Last updated: 25 April, 2014

Iran faces sharp rise in petrol prices

Iran announced petrol price hikes as high as 75 percent to take immediate effect Friday, in a long-awaited attempt to regulate energy prices in the country’s flatlining, sanctions-hit economy.

The increases, which took effect at midnight, are part of the second phase of government plans to remove all energy subsidies. The cost of electricity and domestic gas went up by 25 percent earlier this year as part of the same programme.

Iranians are entitled to purchase 60 litres of petrol each month at a reduced price. The official IRNA news agency said cut price petrol would increase from 4,000 rials (12 US cents) per litre to 7,000 rials, (22 cents), using the market rate for the dollar.

Normal priced petrol will jump from 7,000 rials to 10,000 rials per litre, equivalent to a 43 percent increase.

And under the government’s newly announced measures the price of semi-subsidised diesel will increase from 1,500 rials to 2,500 rials, a 60 percent hike, IRNA said.

The government’s goal is to eventually liberalise all energy prices and reduce energy consumption, which far surpasses the global average.

President Hassan Rouhani has admitted that the price hikes will increase living costs, at least in the short term, although the country’s official inflation rate has fallen steadily since he took power last August.

Iranians are subject to a market rate of 32,000 rials per dollar, pricing the US currency higher than the official Central Bank rate of 25,500 rials, effectively cheapening the rial in domestic terms.

The Washington-based International Monetary Fund is among global institutions recommending that Iran reforms the subsidy programmes implemented under Mahmoud Ahmadinejad, Rouhani’s predecessor.

The IMF estimates that Iran’s economy shrank by 1.7 percent in 2013, the second straight year of contraction after the United States and its allies imposed sweeping sanctions as punishment for Tehran’s disputed nuclear activities.