Even among hardliners in Iran, after massive protests, violence and a security force response following an increase in government-set gasoline prices, there seems to be an appreciation of one fact: this is not the last time demonstrators come out on the streets.
As Iran struggles to crush U.S. sanctions after the unilateral withdrawal of America from Tehran’s nuclear deal with world powers by President Donald Trump, its elected civilian government and those in its Shiite theocracy will face ever tougher decisions about where to cut costs.
These cuts are more than likely going to target their vast system of government subsidies that make life affordable for their poor, from low-cost electricity in their homes to the bread on their plates. Any attempt to increase those rates would result in further demonstrations. But there may be no other alternative for the state.
The protests that struck some 100 cities and towns across Iran starting on November 15 came after Iran raised the minimum gasoline prices to 15,000 rials per litre by 50%. That’s a litre of 12 cents or a gallon of about 50 cents. It costs 30 thousand rials a litre after a monthly 60-litre limit. That’s almost a litre of 24 cents or a gallon of 90 cents. According to AAA, a typical gallon of regular gas in the U.S. averages $2.58 in contrast.
Cheap fuel in Iran, home to the world’s fourth-largest crude oil reserves amid decades of economic troubles since its Islamic Revolution of 1979, is considered a birthright. Gasoline remains one of the cheapest in the world, helping to keep costs low for the underemployed, who often drive taxis to meet ends.
Iran’s gross domestic product per capita, often used as a rough sense of the living standard of a nation, is just over $6,000, compared to more than $62,000 in the U.S., the World Bank said. The difference fueled the frustration felt by protesters, particularly given Iran’s oil wealth.
However, Iran’s government probably saw little choice in trying to push its gasoline subsidies through changes. According to the Paris-based International Energy Agency, Iran spent $26.6 billion on oil subsidies in 2018, the majority of the world’s countries. Iran spent 15% of its total GDP that year, or $69.2 billion, on subsidies for oil, electricity and gas.
The rich, as well as those who smuggle Iranian oil into other countries, often profit from keeping gas costs down.
U.S. sanctions, re-imposed by Trump, have effectively prohibited Iran from exporting its crude oil abroad, rendering it a crucial source of government revenue. While Iranian President Hassan Rouhani promised that the money saved would go to the poor by cutting gasoline subsidies, Tehran also needs to cut spending to weather the sanctions.
Iranians have already seen their savings chewed away by the collapse of the rial from 32,000 to $1 as of today’s 126,000 to $1 at the time of the 2015 nuclear agreement. The price of daily staples has also risen.
Also with the gasoline price hike, Iran is subsidizing the cost of fuel. Despite efforts to privatize, the economy remains overwhelmingly controlled by the government.