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Iran plans higher fuel price but sees inflation

A government committee has proposed making fuel available at up to seven times the current subsidised price available under a rationing scheme in place since June. The government has previously opposed the move because of the inflationary impact.

Iran is the world’s fourth-largest oil producer but lacks refining capacity and imports large amounts of gasoline, which it then sells at the heavily subsidised price of 1,000 rials, roughly 11 U.S. cents, a litre.

Under the proposal, drivers would still be able to buy 120 litres a month at the subsidised price but could then buy extra fuel at between 5,000 and 7,000 rials (55-77 U.S. cents).

“Naturally, a rise in gasoline prices will raise inflation but in regard to the necessity of the issue, some products should be offered to people freely (outside rationing) and unsubsidised,” Economy Minister Davoud Danesh-Jafari said.

“Many of our people, if they are in need of fuel, and they have no access to it, they are willing to get it at a higher price from others,” he told Mehr News Agency, adding fuel was ”very much more valuable” to people than 1,000 rials a litre.

Some drivers, who complain the rationing scheme does not give them enough fuel, already turn to a higher priced black market to buy extra gasoline.

“There is no choice but for the consumer to pay the full price and offering gasoline at a free market price will raise inflation,” the minister said, adding the government also needed to take steps to minimise the inflationary impact.

The committee proposed offering the higher priced fuel during Iran’s New Year holiday season, which starts from March 20 and usually lasts about two weeks. The minister appeared to suggest such a scheme would extend beyond this.

On Friday, Deputy Oil Minister Mohammad Reza Nematzadeh said the government would “test” offering non-rationed gasoline during the holiday season and make a decision about whether to continue with it based on results, SHANA news agency reported.

“These plans are new in our country and they should be experienced just like the rationing scheme which was new but fruitful,” SHANA quoted him as saying.

Iran’s parliament has called for an open-market gasoline price for extra fuel since rationing began. The government has rejected the idea because inflation is already running at more than 19 percent.

The issue is particularly sensitive ahead of the March parliamentary election, which will test support for backers of President Mahmoud Ahmadinejad, who came to office in 2005 vowing to share out Iran’s oil wealth more fairly but has been criticised by opponents for his handling of the economy.

The next presidential election is due in 2009.