Economists warn Iran’s government of pitfalls in raising fuel prices

On the fifth anniversary of Iran’s 2019 bloody fuel price protests, three economists reviewed lessons for the current government and warned against a similar decision for yet another fuel price hike.

The review follows a recent government decision in November to permit the import of high-octane gasoline, dubbed "super gasoline" by Iranians, to be sold at unsubsidized international prices—affordable only to the wealthiest citizens.

Critics have consistently warned the government that any increase in fuel prices will drive up the cost of all goods in Iran, including everyday staples, likely inciting widespread public anger and sparking street protests. During the 2019 protests, Reuters reported that as many as 1,500 people were killed by security forces.

The Iranian government heavily subsidizes gasoline and other fuels in addition to electricity. One gallon of gas is sold under 10 US cents. This policy cost the government more than $50 billion annually according to estimates.

Hossein Raghfar, a professor at Al-Zahra University in Tehran, told the reformist Jamaran News that the 2019 protests stemmed from years of accumulated pressure on millions of marginalized Iranian youths who saw no future for themselves. While these frustrations had been building, the gasoline price hike was the immediate trigger for the unrest.

Raghfar added that public trust in the government has steadily eroded since then, as repeated promises to resolve the ongoing economic crises have gone unfulfilled. He cautioned that under the current circumstances, any further increase in gasoline prices would likely harm everyone and exacerbate existing tensions.

Meanwhile, Jamaran News warned in a commentary that, despite the tragic events of 2019 that claimed many lives, some Iranian officials appear to have learned little from past protests and remain determined to raise fuel prices. Raghfar echoed this concern, stating it is evident that the Pezeshkian administration is set on increasing gasoline prices, seemingly indifferent to the potential economic and social upheaval it could cause.

Critics in Iran charge that by increasing the fuel prices, the government hopes to make up for the country's huge budget deficit. Raghfar pointed out that one of the reason for the budget deficit is that half of the country's foreign currency revenues never reach the government.

Without addressing the role of Khamenei's office in shaping major decisions in Iran, he noted that presidential administrations have historically had no influence over the country’s economic policies. These policies, he emphasized, are crafted by entities that bear no accountability for their outcomes.

Another economist, Jafar Kheirkhahan, acknowledged the need for a gasoline price hike but stressed that the public must first be convinced of its necessity. He argued that all those impacted by the increase should be included in the decision-making process. Reflecting on 2019, he criticized the government for implementing the price hike unilaterally, without consulting stakeholders.

On the other hand, Kheirkhahan emphasized that if the government’s reforms focus solely on fuel prices, they will yield no meaningful results. For the initiatives to succeed, the President must ensure that he fulfills his promises across various sectors. Kheirkhahan added that in achieving this, only Pezeshkian’s honesty and integrity can save him.

Kheirkhahan stressed that the government must change its approach, become more accountable, and stop burdening citizens with unnecessary regulations. He argued that the government needs to clearly explain how a fuel price increase will benefit the public. Without tangible benefits, he warned, people are likely to resist the government’s decisions.

Economist Hossein Rajabpour echoed these concerns, warning of the economic shock a fuel price hike could bring. He criticized the government for relying on quick fixes like fuel price increases rather than implementing meaningful reforms that could spur the country’s development. For instance, while the government recognizes the need to expand Tehran’s subway system from six to ten lines, it avoids tackling this complex but necessary project, opting instead for the simpler and faster solution of raising fuel prices.

Rajabpour also condemned the government’s failure to learn from past mistakes. He warned that not only is an abrupt fuel price hike unlikely to yield positive outcomes, but it is also poised to exacerbate the country’s existing economic and social challenges.