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One of the major issues floating around concerns fuel prices in Iran. The government currently purchases gas from other countries at 400 tomans/liter and sells it to the public at only 80 tomans/liter. The heavy subsidization makes up for the country's limited refining capabilities, which has cost the government billions of dollars, annually.
According to local papers, economists believe a gas price increase is absolutely necessary for Iran's economic health, and it can also relieve some of the traffic congestion that more than 7 million drivers cause on a daily basis. Gas is so cheap, that a liter of water sells for over 300% more than a liter of fuel. Another problem with this is that carmakers are less likely to produce fuel efficient vehicles, which creates even more consumption and pollution (the air is difficult to breathe as it is).
The government is hesitant to raise the cost of fuel, despite the prognosis of economic experts. Besides the obvious problem of eliciting a negative reaction from the public, officials worry that such a move may create a sudden boost in inflation rates, making transportation and overall purchasing of goods less affordable for average citizens. A few years ago, 800 tomans = US$1; now the figure has grown to about 900 tomans/dollar. A sudden increase, even if small, could send the toman into serious devaluation--maybe over 1,000 to a dollar.
There are many risks involved. On one hand, an increase may create an atmosphere of responsibility, where citizens make fewer unnecessary road trips; public transportation (with over 1 million vehicles offering service) would continue to be subsidized, and may experience an increase in business. On the other hand, inflation may affect food prices, creating problems for middle and lower classes, while also encouraging capital flight.
The fuel pricing dilemma is definitely a hot issue here. Clearly, any move would have to be approached with the utmost caution, particularly because the risks can be crippling on Iran's economy. When I asked a young taxi driver about his views on the issue, he thought a price hike was a good idea, and mentioned that he'd pay up to 250 tomans/liter. His idea was that people would take greater responsibility in driving, which would alleviate the traffic jams occurring around the clock.
According to local papers, economists believe a gas price increase is absolutely necessary for Iran's economic health, and it can also relieve some of the traffic congestion that more than 7 million drivers cause on a daily basis. Gas is so cheap, that a liter of water sells for over 300% more than a liter of fuel. Another problem with this is that carmakers are less likely to produce fuel efficient vehicles, which creates even more consumption and pollution (the air is difficult to breathe as it is).
The government is hesitant to raise the cost of fuel, despite the prognosis of economic experts. Besides the obvious problem of eliciting a negative reaction from the public, officials worry that such a move may create a sudden boost in inflation rates, making transportation and overall purchasing of goods less affordable for average citizens. A few years ago, 800 tomans = US$1; now the figure has grown to about 900 tomans/dollar. A sudden increase, even if small, could send the toman into serious devaluation--maybe over 1,000 to a dollar.
There are many risks involved. On one hand, an increase may create an atmosphere of responsibility, where citizens make fewer unnecessary road trips; public transportation (with over 1 million vehicles offering service) would continue to be subsidized, and may experience an increase in business. On the other hand, inflation may affect food prices, creating problems for middle and lower classes, while also encouraging capital flight.
The fuel pricing dilemma is definitely a hot issue here. Clearly, any move would have to be approached with the utmost caution, particularly because the risks can be crippling on Iran's economy. When I asked a young taxi driver about his views on the issue, he thought a price hike was a good idea, and mentioned that he'd pay up to 250 tomans/liter. His idea was that people would take greater responsibility in driving, which would alleviate the traffic jams occurring around the clock.
5 Comments:
Inflation in Iran would trigger those who can't afford to deal with it and that by itself is a recipe for another revolution, which IRI is not interested to face and deal with. They would do anything to keep the society comfortable and happy, especially since their new conservative government is on power. So I don’t think they will raise the price of oil…
I also think raising the price of gas will be a good idea, then people maybe forced to use public transportation instead of their own car. I must add Iran's public transportation is going very strong while it is economical.
Persia
Persia -
I agree with you. I heard that Tehran's air quality is really BAD and everybody is blaming it on the traffic.
Shiva! Glad to see you've gotten the site up and running (though I guess I never finished that logo!)
While I'm dropping by, I have to say that some sort of price increase must be done, even if it does cause a rise in the cost of living, you would think that with the savings from the fuel Iran purchases, combined with the steadily rising costs of oil and gas worldwide, would give them some extra cash to play with that could cushion the blow for the poorest people.
Its aggravating to see oil-wealthy countries wasting their resources so, especially when their policies regard a resource the world relies upon so much. With Iran's high population growth and increasing domestic demand for fuel, the current prices can't be sustainable.
Your article about the gas price is very interesting. You have pointed an important problem in Iran.
Unfortunately, the inflationary impact of the increase in gas price has been exaggerated over there which has been an obstacle to any reform. I did a preliminary research a few years back and I found the inflation emanated from cutting the gas subsidy is not more than 6-7 percent. The coincidence of annual increase of the gas price in Nowrooz with the increase of money supply just before the new year has made people see the gas price increase as the main source of inflation. To my knowledge there is no other research done in this area. You may feel very soon that in Economics, there are not that many researches done in Iran.
Also take a look at the banking system there. I think the biggest gap between Iran and the West is in the financial industry. Their interpretation of Riba has hindered the banking system to improve efficiently. There was a debate in the parliament last week about that. I just wanted to point another issue there that you may find it interesting.
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