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Home > Business/Finance > Diversified Services > Shipping & Logistics
Iran Freight Transportation Report Q2 2008
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Exceptionally cold winter conditions coupled with shortages of petrol and heating gas were creating adifficult political situation for the government of President Mahmoud Ahmadinejad in early 2008. Poortransport infrastructure was clearly part of the overall diagnosis. By late January over 60 people werereported to have died of the cold, some because of heating gas shortages in remote mountain villages. Inwhat was seen as a political humiliation for the President, the country’s supreme leader Ayatollah AliKhamenei, ordered Ahmadinejad to implement a law approved by Parliament to spend US$1bn from thecountry’s currency reserve to fund the supply of gas to villages. The President had held back from doingso out of concern over the impact on the government budget. A cooling in Iran’s relations withTurkmenistan was another key factor behind the gas shortages. In late December Turkmenistan stoppeddaily deliveries of up to 23mn m3 of gas to Iran, citing technical problems and Tehran’s failure to meetsome payments. Analysts believed, however, that the real reason was the Turkmen government’s desire tonegotiate higher prices. Critics pointed out that Iran, one of the world’s leading producers of both crudeoil and natural gas, did not seem able to adequately supply its own domestic markets. A failure to investin domestic pipeline and transport infrastructure was one of the main reasons. Iran’s gas deposits aremainly in the south of the country and the main urban areas of consumption are in the north. On the petrolside, analysts noted that Iran’s National Iranian Tanker Company (NITC) had taken the unusual step ofchartering two long range clean products tankers from Singapore in January (a 75,000 deadweight tonnes(DWT) and a 115,000DWT tanker) to deliver gas oil. The move was believed to be in response to aninterruption in refinery supplies from the Indian company Reliance, which had been told by its Frenchbanks (BNP Paribas and Calyon) that they would no longer be able to issue it with letters of credit if itcontinued trading with Iran, due to UN sanctions. In our latest Iran Freight Transport Report, BMIconcludes that constrained by a lack of investment, pipeline throughput will grow by an average of 3.1%per annum in the 2008-2012 forecast period, lagging behind the economy as a whole, which will expandby an average of 4.4% over the same period.
Our forecast reflects the interplay of negative and positive factors. On the negative side, it is clear thatnecessary investments in pipeline distribution systems have simply not been made. On current plans, thebig boost from the proposed pipeline to Pakistan and India will not make itself felt until after 2012, just atthe end of our current forecast period. Also weighing down on the forecast is the fact that the oil priceboom is set to ease back over the next couple of years, reducing foreign currency earnings that could fundan overhaul of the pipeline network. High political risk is another negative factor, with a third round ofUN sanctions in the offing. There are, of course, positives as well. One is global demand for Iran’s naturalgas and petrochemicals, much of which will need to be pumped to coastal terminals and shipped byliquefied natural gas (LNG) tankers. New investment and export deals with China underline this potential.The general growth of the Iranian economy and trade, although moderate, will also provide support.
As for other transport modes, road-haulage growth has lagged behind GDP in recent years, reflecting thepoor quality of the highway network. Our forecast provides for a catching-up process, as overland tradewith Iran’s immediate neighbours begins to grow. For 2008-2012, we predict annual average roadhaulagevolume growth of 4.7%, ahead of GDP. Rail freight has lagged behind the general growth of theIranian economy, but here we are less optimistic over the ‘catch-up’ potential. Despite much talk ofbuilding a new rail-based north-south transport corridor linking Iran to its regional neighbours, we takethe view that there will not be significant increases in capacity during the forecast period. Rail-freightgrowth will average an unimpressive 2.2% per annum. Shipping volumes will expand by 4.4% perannum, in line with GDP. Airfreight will grow at an annual average of 4.2%, constrained by an ageingaircraft fleet. Iran sits at the bottom end of BMI’s freight rating for markets in the Middle East and Africa(MEA) region. Given the country’s abundance of natural resources, this is a reflection on the domesticpolitical situation, regional uncertainties and lack of a track record in providing investment opportunitiesin the transport sector.
The total value of transport and communications GDP will rise to US$43.2bn in nominal terms by 2012,representing 6.8% of Iran’s GDP. Projections based on employment figures compiled for the ILO in 1996suggest that Iran’s transport and communications sector employed 3.33mn people, or 20.4% of the labourforce, in 2007.
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