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Iran has set new gasoline prices as US sanctions force the oil-rich country to import refined fuel.
Tehran is cutting fuel subsidies to save money as its economy is under pressure and faces a widening energy crisis, despite having the world’s third-largest oil and second-largest natural gas reserves.
President Masoud Pezeshkian said earlier this month that most low-income groups are not benefiting from the subsidies.
“Should I continue to spend foreign currency to buy gasoline, sell it at a fraction of the price, and then have no foreign currency left to provide essential goods for the people?” he asked, addressing university students in Tehran.
Fuel in Iran is among the cheapest in the world thanks to generous subsidies. But refining capacity is limited, partly due to underinvestment due to US sanctions. According to the government, the country imports $6 billion worth of gasoline annually to bridge the gap between domestic production and consumption.
Under the new tiered system, motorists will have to pay 50,000 rials ($0.04 at open market rates) per liter for any amount above a monthly quota of 160 liters. They can purchase up to 60 liters per month for 15,000 rials ($0.012) and then an additional 100 liters per month for 30,000 rials ($0.024). Average salaries in Iran are around $200 per month.
Brand new and more expensive cars will not receive a monthly quota and will have to pay the higher rate, while owners of multiple vehicles will receive the quota for only one car.
Many Iranians consider cheap fuel a birthright and fuel price increases have led to mass demonstrations in Iran in the past, including in 2019 when protests killed more than 300 people, according to Amnesty International.
But the government argues that the subsidized tariffs have put pressure on resources and led to excessive consumption in Iran and fuel smuggling to neighboring countries.
Iran has suffered rolling power outages in the summer and shortages of gas supplies in the winter, when energy demand is highest due to inadequate infrastructure and chronic mismanagement.
The country’s economy is struggling with inflation of around 40 percent, and the rial has fallen to a new record low against the US dollar in recent weeks – prompting officials to consider renaming the currency by removing four zeros.
Some motorists said the latest price increase would not make much difference to living standards. “The prices of everything else are so high that gasoline at the new rate still feels very cheap,” said a taxi driver in Tehran.
Another driver in Tehran noted that the real concern was how often the government could raise prices in the future and how that would affect the cost of living.
The Oil Ministry will review fuel prices on a quarterly basis, meaning rates could be adjusted every three months. The government also allowed private companies to import premium gasoline and sell it at market rates outside the quota system, a move aimed at people who drive luxury cars.
Siamak Ghassemi, a business consultant, explained that a rise in the price of gasoline was one of the reasons why the Iranian currency has reached an all-time low. “The price rise has created strong inflation expectations among the public. This has made them feel pressured to hold their assets in the form of foreign currency or gold to protect their wealth.”
But officials tried to allay public concerns, saying the estimated inflation impact was about 0.2 percent. “We hope we can minimize this effect as much as possible,” government spokesman Fatemeh Mohajerani said this month.
The government has said it wants to eliminate fuel imports.
It plans to redirect savings from the subsidy cut to vouchers for basic goods to low-income households – building on a scheme introduced last year.
