Monday, December 27, 2010

Post-Subsidy Iran: Fuel Consumption Falling

Iran’s Ministry of Economy announced today that in the first nine days of the subsidy reforms the fuel consumption across the country has fallen.

"In the past nine days, our petrol (gasoline) consumption which was about 60 million liters (13.1 million gallons) a day is now at 55 million," Deputy Economy Minister Mohammad Reza Farzin told AFP correspondent in Tehran [AFP, 27 December].

"The oil ministry says that diesel consumption, which was at 54 million liters, is now at 40 to 41 million liters," Farzin said, adding that cooking gas consumption had dropped by six percent and water by five percent.

"We are spending 100 billion dollars in subsidies every year from a gross domestic product of 400 billion dollars. We have realized that low energy prices cannot deliver social welfare; it can't reduce poverty. We are determined to use the resources for managing prices more efficiently."


Pablo said...


What do you think is the cause of the need to reform subsidies? Do the economic sanctions play a part in it? Or no?

Anonymous said...

Iran was consuming more energy as India, was about time to price it correctly too.

Nader Uskowi said...

Anon 11:27 PM,

The sanctions have played a major role here. Iran has to pay premium on imports on the sanctions list (like oil products) and premium on other imports due to its growing difficulties in relations with foreign banks.

Notwithstanding sanctions which made the subsidies even more costly for the country, Iran needed to start cutting and removing the government subsidies. They were costing the government at levels not sustainable. The government could not simply afford paying for them.

Now the radical approach by Ahmadinejad, raising prices of the goods affected by the reform by some 270%, instead of a more modest and a more gradual approach as some of us had expected, is indeed puzzling. Sanctions played a role here (for the growing cost of those imports) and the government has also gambled that the oil prices will remain at around $100 in the next two years. Then they can afford to continue monthly cash payouts and even double it for a while until the effects of the reforms are felt.