Iran: Fuel Prices May Rise as of March

EghtesadOnline: The plan to resume the use of fuel cards by car owners will come into effect in August with the aim of curbing fuel smuggling that has taken a turn for the worse over the past months.

News ID: ۷۴۷۸۷۵

16 July 2019

As per a directive issued by the National Iranian Oil Products Distribution Company, car owners as of August 11 will be able to buy fuel at the pumps only if they have a fuel card, the news website Fararu reported.

Although it is said that the plan is unrelated to reviving an earlier gasoline rationing system, nor does it mean that fuel prices will increase, some experts including the economist Vahid Shaqaqi say the measure could ultimately result higher fuel prices next year (beginning March 2020).

Selling gasoline with fuel cards started in 2007 with the aim of curbing waste and excess consumption, adjusting prices and fighting fuel smuggling. It ended in 2015, according to Financial Tribune.

Reports went viral on the social media late April that from the beginning of May every car owner would be eligible for 60 liters of gasoline a month at the current subsidized price of 10,000 rials (7 cents) a liter. Extra fuel (free market) would be available for 25,000 rials (18 cents) per liter without restrictions.

At the time Oil Minister Bijan Namdar Zanganeh and the NIOPDC said fuel rationing is not on the agenda. But they did not also deny the rumored quota program, implying that it would be announced at a later date.

“According to informed sources, the Rouhani administration wanted to raise fuel prices in April. However, the Majlis rejected the move on the grounds that the government would not be able to control the consequent inflation. The legislature persuaded the government to abandon the plan,” Shaqaqi told Fararu.

“MPs then were of the opinion that the rise in gasoline prices could have implications far beyond the pumps and create a domino effect” negatively impacting all sectors and lead to higher inflation.

The mere prospect of higher gasoline prices usually triggers a hike in the price of goods and services, ranging from taxi fares, groceries and household appliances to healthcare and housing.

Purchasing power in Iran is already sinking due to galloping inflation and tanking of the rial since the spring of 2018.

Price Reforms Crucial

Shaqaqi opines that with the steep increase in foreign currency rates over the past year, higher energy rates are inevitable. “Further delaying energy price reforms will add to the country’s economic woes,” he warned, echoing the views of known economists and academia.

Data has it that Iran produces 110 million liters of gasoline per day and average daily fuel consumption is  95 million liters.

It is often reported that almost 15 million liters of fuel is smuggled everyday from Iran to the neighboring countries largely because of the huge gap in prices.

Consumption of fossil fuels is prohibitively high and further increase means added pressure on the government to produce more gasoline.

The government sells gasoline and diesel at highly subsidized rates making smuggling from the border regions more tempting.

It is often reported that in the current difficult economic conditions reintroducing fuel rationing seems inevitable but may not help much in preventing smuggling.

Inflation and tanking of the national currency have significantly increased the gap between the price of gasoline in Iran and the neighboring countries. This has led to smuggling of millions of liters of the fuel from the border areas, especially to Pakistan and Afghanistan.

The discrepancy in prices in Iran (7 cents per liter) and most neighboring countries (75 cents per liter) has made fuel smuggling a highly tempting trade about which authorities often talk but have still to take concrete action.