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Iran remains stable despite dramatic price increases

Little unrest — so far — after Iran President Mahmoud Ahmadinejad cuts longstanding subsidies.

Iran, Mahmoud Ahmadinejad, economic sanctions
Iranian motorists line up outside a gas station in Tehran on Dec. 19, 2010. Iranian petrol prices surged four-fold as the government started scrapping subsidies as part of a long-awaited overhaul of the economy, despite staunch opposition from conservatives. (Atta Kenare/AFP/Getty Images)

TEHRAN, Iran — Despite steep price increases for everything from bread to gasoline, the Iranian public here has so far remained relatively calm — although the impact of some of the price hikes, such as electricity and water, won’t be felt for weeks.

Both analysts and the Iranian government itself had feared a violent public backlash once the longstanding subsidy system, which was costing the Iranian government an estimated $100 billion a year, began to be reduced. In preparation, Iranian security forces took the streets en masse over the weekend in an effort to preempt any demonstrations.

After months of discussion and delay, Iranian President Mahmoud Ahmadinejad announced the controversial plan to reform the country’s subsidy system in a program broadcast live on Iranian state television late Saturday, calling it a “great victory for Iran.”

The sweeping cuts went into effect midnight that same evening. Long lines formed at gas stations throughout Tehran during the day, as drivers filled up their tanks for one last time at the old prices, which had been some of the cheapest in the world for decades.

The last time the Iranian administration attempted to reduce subsidies, in 2007, the public responded with violent protests, burning down some dozens of gas stations.

With Iran’s economy in general teetering on the edge of collapse, a problem that has been compounded by severe economic sanctions levied against it by Western countries that believe Iran is pursuing nuclear weapons, and political unrest stemming from the contested elections last year, many thought the subsidy cuts could be the final straw for the Iranian public.

This time, however, the government was prepared. For days, security forces have been patrolling streets and major squares throughout Tehran, many of which were the site of clashes between protestors and police during post-election outrage last December.

Most analysts agree that the subsidies had to be cut to both relieve the significant drain they represented on the country’s budget and to reduce the culture of waste they created throughout the country.

That, though, is of little consolation to Iranians now worried about how they can make ends meet.

For many residents of Tehran, the most distressing price increase so far has been gasoline, which went from a subsidized rate of about $.10 to $.40 for up to 50 liters per month to an open market price of about $.70 per liter. The price is still reasonably inexpensive by global standards, but not to a society that has long considered cheap gasoline a national birthright.

“There is an unlimited supply of oil under our feet,” said Ghasem, a 24-year-old unemployed university graduate. “Why should we pay the same amount that people in Turkey or the UAE pay? They don’t have any oil.”

The subsidies have also lead to an overuse of electricity, heating gas and water. Those rates will all increase nearly fivefold, but consumers won’t feel the effects until their next round of utility bills arrive.

Ultimately, this plan is intended to help Iran’s poorer citizens, rationalize its proponents, and encourage the middle class to consume more modestly, although enacting those behavioral adjustments will likely take time, analysts said.

The government, meanwhile, is trying to offset some of the shock with direct deposits into people’s bank accounts.

The subsidized price of bread, for example, increased by nearly 100 percent, but a $40 total monthly payment has been allotted and will be deposited into the bank accounts of those that qualify. Four dollars of that is meant to offset the rise in bread prices. The average price for a loaf of bread had been between $.05 and $.20.

Built into the new plan are incentives to minimize energy and water usage, but some said there has not been enough education to expect citizens to change their consumption habits overnight.

In a rare admission that the plan is still a work in progress, Ahmadinejad said in his speech that, “The shortcomings of the targeted subsidy plan will be remedied in the next phase of this plan’s implementation and I am personally ready to answer any questions about the targeted subsidy project.”

“It’s probably the right thing to do in this situation,” said Massoud Samadi, 44, a marketing consultant. “But they haven’t prepared us for how to deal with the changes. I think it’s just Ahmadinejad’s way of showing that he is in charge.”

Prepared or not, Iran’s oil ministry reported on its website that gasoline usage was down over 16 percent on Sunday, the first day of the new pricing structure.

A growing number of people also appear to be using public transportation. Bus and metro riders reported abnormally long lines and full vehicles at all hours of the day, while those who continued to drive felt traffic was lighter than usual.

It is those that use their vehicles for work, such as taxi or delivery drivers, that will perhaps feel the most dramatic effects from the gas price increase.

“Our boss asked us not to raise prices for the time being,” said Mehron Hajjian, a taxi driver. “He’s worried that people will stop using our service. Pretty soon only very rich people will call for a car.”

A rise in diesel fuel could also have dire effects. Iran relies on its trucking industry to transport most of its imports from Persian Gulf ports to destinations around the country.

Before Saturday, diesel fuel cost $.06 per gallon. The subsidized rate is now about $.60 per gallon. The open market price is $1.40 per gallon.

http://www.globalpost.com/dispatch/middle-east/101220/iran-subsidy-cuts-economic-sanctions