Iran Raises Gasoline Prices in Attempt to Curb Economic Strain
Iran introduced a tiered pricing system for nationally subsidized gasoline on Saturday, marking the first attempt to rein in spiraling costs since a controversial price hike in 2019 triggered widespread protests and a violent goverment crackdown. The move reflects the country’s deepening economic woes, stemming from a depreciating currency, international sanctions related to its nuclear program, and the sheer cost of maintaining some of the world’s cheapest fuel prices.
For generations, affordable gasoline has been considered a right by many Iranians, a sentiment that has historically fueled unrest. Demonstrations over fuel prices date back to 1964, when an increase prompted the Shah to deploy military vehicles to compensate for striking taxi drivers. Though, the current theocracy now faces a particularly acute squeeze on its finances.
The new system introduces a third pricing tier to Iran’s long-standing subsidy program. Motorists will continue to receive 60 liters (15 gallons) per month at a subsidized rate of 15,000 rials per liter – approximately 1.25 U.S. cents. The next 100 liters (26 gallons) will be priced at 30,000 rials per liter, or 2.5 cents. Any gasoline purchased beyond that allotment will be subject to a new rate of 50,000 rials per liter, roughly 4 cents.
Despite the increase, Iranian gasoline prices remain remarkably low on the global scale. The substantial difference between the cost of production and delivery, and the price consumers pay, is covered by significant government subsidies. In 2022, the International Energy Agency (IEA) ranked Iran as having the second-highest energy subsidy costs globally, trailing only Russia, estimating oil subsidies at $52 billion. Iranian officials acknowledge that tens of billions of dollars are allocated annually to artificially suppress energy prices.
Economists warn that the government’s efforts to manage the budget through subsidies have been largely ineffective. “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,” noted a Tehran-based economist, Hossein Raghfar, observing that gasoline prices have increased fifteenfold since 2009.
The decision to raise prices comes amid heightened sensitivity following a 12-day war launched by Israel against the country in June, suggesting the government is attempting to avoid further public confrontation. A bank teller,Hamid Rezapour,expressed a pragmatic view,stating,”It needs more money to pay for public needs… To me,it is an indirect tax though in a messy economy it barely works.”
The move is the most significant adjustment to Iran’s fuel subsidy system as November 2019, when a 50% increase in subsidized prices and a 300% hike for purchases exceeding the quota ignited nationwide protests. Security forces responded with a brutal crackdown, resulting in at least 321 deaths, according to Amnesty International, and the detention of thousands.
Critics fear that even modest increases in gasoline prices will exacerbate the country’s already high inflation rate, currently around 40%. Every 10,000-rial increase, they argue, could add as much as 5% to inflation.
Despite the economic challenges, cheap gasoline remains a vital source of employment. The Islamic Republic has 25 million vehicles on its roads, including 3 million affiliated with the public sector and government, alongside 6 million motorbikes. Approximately 8 million Iranians – nearly 10% of the population – work as taxi drivers, many utilizing online platforms. For comparison, Uber has 8.8 million drivers and couriers worldwide.
“It is indeed a start for amending the trend of fuel consumption,” Oil Minister Mohsen Paknejad told journalists. Officials have indicated that further price increases may be considered, with prices reviewed every three months.
However, skepticism prevails among the public. “People poured into streets over hike the gasoline price in the past, but they returned home tired and hopeless later at dusk,” said Mohammad Reza Assadi, a 60-year-old taxi driver, reflecting a widespread sense of resignation.
The government’s actions represent a delicate balancing act between economic necessity and the risk of renewed social unrest, a challenge that will likely define Iran’s economic and political landscape in the months to come.
Gambrell reported from Dubai, United Arab Emirates. Amir Vahdat in Tehran, iran, contributed to this report.
