Iran ‘ultra-cheap fuel’ crisis

Iran is dealing with the unintended consequences of ultra-cheap oil. Authorities are under pressure to remove costly subsidies that have brought fuel prices down to $0.03 per litre.

While citizens in Turkey complain about fuel increasing by the day and becoming more expensive, the neighboring Iranian government faces a very different problem: Extremely cheap oil…

Due to heavy government subsidies, fuel prices start at just $0.03 (TL) per liter in Iran. This figure is $1.10 in the US and $1.88 in the UK. In Turkey, gasoline is sold at the current price level of $1.40.

However, the extremely cheap sale price of the bomb in Iran seriously harms the state due to increased imports. Politicians, on the other hand, are reluctant to raise fuel prices so as not to confront the public.

SANCTIONS CREATE A BIG PROBLEM

According to the FT report, although oil-rich Iran competes with Libya and Venezuela for cheap oil, the supply is limited only by domestic refining capacity due to sanctions. Meanwhile, Iranian President Ebrahim Raisi and his government are struggling to resolve problems in an economy battered by US sanctions.

The problems created by the increase in demand forced the Iranian authorities to use their strategic reserves and import oil for the first time in ten years. Iranian officials said demand for refined fuel has increased by a fifth since March, but limitations in refining capacity prevent more crude from being converted into fuel oil.

GREAT DAMAGE

Imported fuel in Iran is purchased at free market prices and then offered to consumers at a much lower price. This causes a huge financial loss. Due to this price pressure, it is feared that the era of ultra-cheap fuel, to which Iranians have been accustomed for years, is coming to an end.

MP Mohammad-Reza Mir-Tajeddini told Iranian media this week that fuel subsidies are now three times more than the country’s total development budget, but no one dares to talk about raising the price of fuel.

THE GOVERNMENT IS NOT ENCOURAGED

The authorities last raised prices in 2019, sparking public anger. According to Amnesty International, more than 300 people were killed in violent street protests.

Hamid Hosseini, who operates in the petrochemical industry, said: “The current situation of low oil prices is not sustainable. But the government does not have the political courage to raise prices. Consumption continues to rise and government matters. “If prices stay the same, it will be impossible to manage demand two years from now.”