The government sells gasoline much lower than its cost price and pays a huge amount of subsidy -- $35 billion per annum to consumers, IRNA reported.
Consumption of the fossil fuel is prohibitively high and further increase means added pressure on the government to produce more gasoline.
According to data from the National Iranian Oil Products Distribution Company, gasoline consumption in the first month of the new calendar year (March 21-April 20) indicates an increase of 4.7% compared to the corresponding period last year, Financial Tribune reported.
Motorists bought 2.82 billion liters of gasoline in the first fiscal month that coincided with the Persian New Year holiday season. Last year same time 2.7 billion liters were sold.
The report showed average daily gasoline consumption has increased from 87.1 million liters last year to 91.2 million liters now.
NIOPDC produces 105 million liters of gasoline per day. Although the state-owned company has said that full demand for gasoline is met by domestic refineries, if production does not meet domestic demand in the near future the government will have to import costly fuel like in the previous years.
Rampant Smuggling
In addition, inflation and tanking of the national currency 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 (I0-15 million liters per day) 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.
Therefore, reintroducing the fuel rationing system, which had ended in 2015, and increasing prices are seen as crucial to alleviate smuggling and curb consumption.
On May 1 reports went viral on social media and some local news outlets saying that gasoline rationing would start on May 2.
It was said that every car owner would be eligible for 60 liters per month at of 10,000 rials (7 cents) a liter and extra fuel (free market) would be sold for 25,000 rials (18 cents) per liter without restrictions.
Later in the day Oil Minister Bijan Namdar Zanganeh and the National Iranian Oil Refining and Distribution Company announced that rationing would not start on May 2.
However, they did not completely deny the expected quota program, implying that it could be announced at a later date.
All said, some observers are of the opinion that consumption will not come down even if fuel prices rise. Locally-made cars are notorious for poor mileage and infamous as gas-guzzlers contributing terribly to the air pollution.
They also believe that the difference between the two rates (7 and 18 cents) is not very high and will not prevent avaricious smugglers from their illegal trade near the porous borders.
Those who oppose the rise in gasoline prices also mention that it could have implications far beyond filling stations as it would have a domino effect on all sectors.
The prospect of higher gasoline prices can trigger a hike in the price of many products and services, ranging from taxi fares, groceries and household appliances to healthcare and house prices.
This is probably the primary reason why the government has hesitated to increase fuel prices. Needless to say, people’s purchasing power has already been sinking due to galloping inflation, the new US sanctions and tanking of the rial since last spring.