Iran introduces new gasoline price tier

Iran introduced a new pricing tier Saturday for its nationally subsidized gasoline, attempting to rein in spiraling costs for the first time since a price hike in 2019 that sparked nationwide protests and a crackdown that reportedly killed over 300 people.

Cheap gasoline has been viewed for generations as a birthright in Iran, sparking mass demonstrations as far back as 1964 when a price increase forced the shah to put military vehicles on the streets to replace those of striking taxi drivers.

But Iran's theocracy faces a growing squeeze from the country's rapidly depreciating rial currency and economic sanctions imposed due to Tehran's nuclear program.

That has made the cost of having some of the world's cheapest gasoline at a few pennies per gallon that much more expensive. However, the government's hesitant move toward increasing prices likely signals it wants to avoid any confrontation with the nation’s exhausted public after Israel launched a 12-day war on the country in June.

"Our discontent has no result," fumed Saeed Mohammadi, a teacher who works as a taxi driver in his spare time to make ends meet. "The government does whatever it likes. They don't ask people if they agree or not."

The new rate is still pennies per gallon.

At four gas stations in northern Tehran on Saturday morning, drivers seemed relaxed as they refueled in clear, cold weather. Single police vehicles were stationed nearby at times, but there were no long lines at the pumps or other visible problems.

The new pricing system implemented on Saturday adds a third pricing level to the country's long-running subsidy system. The revised structure allows motorists to continue receiving 60 liters (15 gallons) per month at the subsidized rate of 15,000 rials per liter, or 1.25 U.S. cents, and the next 100 liters (26 gallons) will remain at 30,000 rials per liter, or 2.5 cents.

Anything purchased beyond that falls under the new pricing scheme of 50,000 rials per liter, or about 4 cents per liter. Iran introduced fuel rationing back in 2007, but that has yet to ease demand for the ultracheap gasoline.

Even at that new rate, Iranian gasoline prices remain among the lowest in the world.

The difference between the cost of production and delivering the fuel and the price at the pump is the subsidy paid by Iran's government. The Paris-based International Energy Agency ranked Iran as paying the world's second-highest energy subsidy costs in 2022, behind only Russia. The IEA put Iran's oil subsidies at $52 billion that year, with Iranian officials acknowledging tens of billions of dollars a year go toward artificially keeping energy prices low.

Tehran-based economist Hossein Raghfar said that since 2009, gasoline prices have risen 15-fold, offering a pessimistic view of the government's subsidies.

" 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," he said.

Hamid Rezapour, a 35-year-old bank teller, said he believed Iran's government had "no choice except to increase the price to manage the country's economy."

"It needs more money to pay for public needs," he said. "To me, it is an indirect tax, though in a messy economy, it barely works."

First hike since the 2019 protests

The move is the most significant change to Iran's fuel-subsidy system since 2019, when a sudden 50% jump in subsidized prices and a 300% increase in the rate for purchases beyond quota sparked nationwide protests.

Security forces cracked down on demonstrations across 100 cities and towns, with some protesters burning down gas stations and banks. The crackdown that followed killed at least 321 people, according to Amnesty International. Thousands were detained.

Critics say every 10,000-rial increase in gasoline prices will lead to an inflation rate as high as 5%. Currently, the nation is struggling with an annual inflation rate of some 40%.

But cheap gas provides an opportunity for the country to create jobs. There are 25 million vehicles in the Islamic Republic, including 3 million public and government-affiliated cars and 6 million motorbikes. Reportedly, more than 8 million Iranians work as taxi drivers through online platforms, nearly 10% of the population. Uber, meanwhile, has 8.8 million drivers and couriers worldwide.

"It is a start for amending the trend of fuel consumption," Oil Minister Mohsen Paknejad earlier told journalists.

Officials' comments suggest Iran may seek steeper price increases in the future, as the government reviews prices every three months.

Mohammad Reza Assadi, a 60-year-old taxi driver, expressed skepticism that any further protests would make a difference.

People have poured into the streets over hikes in the gasoline price in the past, he said, "but they returned home tired and hopeless later at dusk."