Oil Minister Bijan Namdar Zanganeh says the latest rationing and doubling of gasoline that started on Friday (Nov. 15) will increase annual government revenues by $2.5 billion that will be used exclusively for welfare spending.
Prior to the price hike (when gasoline was sold at 7 cents), the government’s annual earnings from selling gasoline amounted to $31.7 billion. Now this will reach $34.2 billion or 8% higher.
“Daily consumption now is around 95 million liters and is projected to rise to 100 million liters in the next fiscal year, of which 67% or 24.5 billion liters will be sold at 15,000 rials (13 cents) per liter and the rest (12 billion liters) at 30,000 rials (26 cents) per liter,” ILNA quoted the minister as saying.
The government will make $1 billion more by selling subsidized fuel and close to $1.5 billion from selling non-subsidized gasoline, he noted. Moreover, there will be excess supply that will be offered on the energy market.
Zanganeh went on to say that even if the new plan is shelved for whatever reason, offering gasoline via the Iran Energy Exchange will continue, “but that volume will definitely rise.”
Selling gasoline on the energy bourse started in August and was well received.
“We are exporting fuel for the first time in the history of the National Iranian Oil Company,” he added, arguing that without a strong rationing system consumption is bound to rise in the short run -- demand will outstrip supply, exports would suffer and we would be compelled to resume imports.
The National Iranian Oil Products Distribution Company (NIOPDC) announced Friday that gasoline was rationed and prices raised by at least 50%.
“Private car owners can buy 60 liters of subsidized gasoline every month with a fuel card at 15,000 rials (13 cents) per liter, up 50%. Additional purchases (maximum 250 liters a month) will cost 30,000 rials (26 cents) a liter, up 200%,” the state-run NIOPDC said.
Cost of Living
According to domestic news outlets, President Hassan Rouhani has ordered the cabinet to distribute the new revenue ($2.5 billion) from higher gasoline prices among 18 million families in the form of cost of living and this is where social and economic experts say the problems start.
Mehrdad Emadi, a senior economist at the Betamatrix International Consultancy in London and former advisor to the EU, is of the opinion that raising gasoline tariffs is a good idea. Nonetheless, depositing the excess income to people’s bank accounts is a wrong idea because drawbacks and minuses of such populist moves outweigh the benefits.
“The new plan will definitely have short and long term ramifications and inflationary impacts. Alleviating such negative effects by paying subsidies and handouts is also doomed.”
Revenues from higher fuel prices must be spent on economic development projects, especially transportation, which is indeed a key sector in Iran, he stressed.
There is no denying the fact that Iran’s economy is experiencing a critical period due to the new US sanctions and the government is struggling to cover the ballooning budget deficit. However, adding pressure on the low-strata and fixed-wage earners is unfair and all groups and classes should carry the burden, observers say.
Emadi says recovery from the recession can be made by reducing unnecessary spending (including funding for the long list of religious and affiliated organizations) and diverting revenue for building infrastructure and civil development projects that create jobs and augment growth.
