Iran's conservative government, which draws its support from the poor who regard cheap petrol as a right, proposed spending $4 billion on petrol imports in the budget for the 12 months to 20 March 2007.

However, parliament cut this to $2.5 billion, leaving the government with a tough choice.

Davoud Danesh-Jafari said: "This means we will only have imported gasoline for six months.

"Making policy for the six months after that, we should either sell [imported] gasoline at its real price or ration it from the very beginning [March]."

Iran holds the world's second-largest oil reserves after Saudi Arabia but lacks the refining capacity to meet its own petrol demand, importing more than 40% of its colossal 60 to 70 million litres-per-day of consumption.

Asian and European traders watch Iran closely for any suggestion of fluctuations in demand.

Wasteful usage

Petrol sells in Iran for less than nine cents a litre.

Its wasteful usage contributes to heavy congestion and the dense pollution which chokes Iran's biggest cities.

Danesh-Jafari: We should sell
petrol at its real price or ration it

Tackling the petrol problem is politically unpalatable.

Previous petrol price rises have spurred instant knock-on inflation in basic goods.

Many Iranian officials say Iran's dependence on imported petrol threatens national security.

But diplomats and political analysts have said the West would probably shy away from slapping sanctions on petrol sales to Iran because that could spark political volatility.

Iran has been reported to the UN Security Council for possible sanctions after failing to convince the world its nuclear scientists are working exclusively on power stations rather than branching into weapons.

Iran has ambitious plans to upgrade refineries over the next five years and lift daily petrol output to 120 million litres a day.

Iran imports petrol from several parts of the world, including China, India and Brazil, according to Iran Daily.