Case Against Higher Fuel Prices in Iran

EghtesadOnline: Although most energy officials, namely Oil Minister Bijan Namdar Zanganeh, say that raising gasoline prices would be the last resort to fight rampant smuggling and curtail rising consumption, several senior economists disagree.

News ID: ۷۴۸۶۳۲

06 October 2019

Farshad Momeni, a faculty member of the Economics Department at Allameh Tabatabai University in Tehran, Hossein Raghfar, faculty member and economic expert at Alzahra University and Ehsan Soltani, economic researcher, have clear reservations and are strongly opposed to such moves.

"Such policies (increasing fuel prices) is a recipe for disaster and will make life for the general public more difficult," Momeni was quoted as saying by ILNA.

If the past is anything to go by, as soon as fuel becomes costly, price gauging and inflation follow. General prices increase at least by 14% and the number of people unable to make ends meet goes up, Financial Tribune quoted him as saying.

The government for months has been mulling over fuel prices to plug the ballooning budget deficit. But nothing has been finalized so far, or so the people are told.

Criticizing lobbies in favor of high fuel prices, he added that energy officials think if people spend less on gasoline they will spend more on basic needs and food (meat and dairy). "The justification to increase fuel prices is a matter of great shame as they seem to be oblivious to the fact that the affluent never and will never care about higher prices."

According to Soltani, if and when gasoline prices increase, those with special connections will benefit and ordinary people will be ignored.

"Raising the US dollar rate from 42,000 rials in May 2018 to 115,000 rials now helped the government to earn at least $30 billion that was mostly shared among selected lobbies."

He went on to say that low-income brackets, in particular fixed-wage earners, will be affected the most  if fuel prices go up because energy  bills account for 20% of their total wages. This figure is hardly 1% for well-off families.

Beside the Point

Soltani insists that comparing gasoline prices in Iran and Turkey is beside the point simply because an unskilled worker’s pay in the neighboring country is  $800 (90 million rials). “The same job makes less than $200, which explains why Iranian labor goes to other countries to find work."

Other economists including Raghfar assert that over the past three decades policies of successive governments have largely favored those connected to high places instead of those who prefer to be independent and speak their mind without fear or favor.

Living costs (in the last two years) have risen dramatically due to massive volatility in the currency market, he says.

“Raising gasoline prices will undeniably widen the gulf between the haves and have nots,” says the expert on poverty alleviation.

Meanwhile, Zanganeh says selling fuel at higher prices could be effective, but notes that “it will be logical to set prices proportional to the people's purchasing power (which is being eroded by steep increase in living costs).

Higher prices at the pump not only will help cut consumption, but also could discourage fuel smuggling in the regions bordering Afghanistan and Iraq, the minister has said.

It is often reported that between 10 and 20 million liters of gasoline is smuggled to neighboring countries every day from the porous border regions because fuel there is several times more expensive.