TEHRAN, May 27 (Reuters) – A ragged and torn one-thousand Iranian rial note is worth around $0.10 and can buy you a couple of bus rides across Tehran, half a loaf of price-controlled bread, one imported cigarette – or a litre of gasoline.
But the days when Iranians can fill their cars for less than the price of a cappuccino are set to end as President Mahmoud Ahmadinejad’s subsidy reform law takes effect later this year.
If successful, the plan could save the government a fortune and also lessen the impact of any future international sanctions on fuel supply to the Islamic Republic
Iran spends $100 billion a year — almost one third of gross domestic product — subsidising essentials such as petrol, natural gas, electricity and food.
Reducing gasoline demand from an inefficient and highly polluting automobile fleet would ease congestion and pollution and, crucially, might allow Iran to finally free itself from a precarious dependency on imports.
The world’s fifth-largest oil exporter lacks adequate refining capacity and imports up to 40 percent of its gasoline needs or over 100,000 barrels per day.
U.S. politicians have targeted this weakness with sanctions against fuel suppliers, as they pressure Iran to stop enriching uranium, over concerns it is seeking nuclear weapons capacity.
Several gasoline sellers have already stopped shipments to Iran in anticipation of the sanctions.
Ahmadinejad inherited the subsidy reform policy from his predecessors but has adopted it as his own and plans to start the cuts in the second half of the Iranian year, from September, delayed by six months due to a row with parliament.
The policy gamble carries high political and economic risks.
Despite plans to make cash payments to millions of the less well-off to help them cope with steeper prices, the fact remains that people are going to notice a big jump in inflation.
That is something that opponents of the hardline government outside of Iran hope could re-ignite popular discontent which flared after Ahmadinejad’s re-election last June when Iran saw the biggest street protests since the 1979 Islamic revolution.
In a hint that growing economic concerns could pose as much a threat to Ahmadinejad as political opposition, last Monday hecklers chanted about unemployment as he gave a speech — a rare case of public dissent in front of the powerful president. [ID:nLDE64N0LJ]
In the first six-month phase, the plan is to cut $20 billion of subsidies. Few other details have been made public: how much will prices be allowed to rise, who will be eligible for the cash handouts, and how much those payments will be.
Sifting through sparse official information and sometimes contradictory public statements by officials, analysts have made their own calculations about the economic impact.
An Iran analyst at Middle East consultancy BEDigest.com said forecasts for the inflationary impact range from the central bank’s 11 percent to parliament’s 23 percent.
Added to an underlying inflation rate of 8.5 percent, that would mean price hikes of between 20 and 30 percent — a large jump, "but not a major catastrophe", said the analyst.
Last year official inflation was 11 percent, down from 25 percent the year before, so Iranians would cope, he said.
Kevan Harris, a sociologist at Johns Hopkins University, said the likelihood of a painful price shock depended on the pace of reform. "The risks are high if the plan goes forward fast," said Harris, an Iran expert who frequently travels there.
"More likely is a sluggish implementation and in this respect the Byzantine aspect of the state is a boon — slower is usually better when it comes to such a policy."
Without a massive and sudden surge in prices, Harris does not see an uprising by the poor.
"I would expect poorer Iranians to deal with this hardship the way they usually deal with such problems." Households would muddle by, relying on relatives and local connections to make ends meet, he said.
On a balmy spring evening in Tehran, clapped out Iranian-made Paykans squeeze past Korean SUVs to get to the gas pumps where drivers insert micro-chipped cards that allow them to buy their ration of subsidised petrol. Each car owner is allowed to buy 60 litres of gasoline per month at the $0.10 price. After that they pay the semi-subsidised rate of $0.40.
When the government first set limits on the amount of dirt-cheap fuel available, in 2007, riots broke out.
With that in mind, the government may chose to soften the impact on motorists at first by keeping the 10-cent gas, but gradually reducing the amount is allows people to buy, the BEDigest.com analyst said.
Other price hikes will be less easy to mask. The price of natural gas used for cooking and heating could surge from 150 rials ($0.015) per cubic metre to 900 ($0.08) — something that would be particularly painful if it happens as Iran enters a cold winter, the analyst said.
But despite Iran’s bitter election battle last year, and the massive protests which followed, few voices have been raised in outright opposition to the subsidy reform — likely to be the biggest economic policy move of Ahmadinejad’s political career.
