Pedestrians pass a currency exchange window in Tehran
Pedestrians pass a window display of foreign exchange rates at a currency exchange in Tehran, Iran, on Thursday, Jan. 12, 2012. Photo by Bloomberg
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Iran plans to ration diesel supplies in a bid to curb rampant smuggling of the scarce fuel to neighboring countries, its oil minister said on Wednesday.

Government-issued smart cards have controlled private Iranian motorists' use of heavily subsidized gasoline since December 2010 in a program that has successfully dampened demand for fuel in a country where supplies are scarce.

Owners of heavy goods vehicles will also soon have their diesel rationed as well, Oil Minister Rostam Qasemi quoted as saying by Iranian oil ministry news service Shana, as Tehran tries to stem a surge in fuel smuggling across Iran's many borders.

"The government pays huge subsidies to the energy sector, which has led to the sinister phenomenon of smuggling of oil products," Qasemi said.

With the diesel price set at 4,500 Iranian rials a liter, (about 15 U.S. cents at the open market rate), diesel costs less than bottled water in Iran, which has led to wasteful consumption and a surge in smuggling, he said.

"Low prices of fuel play an important role in rising smuggling, and that is why oil products distributor companies should enhance cooperation with security forces to curb oil products smuggling," he said at the launch of new cards that monitor how much cheap gasoline Iranians can put in their cars before having to pay higher prices.

The value of the Iranian rial has slid against the U.S. dollar over the past year as western sanctions on oil exports have slashed dollar-denominated oil sales, making smuggling of diesel paid for in rials and sold in neighboring countries more lucrative.

Iran has reduced its gasoline use and increased its refining capacity in response to Western governments blocking supplies to the country over the past few years to pressure Tehran over its disputed nuclear program.