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Iran moves on ultra-cheap petrol, starts rationing

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Tehran (AFP)

Iran imposed petrol rationing and raised pump prices by at least 50 percent Friday, saying the move aims to help the needy with cash handouts and is not due to a budget deficit.

The Islamic republic provides some of the most heavily subsidised petrol in the world, with the pump price previously standing at just 10,000 rials (less than nine US cents) a litre.

"Increasing petrol prices is to the people's benefit and also to help the society's strata under (economic) pressure," President Hassan Rouhani told a cabinet meeting, quoted by state news agency IRNA.

"No one should imagine that the government has done this because it is economically struggling; not at all, not a rial of this will go to the treasury," he added.

Each driver with a fuel card will now have to pay 15,000 rials (13 US cents) per litre for the first 60 litres of petrol bought each month, said the state-run National Iranian Oil Products Distribution Company.

Each additional litre will be charged at 30,000 rials.

Fuel cards were first introduced in 2007 with a view to reforming the subsidies system and curbing large-scale smuggling.

Iran's economy has been battered ever since US President Donald Trump withdrew from the landmark 2015 nuclear agreement between world powers and Iran and reimposed punishing unilateral sanctions.

The rial has plummeted in value against the US dollar, inflation is now running at more than 40 percent and the International Monetary Fund projects that the troubled economy will contract by nine percent this year and stagnate in 2020.

- 'Under pressure' -

According to Rouhani, currently "75 percent of the country are under pressure" and the extra revenues from the price hike are going to be used to help about 60 million Iranians in need.

Payments will start "within the next week or 10 days", the head of Iran's Planning and Budget Organisation, Mohammad Bagher Nobakht, told state television.

The handouts will range from 550,000 rials ($4.68 based on latest open market prices) for couples to slightly more than 2 million rials ($17.46) for families with five members or more.

Ulta-low petrol prices have led to high consumption, with Iran's 80-million population buying an average of 90 million litres per day, according to IRNA.

They have also fuelled high levels of smuggling -- estimated at around 10 to 20 million litres per day, IRNA said.

Smuggling has intensified due to the rial's drastic drop in value.

Rouhani said in his speech that he had rejected calls by some in government to raise prices to regional levels to prevent smuggling, since it would increase inflation.

Iran's energy consumption is too high and can be countered through "changing the culture and manufacturing good cars", he said.

Efforts to modernise Iran's ageing and highly polluting cars have been hampered by a lack of investment, and foreign companies such as Peugeot and Renault were again forced to withdraw this year by the return of US sanctions.

- Divisive measure -

Rouhani had tried hike fuel prices in the budget last December but was blocked by parliament in the wake of protests that rocked Iran for days.

The parliament speaker at the time ruled out the move as unpopular and said it was "not in the interests of the country".

The measure proves to be as divisive now, with some on social media voicing their fears of further pressure on a troubled economy and others defending it.

"Petrol prices were so low that even with the new hikes it is still to the benefit of the rich," tweeted journalist Ali Asghar Shafieian, adding that being against the hike was a "populist" move.

On the other hand, former student activist Zia Nabavi said those cheering the hike were "like those defending sanctions! Both want to convince us there is a wisdom to the inflation and pressure caused by these policies that we'll see later".

Political factions mostly agreed on the move's necessity but criticised the timing.

Conservative politician Ahmad Tavakoli tweeted that the price hike "will only shift the weight of the government's incompetence to people's shoulders" as it does not address core concerns.

Prominent reformist figure Mostafa Tajzade agreed with "reducing fuel consumption and properly distributing subsidies" in a tweet.

But it was wrong to increase prices when there is high inflation and unemployment with sanctions still in place, according to Tajzade.

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