Iran's new president signals risky move to raise gasoline prices

Iranian President Masoud Pezeshkian has criticized the lack of logic in importing gasoline at high market prices only to sell it domestically at much lower, heavily subsidized rates.

Iran has struggled with a growing gasoline deficit since 2022, importing at least 1.5 billion liters (396 million gallons) of gasoline during the last fiscal year, which ended on March 20, according to an official Oil Ministry document obtained by Iran International.

Officials report that the gasoline deficit has worsened this year. Additionally, Iran is grappling with the daily smuggling of 5 million liters (1.32 m gallons) of gasoline to neighboring countries, because of the cheap subsidized price.

The Iranian government has not disclosed specific details about the volume and value of gasoline imports. However, President Masoud Pezeshkian estimated the annual import cost at $8 billion annually during an interview last month. Currently, the Free on Board (FOB) price of gasoline in the Persian Gulf exceeds 55 cents per liter, while Iran sells rationed gasoline (60 liters per month per vehicle) at just 15,000 rials (2.5 cents) per liter, and non-rationed gasoline at 5 cents a liter.

Pezeshkian's remarks suggest that a significant increase in gasoline prices may be necessary—a sensitive issue that previously triggered widespread protests and a brutal crackdown by the Islamic Republic in November 2019.

His comments also come against the backdrop of a sharp rise in the US dollar exchange rate, from 110,000 rials to 600,000 rials per dollar since November 2019, further highlighting the disparity between domestic and global gasoline prices. Additionally, the devaluation of the rial is a consequence of the Islamic Republic's economic policies, including systemic inefficiencies, a lack of investment in new refineries, outdated infrastructure, and the impact of Western sanctions. Blaming the public for the gasoline crisis under these circumstances is therefore unreasonable.

Last year, Iran's base gasoline production was approximately 97.13 million liters per day (ml/d). After blending with a significant amount of non-standard additives, this volume increased to 111 ml/d, while daily consumption stood at 115 ml/d. However, recent statements from oil officials suggest that gasoline consumption in recent weeks has been closer to 121 ml/d, with a spike in August due to a large pilgrimage to Iraq.

Pezeshkian’s call for higher gasoline prices comes despite the Oil Minister’s announcement on August 22 that no pricing changes are currently being considered to address the gasoline imbalance. Pezeshkian further stressed that Iranian economists should protest against the flawed policies being implemented, as the low price of gasoline contradicts economic principles.

One key factor deepening Iran's gasoline deficit is the lack of new refineries being added to Iran's production capacity since 2019. Additionally, around one million high-fuel-consumption domestic vehicles have been introduced annually into the market in recent years.

Pezeshkian, without acknowledging the absence of new refineries and the inefficiencies of existing ones—where one-quarter of crude oil is still converted into low-value products like bitumen and mazut (six times more than modern refineries)—criticized the low gasoline prices. He lamented, "I don’t have money for wheat, I don’t have money for livestock inputs, I don’t have financial resources to pay retirees, yet we buy gasoline at a high price and sell it cheaply."

According to estimates by the International Energy Agency (IEA), Iran had $52 billion in hidden fossil fuel product subsidies in 2022, including natural gas and oil products such as gasoline. One-fourth of this figure represents the difference between Iran’s consumer gasoline price and global prices. In 2022, Iran ranked second worldwide, after Russia, with $127 billion in fossil fuel subsidies. The IEA has not yet published updated figures.