Iran: Largest Fuel Subsidizer in 2018

EghtesadOnline: Iran was the largest fossil fuel subsidizer in 2018, according to the International Energy Agency's latest report.

News ID: ۷۴۷۸۹۲

17 July 2019

Having spent $69.2 billion on fossil energy consumption subsidies in 2018, Iran ranked first globally, leaving behind Saudi Arabia with $44.72 billion and China with $44.44 billion.

The volume of Iranian fuel subsidies extended to its citizens, which increased 42.2% year-on-year, equals 15.3% of Iran’s GDP and 16% of total global energy subsidies.

Iran’s average subsidization rate of fossil fuels (as a proportion of the full cost of supply) was 79%. The country paid $844 as fossil fuel subsidies per person in 2018, according to Financial Tribune.

According to IEA price data, Iran has the cheapest gasoline in the world priced at $0.3 per liter and Norway has the world’s most expensive at $1.91 per liter.

In 2018, Iran’s subsidies for natural gas consumption were at $26 billion, fossil-fueled electricity at $16.58 billion and oil at $26.57 billion.

Iran had spent $48.66 billion on fossil fuel consumption in 2017, including $17.89 billion on natural gas, $14.41 billion on electricity and $16.34 billion on oil.

The value of global fuel subsidies in 2018 was pushed up to their highest levels in five years, according to IEA.

IEA data show the estimated value of these subsidies at $424 billion, a 33% year-on-year increase.

The subsidy estimates for oil, gas and fossil-fuel generated electricity all increased “significantly”, the IEA said.  This is creating challenges to reducing greenhouse gas emissions, the agency said.

“The continued prevalence of these subsidies—more than double the estimated subsidies to renewables—greatly complicates the task of achieving an early peak in global emissions,” IEA energy analysts, Wataru Matsumura and Zakia Adam, said in a commentary.

In 2018, oil was the most heavily subsidized energy sector, expanding its share of the total to more than 40%. In 2016, electricity briefly became the sector with the largest subsidy bill.

Oil supports rose fastest in 2018 and accounted for $182 billion in subsidies, which were followed by electricity subsidies at $141 billion and natural gas subsidies at $99 billion.

“There can be good reasons for governments to make energy more affordable, particularly for the poorest and most vulnerable groups,” Matsumura and Adam said.

“But many subsidies are poorly targeted, disproportionally benefiting wealthier segments of the population that use much more of the subsidized fuel. Such untargeted subsidy policies encourage wasteful consumption, pushing up emissions and straining government budgets.”

Some countries are taking steps to curb subsidies. Tunisia, India and Mexico have adopted complete price liberalization for transport fuels. China, Indonesia and Oman introduced mechanisms to automatically adjust domestic prices to keep them in line with international prices.

Middle East countries such as Saudi Arabia, Kuwait, Qatar, Bahrain and the UAE are working on a schedule of reforms to align subsidies with a cost-recovery mechanism or market-based prices.

“Notable reductions in oil-related consumption subsidies over this period were observed in many countries in the Middle East, including Saudi Arabia, the UAE, Qatar and Bahrain, as well as in Colombia and Pakistan,” the IEA said. “Ukraine saw the largest fall in subsidies for natural gas.”

Reductions in subsidies were outstripped by a widening gap between prevailing prices and market-based prices in many countries and increased consumption of subsidized energy.

The largest increases in consumption subsidies for oil products were in Indonesia, Iran, Egypt and Venezuela.

Iran also saw the largest increase in natural gas subsidies, and–together with Venezuela, Mexico, Egypt and China–was among those seeing the most significant increase in subsidies to fossil fuel-based electricity.

Beyond Fuel Subsidies

Besides fuel subsidies, the Iranian government pays cash subsidies to its citizens on a monthly basis.

The "Targeted Subsidies Law" of 2010 authorized reduction of subsidies on food and energy carriers, and instead allowed for payment of 455,000 rials ($3.5) to each and every Iranian on a monthly basis.

The plan has been retained to date and nearly 76 million or 95.21% of Iranians currently receive the monthly grant of cash subsidies presently.

The expenditure section of the "Targeted Subsidies Law" included in the current year’s budget law allows the payment of 411,000 billion rials ($3.21 billion) to monthly cash subsidies, up to 84,000 billion rials ($657.27 million) in cash payments to reduce absolute poverty and insurance of women who are the primary breadwinners of their households, 49,000 billion rials ($383.41 million) to healthcare and up to 61,450 billion rials ($480.82 million) for the Guaranteed Purchase of Wheat program and bread subsidy.

The Cabinet recently ratified the implementation of Clause 14 of the Budget Law of the Fiscal 20119-20, which pertains to the "Targeted Subsidies Law".

The decision has been notified to relevant bodies, including the Ministry of Economic Affairs and Finance; Energy Ministry; Communications and Information Technology Ministry; Interior Ministry; and Plan and Budget Organization.

As per the directive signed by First Vice President Es’haq Jahangiri, related governmental bodies have been tasked with identifying and removing households who fall into the top three high-income deciles from the list of monthly cash subsidy receivers by Aug. 10, Mehr News Agency reported.