The Thorny Issue of Gasoline in Iran

Energy Desk
Arsalan ShahlaArsalan Shahla

Iran's budget bill for the next fiscal year (starting March 21, 2018) includes a provision to raise the price of gasoline by 50%. The proposal, which also envisions a price hike for other fuels, is awaiting parliamentary approval, but the public backlash has been enormous.

At around 25 cents per liter, gasoline is relatively cheap in Iran, even without considering metrics such as taxes and purchasing power parity.

Iran's gasoline is the fourth most aff ordable in the world after that of Venezuela and Kuwait, according to Global Petrol Prices. Bloomberg considered it as the world's third cheapest gasoline in August.

However, the gasoline price revision, the first since 2014, has been one of the highly disputed components of the proposed budget, and expectedly so. In an economy riddled with widening loopholes, it comes as no surprise to see a single commodity having an unusually deep impact on the country's economy and the standard of living.

The sticker shock of gasoline would have implications far beyond filling stations. But even the prospect of higher gasoline prices can trigger a hike in the price of many products and services, from taxi fares, groceries and household appliances to healthcare and home prices.

Recently a cab driver demanded nearly double what I usually pay for one of my regular transit routes. "Gasoline prices are going up," he justified in a present continuous tense when I raised objection. This would have a domino effect on all sectors that have to do with transportation.

Home prices can be particularly triggered by more expensive gasoline. Last month, a lawmaker said a 10-15% surge in home prices in recent weeks is partly a shock reaction to new fuel prices that have yet to be signed into law.

Another source of discontent is that the government is the only authority in charge of pricing, supplying and distributing gasoline and other forms of energy. In open markets, price movements are a result of competition and the ebb and flow in supply/demand. Due to a lack of this cause and effect structure in Iran's energy market, many consumers inevitably see any price bump as being imposed on them.

Experts have called for unlocking the fuel market to private investors who would distinguish themselves by offering better services and premium gasoline. But it could take years before Iran’s state-dominated fuel market is restructured.

Some analysts contend that a step-by-step price hike could have dampened the psychological impact. But it seems like a rosy scenario because no government wants to test the nerves of the public once a year by tinkering with a popular commodity that also serves as a fuel poured on political fire.

The current administration says the additional 12 cents per liter would help plug the budget holes. Opponents of the president and his government argue the measure will make life harder for the people. Customers, meanwhile, are left in the crossfire.

The government pays nearly $1 billion per month as cash handout to a majority of Iranians under a plan launched in 2010 that rolled back subsidies for food and energy, including gasoline. Each individual on the payroll receives about $11 per month, enough to buy 45 liters of gasoline.

The gasoline price hike could be approved, voted down or revised. In any case, Iran will be ensnared in the same drama over gasoline prices any time the issue is brought back to the table.

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