Subsidy Cuts Quadruple Gas Prices in Iran
By WILLIAM YONG
TEHRAN — Gasoline prices nearly quadrupled on Sunday and riot police guarded filling stations around the capital as deep cuts in subsidies on fuel and other essential goods took effect.
After midnight on Sunday, the price of subsidized gasoline jumped to 38 cents a liter from 10 cents a liter. Similar increases went into effect for compressed natural gas and diesel fuel, with subsidy reductions for other commodities expected to be phased in gradually.
Security forces with riot shields took positions at gas stations in Tehran, bracing for a possible repeat of the unrest that followed the introduction of gasoline rationing in 2007, but there were no reports of violence.
President Mahmoud Ahmadinejad announced the long-anticipated subsidy reductions in a live television interview on Saturday night, calling the reform “a great victory for Iran.”
Policymakers have described the program as a “rationalization” or “targetization” of Iran’s vast and inefficient subsidies system, but some analysts fear it could lead to high inflation and increase living costs for millions of middle and low-income households.
Mr. Ahmadinejad said that the government was spending $114 billion a year on energy subsidies. “If we can save one-quarter of that, it will amount to a vast economic transformation,” he said.
He said that the prices of water, electricity and natural gas would increase “gradually,” and that the subsidy for bread would also be gradually eliminated. He predicted that the bottom 60 percent of income earners would be better off under the new plan while the wealthier 40 percent would “need to economize.”
The reduction in subsidies comes as Iran’s economy is starting to show signs of strain caused by international sanctions. Economic restrictions imposed by the United Nations Security Council and further measures added by Western countries mainly to press Iran on its nuclear program have made it increasingly difficult for the oil-exporting country to conduct international business.
Iranian governments have sought for years to rein in the expensive and unwieldy subsidy system but have feared a strong public backlash. Price supports amount to $4,000 per family per year, a recent International Monetary Fund report found.
The government tried to cushion the blow by making a one-time payment to each household of about $77. Although the funds were deposited in October, Iranians were not allowed to withdraw the money until Sunday, the day the reductions took effect.
Despite Mr. Ahmadinejad’s call for Iranians to refrain from spending the money immediately in order to help prevent a sharp jump in inflation, witnesses reported that many customers were withdrawing the full amount at once.
“I want to spend it on living costs,” said one bank customer quoted by Iran’s semi-official Fars news agency. “I know that prices haven’t risen yet but I know for sure that they will.”
Said another: “I want to withdraw the whole amount of the subsidy payment in one go. I’m afraid that next week they will cancel the plan before I get the money.”
The gasoline price increase was expected to be the most wrenching of the changes because of the country’s heavy reliance on private vehicles for commuting and commercial transportation. Iran’s long-distance bus and taxi drivers’ guild predicted that fares could increase by as much as 125 percent.
The new price of 38 cents a liter applies to the monthly ration of 60 liters per personal car. Gasoline bought over and above the monthly ration will increase to 70 cents a liter from 40 cents.
Mr. Ahmadinejad said the government would monitor and control increases in transportation costs that arise from the subsidy cuts. In recent months, his administration has insisted that any price increases above government-ordained limits would be considered part of an “economic conspiracy” and would be dealt with by the police and judiciary.
In addition, specially appointed committees from the paramilitary Basij force, which is loyal to the Revolutionary Guards, are set to monitor the activities of Iran’s guilds, a move likely to result in further tension between the government and Iran’s traditional bazaar system.
The political opposition has been skeptical of the plan but seemed to be taking a wait-and-see attitude.
“In the dark of night the subsidy targetization plan began, a plan which the government has begun to execute detached from the people, without wisdom or long-term planning, ” read an article published on the Kaleme news Web site, which is associated with the opposition leader Mir-Hossein Mousavi.
“From tomorrow, the near future of the people and perhaps the slightly more distant future of the current government will become clear,” the article concluded.
After midnight on Sunday, the price of subsidized gasoline jumped to 38 cents a liter from 10 cents a liter. Similar increases went into effect for compressed natural gas and diesel fuel, with subsidy reductions for other commodities expected to be phased in gradually.
Security forces with riot shields took positions at gas stations in Tehran, bracing for a possible repeat of the unrest that followed the introduction of gasoline rationing in 2007, but there were no reports of violence.
President Mahmoud Ahmadinejad announced the long-anticipated subsidy reductions in a live television interview on Saturday night, calling the reform “a great victory for Iran.”
Policymakers have described the program as a “rationalization” or “targetization” of Iran’s vast and inefficient subsidies system, but some analysts fear it could lead to high inflation and increase living costs for millions of middle and low-income households.
Mr. Ahmadinejad said that the government was spending $114 billion a year on energy subsidies. “If we can save one-quarter of that, it will amount to a vast economic transformation,” he said.
He said that the prices of water, electricity and natural gas would increase “gradually,” and that the subsidy for bread would also be gradually eliminated. He predicted that the bottom 60 percent of income earners would be better off under the new plan while the wealthier 40 percent would “need to economize.”
The reduction in subsidies comes as Iran’s economy is starting to show signs of strain caused by international sanctions. Economic restrictions imposed by the United Nations Security Council and further measures added by Western countries mainly to press Iran on its nuclear program have made it increasingly difficult for the oil-exporting country to conduct international business.
Iranian governments have sought for years to rein in the expensive and unwieldy subsidy system but have feared a strong public backlash. Price supports amount to $4,000 per family per year, a recent International Monetary Fund report found.
The government tried to cushion the blow by making a one-time payment to each household of about $77. Although the funds were deposited in October, Iranians were not allowed to withdraw the money until Sunday, the day the reductions took effect.
Despite Mr. Ahmadinejad’s call for Iranians to refrain from spending the money immediately in order to help prevent a sharp jump in inflation, witnesses reported that many customers were withdrawing the full amount at once.
“I want to spend it on living costs,” said one bank customer quoted by Iran’s semi-official Fars news agency. “I know that prices haven’t risen yet but I know for sure that they will.”
Said another: “I want to withdraw the whole amount of the subsidy payment in one go. I’m afraid that next week they will cancel the plan before I get the money.”
The gasoline price increase was expected to be the most wrenching of the changes because of the country’s heavy reliance on private vehicles for commuting and commercial transportation. Iran’s long-distance bus and taxi drivers’ guild predicted that fares could increase by as much as 125 percent.
The new price of 38 cents a liter applies to the monthly ration of 60 liters per personal car. Gasoline bought over and above the monthly ration will increase to 70 cents a liter from 40 cents.
Mr. Ahmadinejad said the government would monitor and control increases in transportation costs that arise from the subsidy cuts. In recent months, his administration has insisted that any price increases above government-ordained limits would be considered part of an “economic conspiracy” and would be dealt with by the police and judiciary.
In addition, specially appointed committees from the paramilitary Basij force, which is loyal to the Revolutionary Guards, are set to monitor the activities of Iran’s guilds, a move likely to result in further tension between the government and Iran’s traditional bazaar system.
The political opposition has been skeptical of the plan but seemed to be taking a wait-and-see attitude.
“In the dark of night the subsidy targetization plan began, a plan which the government has begun to execute detached from the people, without wisdom or long-term planning, ” read an article published on the Kaleme news Web site, which is associated with the opposition leader Mir-Hossein Mousavi.
“From tomorrow, the near future of the people and perhaps the slightly more distant future of the current government will become clear,” the article concluded.
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