Will Iran’s 50% gas price hike pay off for the economy?
Iran’s cutbacks on gas subsidies must be accompanied by a crackdown on corruption if they are to yield real benefits for the government.
On Nov. 15, Iran announced a shift in its gasoline subsidy policies that led to massive social protests and the unprecedented government response of a weeklong internet shutdown. Though it’s too early to have a complete analysis of the recent wave of anti-government protests, it is valid to argue that the political, economic and social costs of the recent decision were very high.
The question now is whether Iran’s sanctions-hit economy will see benefits that could justify the enormous costs of the political fallout.
At the outset, it is important to underline that some of the potential gains of this new policy have already been undone by the protests. For example, the cost of the one-week internet shutdown could be as high as $2 billion. Nonetheless, one needs to analyze the overall macroeconomic outlook based on the subsidy reforms.
Experts had expected the hike in fuel prices — or rather, the reduction of government subsidies. In fact, this change should be seen as a continuation of the 2010 law on removing subsidies, the second phase of which was implemented in 2014. However, many people were surprised by the timing of this third phase. In a December 2018 story analyzing the introduction of fuel cards, Al-Monitor had predicted this shift, including rationing and two-tiered pricing.
