The price of diesel fuel in Iran has risen dramatically as the government starts to implement a plan to remove subsidies on basic commodities. The move puts pressure on transport costs in a country heavily reliant on the fuel and raises fears of unrest.
President Mahmoud Ahmadi-Nejad announced cuts in subsidies on electricity and commodities such as petrol, diesel, gas and bread over the weekend. The plan had been delayed for nine months for concern over the public’s reaction.
The price of diesel jumped 2,100 per cent. The price of flour saw a 40-fold increase, while petrol costs rose fourfold.
There were some unconfirmed reports on Monday that lorry drivers in Bandar Abbas, the country’s main port city in the south, and other big cities such as Mashhad, in the north-east, and Isfahan in the centre, had gone on strike.
Iran has paid large subsidies on basic commodities for decades, leading to unsustainable over-consumption and an inflated budget deficit. The latest figures by parliament’s research centre put the cost of energy subsidies at more than $50bn annually, about 32 per cent of which goes on diesel and 18 per cent on petrol.
Diesel could prove to be a thorny problem, partly because of its strategic importance to Iran. Most vehicles in the country run on the fuel and about 80 per cent of goods are transported by road. Some domestic media said the cost of intercity bus journeys might rise by 125 per cent after the subsidy cuts.
Most of the 100m litres of diesel consumed daily are produced at home, making the fuel less vulnerable than petrol to international sanctions over the country’s nuclear programme.
There is also a huge disparity between refineries’ production costs and the subsidised price for domestic consumers. Diesel production costs are 44 times higher than the subsidised rate of 165 rials (1.5 US cents) per litre paid by consumers until Sunday.
“Increasing the price of diesel will not only enormously affect transportation but industries such as electricity, as well as the agricultural and housing sectors,” said a former official.
The government of the populist Mr Ahmadi-Nejad has taken measures to guard against possible unrest. State organisations in Tehran have been ordered to shut down an hour earlier until further notice because of “pollution”, although many believe the government is anxious to have the streets cleared before dark.
Iranians see cheap energy as their birthright, with the country sitting on the world’s third-largest oil and second-largest gas reserves. Attempts to ration petrol three years ago sparked public anger and about a dozen petrol stations were set on fire in Tehran.
The government is also concerned by the inflationary impact of the plan, under which half of the savings from subsidy cuts will be given in cash to the public to compensate for the expected rise in prices.
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