Looking Beyond Gasoline Prices

EghtesadOnline: So long as state-run automakers keep manufacturing low-quality vehicles, the people will be the main victims who have to face the economic burden stemming from the unprecedented rise in gasoline prices, a former head of the Iranian Fuel Conservation Company said.

News ID: ۷۸۵۰۶۹

26 November 2019

“Increasing energy prices can help improve social welfare on the condition that the (hubristic) car industry focuses on fuel efficiency, or at the least public transportation is decent and efficient,” Nosratollah Seifi was quoted as saying by ILNA.

The National Iranian Oil Products Distribution Company (NIOPDC) announced Thursday midnight that private car owners can buy 60 liters of subsidized gasoline every month with a fuel card at 15,000 rials (13 cents) per liter. Additional purchases cost double.

There is no denying that the higher prices will benefit the government as it should (or could) help save 15 million liters of gasoline per day (10 million liters due to the decline in consumption and fuel smuggling and 5 million liters because of motorists’ tendency (or obligation) to fill up with CNG), according to Financial Tribune.

“The surplus gasoline can be sold at 50 cents/liter to neighboring states and generate $7.5 million a day.”

That said, the inflationary impact on low-income groups also cannot be denied no matter how much the monthly cash subsidy payments increase.

As part of the Subsidy Reform Plan, the previous government ended costly food and energy subsidies in 2010 and paid 455,000 rials ($3.7) to each Iranian on a monthly basis.

The controversial plan has been retained by the administration of President Hassan Rouhani. Furthermore, in a strange move he has pledged to increase the cash payments “to 60 million people” because of the higher gasoline prices.

Unlike other countries where fuel is expensive, there are no electric cars in Iran as their imports are banned, hybrid vehicles are sold at exorbitant prices and domestic automakers have long stopped producing vehicles powered by LPG for hitherto unknown reasons.

Put simply, people have very limited options to commute. They either fill up with CNG or gasoline or use public transport like the old and dilapidated buses or the subway that too needs urgent expansion and efficient management.

Experts believe that there is a direct link between gasoline prices and welfare of the people.

As long as infrastructure (transportation and communication) necessary for growing businesses are not well-developed, raising fuel prices can do very little if anything to improve the people’s contentment even if the government increases the handouts in whatever form or fashion.

Highlight 1: The inflationary impact of higher gas prices on low-income groups cannot be denied no matter how much the monthly cash subsidy payments increase