Iran abruptly raises fuel prices, and protests erupt

Iran abruptly raised gasoline prices as much as 300% early Friday and imposed a strict rationing system, and within hours protests erupted across the country, with angry crowds calling for the ouster of President Hassan Rouhani.

The new energy policy appeared to be the latest attempt by the Islamic Republic to manage an economic crisis worsened by US sanctions that have sharply reduced oil exports. Rouhani said at a speech a day earlier that Iran faced a deficit amounting to nearly two-thirds of its annual $45 billion budget.

By Friday night, large crowds had gathered in major cities including Shiraz, Mashhad, Ahwaz and Bandar Abbas as well as in a range of smaller working-class towns. In some places the protests turned violent, according to videos posted on social media showing riot police officers spraying tear gas in one confrontation and smashing vehicle windshields in another. Some of the postings were later deleted.

Like their counterparts in Lebanon and Iraq, the protests in Iran on Friday were set off by economic anxiety, but some quickly assumed an anti-government tone.

Iranians across political factions — both hard-liners and reformists — expressed fury on social media, saying the price increases would only hurt people and create more loopholes for financial corruption.

Some said the timing of the policy change was especially ill-advised, given the popular unrest that has convulsed Lebanon and Iraq.

“We will reclaim our rights but not be oppressed,” chanted hundreds of men and women blocking the road at a sit-in in the southern city of Ahwaz.

In Mashhad, a religiously conservative city in the northeast, people turned off their cars to create traffic jams and shouted, “Rouhani, shame on you! Let go of the country!”

Iran announced the policy in a statement by the heads of its three key branches — government, parliament and judiciary — to signal unity.

Two energy analysts close to the government in Iran said that Rouhani had opposed the policy because of concern that it could cost his faction major losses in the coming parliamentary elections. One of the analysts said that Ayatollah Ali Khamenei, the supreme leader, had overruled Rouhani.

An announcement carried on state-run television described the changes as a way to help fund subsidies for about 60 million Iranians, or around three-quarters of the population. But the timing of the changes, coming without warning, suggests the government was worried there would be a backlash for increasing the price of gasoline in a stressed economy in which inflation already is running by some estimates at 40%.

The immediate effect of the change also appeared to be an attempt to prevent motorists from mobbing gasoline stations to fuel up beforehand.

“Clearly, making this decision in the middle of the night, to take effect immediately, right before a weekend, reflected their concerns about the political implications,” said Henry Rome, an Iran analyst at the Eurasia Group, a political risk consultancy in Washington.

While official media said the price increase was unrelated to the budget, it came as the government was scrambling for ways to compensate for a stark decline in revenue from oil exports, which have shrunk because of sanctions the Trump administration imposed after it withdrew the United States from the Iran nuclear agreement in 2018.

“All of these games carry one message: The treasury is empty, and the only way they have to fill it is to take from the people’s pockets,” said Maysam Sharifi, an oil and energy trader in Tehran.

Iran has long planned to cut energy subsidies as part of an economic reform plan. Rouhani’s predecessor, Mahmoud Ahmadinejad, also cut subsidies and created a cash handout system to Iranian families instead, but economists said that policy led to inflation and market instability.

Some Iranian economists warned that the new energy policy would fail for a number of reasons. The price increases are not significant enough to give the government a big financial boost — estimated at $800 million a year. But for ordinary Iranians, the added expense could breed resentment and lost confidence.

“There will be no positive impact in the economy,” said Alireza Salavati, a political economist in London. “This policy is poorly planned and terribly executed and will result in more inflation and instability.”

Gasoline has remained a relative bargain in Iran because it is heavily subsidized. The low price also has been partly blamed for undisciplined consumption and has contributed to the country’s urban pollution problem.

Under the changes, the price for a liter of gasoline rose to 15,000 rials, or about 13 cents, from 10,000 rials per liter Thursday, and a monthly ration for each private car was set at 60 liters. Any purchases over that limit would cost 30,000 rials per liter.

The change was all the more jarring because Iran is endowed with vast quantities of fossil fuels. The Energy Information Administration of the United States ranks Iran as possessing the world’s fourth-largest oil reserves and second largest natural gas reserves.

Just last Sunday, Rouhani bragged that an enormous oil field holding 53 billion barrels of crude had been discovered in southwest Iran, which if confirmed would give the country about 210 billion barrels and make it the No. 3 country in oil reserves behind Saudi Arabia, with 298 billion, and Venezuela, with 303 billion, according to statistics from BP.

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