[A petrol station guarded by the police after a dozen were burnt in June 2007. Photo by AP.]

It seems that the days of buying petrol for a surreal price of 6p per litre are coming to an end in Iran. Many have seen that coming since the government of President Ahmadinejad introduced fuel rationing in June 2007. Analysts expected at the time that fuel rationing to about 100 litres per private vehicle per month would only be a short term tranquiliser for the ailing oil ministry. They also added that it was just a first step in increasing fuel prices to somewhere near their international value.

Such comments and long queues to refuel actually fuelled some unrest resulting in several petrol stations being burnt down by angry protesters when the rationing was introduced.  

The oil ministry in Iran that is responsible for generating revenues to run the country has always struggled with the low refining capacity and has been obliged to sell crude oil at a very cheap price compared to what it costs to import refined petrol. About 50 per cent of all petrol used in the country is imported and this costs the ministry over $10 billion a year.

But they have finally swallowed the bitter pill. Akbar Torkan, the deputy oil minister for planning, revealed to the press on Monday that distribution of subsidised petrol will be cut. He added, ‘From the start of next [Iranian] year we will begin moving towards international petrol prices that will be similar to 90% of the value in the Persian Gulf on FOB [Freight On Board] basis. This will be gradual, but our target would be to implement the plan over a period of three years.’

Mr. Deputy Minister promised rigorous planning in order to ensure that the price increase will be gradual. However, judging by what has happened in previous years, this could imbalance the whole economy by pumping up inflation at an even more rapid rate. Previously, increases of 0.5 pence per litre have resulted not only in an increase in transportation expenses, but also had a knock-on effect on the price of food and other goods. Moreover, at present, soaring inflation wobbles at a rate of around 30 per cent.

The timing of this announcement may be related to the upheaval in oil prices that left Iran’s annual budget $54 billion short. According to the government, the budget was calculated on the basis of sales of oil at $60 per barrel. Nevertheless, some insiders believe that the figure that was actually used was $90.

The Iranian financial crisis is nothing new. It has not started with the current credit crunch, but its roots lie in an economy that is exceedingly dependent on oil. Particularly in the past few years, costs of living have gone up enormously and imposed many difficulties on the people.  

Iranian people think of oil as their national wealth. Ayatollah Khomeini, in his famous first speech after returning from exile in 1979, announced that the oil wealth must be spread equally between the people. Mr. Ahmadinejad also repeated the same propaganda in 2005 when he was elected as president. It’s hard to predict the Iranian reaction if petrol, which has been sold for 6p per litre, approaches a similar price as it is sold in Europe.



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