In addition, Iran has raised the price of nationally subsidized gasoline. This will be the first fuel increase since violent protests in 2019. Iran’s Oil Minister Mohsen Paknejad made the announcement on Saturday. This USG initiative aims to reverse the rising tide of fuel use in the country. Iran faces serious economic woes and public anger is growing. These are rising inflation and sanctions due to its nuclear program.
Under the new pricing system, motorists in Iran now get 60 liters (15 gallons) of gasoline per month at a subsidized price. In exchange, they will buy their gasoline at a subsidized price of 15,000 rials per liter, or about 1.25 U.S. cents. This means the price for the next 100 liters (26 gallons) will remain fixed at 30,000 rials per liter. That’s about 2.5 cents per mile! Gasoline bought in excess of this cap will be subject to a new fee. You’ll need to be ready to pay about 50,000 rials per liter, or about 4 cents. This new tier creates a third level in Iran’s long entrenched fuel subsidy scheme.
After waves of protests in 2007, the Iranian government conceded to fuel rationing. This measure hasn’t worked to diminish the appeal of the country’s golddirt cheap gasoline. Despite these measures, the annual inflation rate in Iran remains around 40%. The swift devaluation of the national currency, the rial, adds to the prevailing economic turmoil. To date, renewed or sustained sanctions continue to strangle any possible economic boom in its cradle.
Last year, the International Energy Agency (IEA) only made matters worse with a shocking pronouncement. Last year, Iran had the world’s second-highest energy subsidy costs, after Russia. The government subsidizes gasoline by covering the difference between production and delivery costs versus pump prices, which has strained public finances.
Follow the links to read what gasoline prices are getting increased, after years of suppression. This decision follows the violent backlash of November 2019, when an abrupt increase in subsidized prices triggered countrywide protests. In retaliation, the government increased gas prices by 50%. They further implemented draconian 300% mark-ups on purchases that went beyond their quotas, inciting nationwide protests and fury. That outbreak of protests was followed by a government crackdown on protests that reportedly killed more than 300 demonstrators.
Paknejad’s justification of the price adjustment focused on a desire to begin correcting unsustainable fuel consumption patterns. Citizen reactions suggest mistrust in the government’s plans is more widespread.
“The government does whatever it likes. They don’t ask people if they agree or not,” said Saeed Mohammadi, echoing the frustrations of many Iranians who feel disconnected from government decisions.
Economist Nasser Karimi warned that the move could have unintended consequences as a result of the new pricing mechanism. He stated, “It needs more money to pay for public needs,” suggesting that increasing fuel prices could lead to further financial strain on households already grappling with high inflation.
Karimi further remarked, “To me, it is an indirect tax though in a messy economy it barely works.” This common refrain is indicative of a larger concern about the impact of increasing prices on Iranians’ day to day lives.
Economist Hossein Raghfar criticized previous subsidy reforms, stating that they had “not only did it fail in lessening the budget deficit, but it also trapped the country’s economy in a negative loop of inflation and budget deficit.” His remarks indicate that even many specialists do not think enough of these measures will work to noticeably improve Iran’s economic situation.
As Iran navigates these economic challenges, public opinion remains uncertain about the government’s ability to manage fuel subsidies and inflation effectively. This translates into approximately 25MM vehicles that are already on the roads. This includes 3 million public and government-affiliated vehicles as well as 6 million motorcycles. Fuel pricing will impact a sizeable portion of the population.
