Economists Support Tehran’s Decision on Gas Price

 Economists and academicians believe that Tehran’s recent decision to raise gas price and ration is a wise move which will cut the amount of the precious fuel being squandered or smuggled.

Experts say rationing fuel in Iran would prevent tens of millions of liters of gas being wasted each day in a country which still grapples with the economic impacts of a series of American sanctions.

Iran increased the price of gas overnight on Friday while it imposed a cap on the use of the fuel with regular price of 15,000 rials ($0.12) per liter.

The move sparked protests in various Iranian cities although the government insisted it would go ahead with its plan to reduce subsidies paid for gasoline and instead spend them on handouts and other forms of assistance to the needy.

“We have to defend the policy of gas price hike as it helps eradicate poverty in the short run,” said Ali Sarzaeim, a professor of economy at Tehran’s university of Allameh Tabatabyi.

The economist said fuel price hike would enable the Iranian government to increase the amount of cash it hands out to the needy across the country.

The government said right after announcing the new prices for gasoline that all the income generated from the new scheme, estimated around $2.7 billion, would be dedicated to plans for balancing the economic situation in Iran.

Sarzaeim said the government could have paid a first round of new cash handouts and then move to increase the price of gasoline, a decision he said could have prevented the social discontent about fuel price hikes.

“We could have printed money (for paying to the people) and then return the money from gasoline revenue.  That was possible and logical as well,” said the expert in an interview. 

Iran, once a major importer of gas, produces around 110 million liters of the fuel each day, with bulk of the output serving a surging domestic consumption.

Reports in the media have suggested that gas is being increasingly smuggled outside of Iran, given the exorbitantly low price of the fuel in the country.

Rationing of gas come against various studies suggesting that domestic consumption of the fuel should not exceed 70 million liters each day.

Those findings mean that almost 40 million liters of Iran’s gas output is either smuggled or wasted in substandard vehicles.

That comes as Iran continues to suffer from a series of American sanctions that have specifically targeted its oil and gas industry since they were enacted in November last year.

That bans have deprived Iran of a bulk of revenues generated from direct sale of crude while prompting the government to engage in export of other energy products, including gas, to compensate the loss.

Very late on Thursday, the National Iranian Oil Products Distribution Company (NIOPDC) issued a statement to recount details for new prices of fuels in the country, which was followed by another statement in early on Friday by Vice-President and Head of the Management and Planning Organization (MPO) Mohammad Baqer Nobakht who said that the revenues will be allocated to offering subsidies to 60 million people.

According to the new pricing echelon, the subsidized fee of 10,000 rials (almost 8.3 cents) per liter is increased to 15,000 rials (almost 12.5 cents) per liter, a 50% rise, which is offered at a limited rate of 60 liters per month, a rationing that did not exist for the last 6 years, for private cars with a rationing card.

However, the price for non-rationed supply of the gas is still subsidized and below the level of price offered in majority of the neighboring countries. The non-rationed price is set at 30,000 rials (almost 25 cents) per liter and there is no limitation for buying non-rationed fuel.

The statement, further added that the price for the compressed natural gas (CNG) and diesel gas will remain unchanged.

After the announcement of the NIOPDC was issued, MPO Head Nobakht said, in a statement that all the revenues collected from the increase in gas prices will be allocated to increase help packages which are offered to 18,000,000 households of 60,000,000 million people.

The move is hoped to demotivate fuel smugglers who come up with very creative methods to smuggle the fuel out of Iran to neighboring countries.