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Iran has brought in fresh petrol price increases, as US sanctions force the oil-rich country to import refined fuel.
Tehran is reducing fuel subsidies to save money, as its economy is under strain and it faces a widening energy crisis despite possessing the world’s third-largest oil and second-largest natural gas reserves.
President Masoud Pezeshkian said earlier this month most low-income groups did not benefit from the subsidies.
“Should I continue to spend foreign currency to purchase petrol, 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 under-investment caused by US sanctions. The country imports $6bn of petrol a year to fill the gap between domestic production and consumption, according to the government.
Under the new tiered system, motorists will be charged 50,000 rials ($0.04 at open market rates) per litre for any amount above a monthly quota of 160 litres. They can buy up to 60 litres a month at 15,000 rials ($0.012) and then an extra 100 litres a month at 30,000 rials ($0.024). Average salaries in Iran are around $200 a month.
Brand new and more expensive cars will not receive any monthly quota and will have to pay the higher rate, while owners of multiple vehicles will receive the quotas for only one car.
Many Iranians view cheap fuel as a birthright and fuel price hikes have triggered massive demonstrations in Iran in the past, including in 2019 when protests left more than 300 people killed, according to Amnesty International.
But the government argues that subsidised rates have put pressure on its resources and have prompted excessive consumption within Iran, as well as fuel smuggling to neighbouring countries.
Iran has faced rolling blackouts in the summer and gas supply shortages in the winter when demand for energy is highest due to inadequate infrastructure and chronic mismanagement.
The country’s economy is struggling with an inflation rate of around 40 per cent, and the rial has fallen to a new record low against the US dollar in recent weeks — causing officials to consider re-denominating the currency by cutting four zeros.
Some drivers said the latest price rise would not make much difference to living standards. “The prices of everything else are so high that petrol still feels very cheap at the new rate,” one taxi driver in Tehran said.
Another driver in Tehran noted that the real concern was how often the government might raise prices in the future and how that would affect the cost of living.
The oil ministry is to review fuel prices on a quarterly basis, meaning rates could be adjusted every three months. The government also authorised private companies to import premium petrol and sell it at market rates outside the quota system, a move targeted at people driving luxury cars.
Siamak Ghassemi, a business consultant, explained that an increase in petrol price was one reason why the Iranian currency has hit an all-time low. “The price hike has created strong inflationary expectations among the public. Because of this, they feel pressured to hold their assets in the form of foreign currency or gold to protect their wealth.”
But officials tried to assuage public concerns, saying that the estimated inflationary impact was around 0.2 per cent. ‘‘We hope that we can minimise this effect as much as possible,” Fatemeh Mohajerani, government spokesperson, said this month.
The government has said that it wants to eliminate fuel imports.
It plans to redirect the savings from the subsidy cut to provide vouchers for basic goods to low-income households — building on a scheme that was rolled out last year.
