Rouhani's Government Plan to Increase Gasoline and Diesel Prices in 2018

The government's information base reported that in the budget bill for 2018, the strategy for securing resources for job creation includes raising gasoline and diesel prices to 1500 and 400 tomans per liter, respectively. The main reason for this is to align gasoline and diesel prices with the Free on Board (FOB) price in the Persian Gulf. The FOB price is the price of imported or exported gasoline at Persian Gulf ports. This report, published on Tuesday, December 19, states that there is currently a significant gap between fuel prices in Iran and neighboring countries. For example, while the price of diesel in Iran is 300 tomans, it is 6000 tomans in many neighboring countries, creating conditions for increased smuggling and related issues. In fact, the government has been allowed to generate revenue from the increase in fuel prices. The report adds that according to the 2018 budget, gasoline is proposed to be priced at 1500 tomans per liter and diesel at 400 tomans, and the government has the discretion to implement this, with the timing still unspecified. If approved by the parliament, this bill would generate 17 trillion tomans in revenue for the government, planned to be used for job creation. Currently, the price of regular gasoline in Iran is 1000 tomans, and the price increase plan can be implemented after approval from the parliament and the Guardian Council. Meanwhile, the newspaper 'Jameh Farda' published in Tehran reported on Tuesday, citing an informed source in Hassan Rouhani's government, that gasoline prices will increase on Friday, just three days later. This newspaper reported that according to the government's view, regular gasoline will become more expensive from the first day of winter and will be sold at 1500 tomans per liter. Previously, Mohammad Baqer Nobakht, the government spokesperson, had indicated the possibility of increasing gasoline prices to cover the government's revenue shortfall based on the 2017 budget resolution. Reports of the removal of parts of fuel subsidies in recent days, coinciding with the start of parliamentary discussions on next year's budget, have faced criticism among social media users. Earlier in December, the Rouhani government issued an order to suspend the increase in bread prices following rising criticisms. Nevertheless, reports indicate that cash subsidies for bread and wheat will be reduced to 5 trillion tomans, half of the current amount. Since 2010, the Iranian government has begun increasing gasoline and diesel prices to relieve the heavy burden of energy subsidies. However, according to reports from the International Monetary Fund, which has always encouraged governments to eliminate energy subsidies, past increases in gasoline prices in Iran have had 'very significant' inflationary effects. World Bank statistics indicate that Iran spent about 77 billion dollars on energy subsidies in 2009, which was equivalent to 27 percent of Iran's total GDP. This figure decreased to about 34.8 billion dollars in 2016 due to rising fuel prices and the decline in crude oil prices in previous years, with 16 billion dollars allocated to petroleum product subsidies. Apart from energy subsidies, cash subsidies themselves were a heavy burden on the government last year. The World Bank states that Iran has removed three million high-income citizens from the list of subsidy recipients in recent years, yet in 2016, three percent of the total GDP was still spent on cash subsidies. Since the beginning of the 'Targeted Subsidy Policy' until mid-this year, Iran has spent over 60 billion dollars on cash subsidies. Meanwhile, reports suggest that Hassan Rouhani's government intends to both reduce cash subsidies and increase the prices of subsidized goods in the current budget, with the resources, according to the government, aimed at job creation. The Iranian government's information base reported that the impact of increasing gasoline prices to 1500 tomans on inflation is below one percent. The International Monetary Fund and the United Nations, in their latest reports, indicated that Iran's plan to continue raising fuel prices will likely see the previously low inflation rate rise to nearly 11 percent next year. In this regard, this year's inflation is assessed at 9.6 percent, which is one percent higher than last year. Reports indicate that Iran is the second-largest energy subsidy provider in the world after China. Elham Shaban, director of the Caspian Oil Studies Center, stated in an interview with Radio Farda that 'Iran has no choice but to raise energy prices,' adding that this is what all subsidizing countries do, heavily emphasized by international organizations such as the International Energy Agency, which has assessed that globally, 260 billion dollars in subsidies were paid to energy carriers last year. She adds that this issue leads to increased energy consumption and imposes overwhelming costs on governments, but the inflationary burden resulting from the removal of subsidies will ultimately fall on the people. Mr. Shaban noted that, for instance, Uzbekistan has raised gasoline prices three times in the past two years, resulting in a total increase of 90 percent. Azerbaijan has also raised gasoline prices twice since 2013, leading to a total increase of 59 percent. According to him, Turkmenistan stopped providing free gasoline quotas to the people five years ago, and based on a government resolution, gasoline prices will be raised again from the beginning of this year. Mr. Shaban stated that the impact of gasoline price increases on inflation in single-product economies is always high, adding that 'inflation in Uzbekistan was 5.7 percent last year, which increased to 12.7 percent this year. Inflation in Azerbaijan also became double-digit after years and reached 12.6 percent over the past two years.' He mentioned that many factors influence this inflation, and it cannot be precisely determined how much of the inflation depends on gasoline price increases. 'For instance, the value of the Azerbaijani and Uzbek currencies has halved against the dollar in the past two years, which is itself an inflationary factor.' According to the official report from the Ministry of Oil, Iran imported 13 million and 380 thousand liters of gasoline daily in the middle of the year, showing a 16 percent increase compared to the same period last year. The Persian Gulf countries have also implemented increases in gasoline and other energy carriers over the past two years. Saudi Arabia raised gasoline prices in 2015 and plans to increase gasoline prices by 80 percent by 2020.