomberg:

With inflation taking an increasing toll on Venezuelans' savings, durable goods such as automobiles have become popular products in which to sink cash. The Mazda3 and Ford Fiesta are among the hottest imports. Car sales last year rose 43 percent to 491,899, with imports alone jumping 81 percent. Among the reasons: Venezuela is a nation of car lovers, and driving is cheap. Subsidies keep a gallon of gasoline at about 17 U.S. cents compared with the U.S. average of $3.69 as of May 9. In addition, first-time buyers can get a tax rebate on certain small models.

Iran has the largest auto industry in the Middle-East; Iran Khodro and Saipa are Iran's biggest carmakers. However their car plants are old, and auto parts had to be imported at high prices. But now with Iran rich because of soaring oil prices, international auto giants such as PSA Peugeot Citroën, Renault, Kia, Hyundai, and Fiat have teamed with Iranian auto companies.

Iran Khodro's Samand is based on a Peugeot 405 platform. It is regarded as Iran's new national car, with more than 300,000 cramming Iran's roads since its introduction last year. China's Jinhua Youngman Auto and Iran Khodro, will launch the X12 priced lower than 100,000 yuan ($14,300) is scheduled to hit the Chinese market in early 2009.

Venezuela and Iran formed a joint auto company named Venirauto, which is 51% Iranian and 49% Venezuelan, with engines and technology that the Iranians borrowed from their dealings with European auto-makers. Last year Venirauto released its first 300 units, made up of two car models, the Turpial (base price of $7,906) a 4-door sedan and the Centauro (base price of $11,069).

The Turpial cars, from Day Life. But if the Venezuelans are buying up American models, this joint production has not been that successful. And because of the high demand for cars/SUVs, prices of vehicles actually increase with time, defying all economic logic!