Sceptics tend to express concern over the method or pace at which it will be introduced rather than saying it should not happen at all, such is the political consensus that Iran needs to shake off its reliance on subsidies.
Most politicians and economists agree that a dose of market realism could help the economy develop, reduce waste, increase energy efficiency and, by reducing consumption, neuter the threat of a future sanctions banning gasoline sales to Iran.
One Tehran motorist waiting to fill up his compact SABA Pride — an Iranian version of the Korean Kia — said he agreed the current system was unfair as the relatively wealthy who consume more gained more from the subsidies than the poor.
"There would be more justice without the subsidies so it’s a good idea," he said, but added he was not likely to change his own behaviour. "I won’t get the bus no matter how much the prices go up," he said.
But the real impact of the subsidy reform — on consumption patterns, on the economy and on Iranian politics — will depend on exactly how much, and how quickly, prices rise, and no one knows that yet.
TEHRAN/MOSCOW (Reuters) – Iran and Russia clashed on Wednesday over Kremlin support for draft U.N. sanctions against the Islamic Republic, in one of the worst rows between the two powers since the Cold War.
The public clash indicates growing concern in Tehran after the United States said Russia and China, the closest thing Iran has to big-power allies, had agreed to a draft sanctions resolution to punish Iran over its nuclear programme.
TEHRAN (Reuters) – President Mahmoud Ahmadinejad said on Wednesday Russia’s support for new U.N. sanctions against Iran was unacceptable and called on President Dmitry Medvedev to rethink his support for the U.S.-led move.
Iran was snubbed by Russia and China last week when, just hours after it offered to ship some of its enriched uranium abroad, Washington announced that all five members of the U.N. Security Council backed a new sanctions draft.
TEHRAN, May 23 (Reuters) – New U.N. sanctions will hurt
ordinary Iranians, opposition leader Mirhossein Mousavi said on
Sunday, blaming the hardline government for provoking major
world powers into action.
The five permanent members of the U.N. Security Council
agreed a draft of new sanctions last week after months of
pressure from the United States to punish Iran for nuclear
activities that Washington says are aimed at making a bomb.
TEHRAN (Reuters) – Iran’s leaders say they have nothing to fear from a renewed push for U.N. sanctions and hope the move will convince Iranians of Western hostility rather than add to increasing fears for the major oil producer’s economy.
Washington’s announcement on Tuesday of a new sanctions draft backed by China and Russia came a day after Iran agreed a uranium swap with Brazil and Turkey, aimed at outmaneuvering Western efforts to sanction Iran over its nuclear program.
TEHRAN (Reuters) – Brazil has offered to mediate to help end the West’s standoff with Iran over its nuclear programme, Foreign Minister Celso Amorim said on Tuesday.
He said Brazil could work with Turkey, which has already offered to help, and act as an honest broker to resolve “the single most important security issue that the world faces today.”
TEHRAN (Reuters) – President Mahmoud Ahmadinejad has warned Iranians of a possible nuclear strike by the United States, but it is an even more deadly threat that has prompted him to ask 5 million of them to evacuate the capital.
Like the people of San Francisco, Tehranis know their sprawling metropolis is due for a massive earthquake. In Iran, where building standards have not advanced as quickly as the population, some estimate millions could be killed or maimed.
TEHRAN (Reuters) – President Mahmoud Ahmadinejad said on Sunday Iran had the military might to deter attacks, his comments coming as Western pressure mounts on the Islamic state to dispel fears it is developing nuclear arms.
Speaking at a military parade that marked Iran’s armed forces’ day, Ahmadinejad said the “unrivalled” power of Iranian military secured stability in the Middle East.
TEHRAN (Reuters) – Iran’s “allies around the globe” would retaliate against any strike by the United States, an influential cleric said Friday ahead of a speech by President Mahmoud Ahmadinejad on the progress of Iran’s nuclear project.
Ahmad Khatami, a staunch Ahmadinejad supporter, said Washington would run into a quagmire if it attacked. President Barack Obama is pushing for new U.N. sanctions against Iran but has not ruled out military action to stop it getting a nuclear bomb.
TEHRAN (Reuters) – The idea of international sanctions on Iranian oil exports is a joke, a senior Iranian official said on Tuesday, adding Iran would not abandon its disputed nuclear work despite mounting international pressure.
U.S. President Barack Obama is pushing for new U.N. sanctions in the coming weeks to pressure Iran to stop its sensitive nuclear activities, which Washington and its European allies believe is a cover to develop bombs.