No, gas is not free in Iran. Like most countries, Iran has a complex system of subsidies and regulations around gasoline and other fuels, but they are not provided for free to consumers. While Iran has one of the cheapest gas prices in the world due to heavy subsidies, citizens still have to pay at the pump. Understanding the nuances of Iran’s gas subsidies and pricing is important to grasp the overall energy situation in the country.
Gas Prices in Iran
The price of gas in Iran is among the lowest in the world, in large part due to the heavy subsidies provided by its government. As of October 2022, the liter price of gasoline in Iran was about $0.024 USD per liter on average. For comparison, the average price per liter in the United States is around $0.79 USD.
However, it would be inaccurate to claim gas is free in Iran. While highly subsidized, there is still a cost to fuel up one’s vehicle. The government sets gasoline prices in the country and has raised them moderately in recent years as it tries to scale back subsidies. But prices are still very low compared to most other countries.
Citizens purchase gasoline using smart cards loaded with credit. The cards were first introduced in 2007 as a way to better control fuel subsidies and consumption. Drivers get a monthly quota of subsidized gasoline allocated to their cards, beyond which they have to pay a higher market price. This is an attempt to discourage overuse and smuggling. The quota varies based on the type of vehicle.
So in summary, while very cheap, gas still must be paid for by Iranian citizens filling up their tanks. Subsidies keep the prices exceptionally low but not completely free.
History of Iran’s Gas Subsidies
Iran’s fuel subsidies trace back to the 1950s when the National Iranian Oil Company was formed. Since then, the government has played a major role in setting energy prices. Over time, subsidies grew as a way to share oil revenues with citizens and assistance the poor. By the 2010s, fuel subsidies in Iran accounted for about 10% of GDP.
In 2010, Iran initiated the Targeted Subsidies Reform Act, which began scaling back portions of fuel and food subsidies. The government faced pressure to reform the system because the blanket subsidies benefited wealthy citizens disproportionately and encouraged waste and smuggling. The reform kept subsidies in place for lower income Iranians while reducing them for higher earners.
Even after reforms, Iran still has among the largest subsidy programs in the world. Cheap gasoline remains a hot political issue. Any further subsidy cuts bring the risk of inflation and pushback from Iranians accustomed to cheap fuel. Balancing the health of the overall economy with citizens’ economic interests remains an ongoing challenge.
Reasons for Low Gas Prices in Iran
There are several key reasons why gas prices in Iran remain so low compared to other countries:
– Huge domestic oil reserves – Iran has some of the largest proven oil reserves in the world. With abundant supply, most oil can be sold internationally while keeping domestic prices low.
– Government subsidies – Direct subsidies from the government on fuel amount to billions of dollars per year. Without this support from the state budget, prices would be higher.
– Undervaluation of the Rial – Iran’s currency, the Rial, is significantly undervalued relative to the USD. This makes imported goods expensive but domestically produced oil and gas cheap for local citizens paying in Rials.
– Price controls – The government directly sets the price of gasoline at the pump rather than letting market forces determine the price. The controlled prices are kept artificially low.
– Low taxes – The government has not added significant taxes to gasoline, unlike many other nations. Taxes helps keep pump prices high in order to discourage overconsumption.
So in summary, plentiful domestic oil, government subsidies, currency factors, price controls, and minimal taxes combine to make gas extremely inexpensive in Iran compared to the rest of the world. But it is not completely free of cost.
Impact of Low Gas Prices in Iran
The low gas prices in Iran have several economic impacts, both positive and negative:
Positives:
– Lower cost of living – Cheap fuel keeps overall transportation costs low for consumers and businesses, reducing cost of living.
– Stimulates economic activity – Low fuel costs make it cheap to transport goods around the country, boosting business activity.
– Provides social support – Subsidies help poorer Iranians afford necessities like transportation and heating.
Negatives:
– Strains government budget – Heavy subsidies are a large burden on government finances and resources that could be spent in other ways.
– Incentivizes overconsumption – Low prices drive wasteful usage and inefficient energy practices without the market forces that typically discourage overconsumption.
– Pollution and congestion – Cheap gas leads to high emissions and traffic congestion in major cities like Tehran.
– Smuggling operations – The large price discrepancies with neighboring countries encourages gasoline smuggling operations out of Iran.
So while low prices provide some economic benefits, they also create distortions and place a large burden on the government. As a result, Iran continues to face public resistance whenever reducing subsidies further.
Comparisons to Other Major Oil Producers
To provide context, it is illustrative to compare Iran’s gas prices and subsidies to other major oil producers around the world:
Saudi Arabia
– Gas prices: Approximately $0.54 USD per liter.
– Subsidies: Saudi government spent $61 billion subsidizing domestic fuel in 2018. Prices much lower than export parity price.
Russia
– Gas prices: Approximately $0.72 USD per liter currently.
– Subsidies: Russia has scaled back subsidies significantly over past decade. Some export duties still reduce domestic prices.
United States
– Gas prices: Approximately $0.79 USD per liter currently.
– Subsidies: Minimal subsidies. Price determined by market supply and demand.
Venezuela
– Gas prices: Nearly free due to collapse in value of currency. About $0.002 USD per liter.
– Subsidies: Heavily subsidized but driven by hyperinflation and currency collapse.
So Iran’s situation of low prices supported by large government fuel subsidies is not unique, with countries like Saudi Arabia and Venezuela also providing cheap gasoline. But it stands in contrast to the United States, Russia, and other countries that allow market forces to determine prices with minimal subsidies.
recent changes to iran’s gas subsidies
In recent years, Iran has made some changes to reform gas subsidies and prices including:
– 2007 introduction of smart fuel cards with monthly quotas.
– 2010 subsidy reform act that cut some subsidies, especially for higher income Iranians.
– 2019 raise in pump prices by 50%, from 1000 to 1500 rials per liter. Further raises occasionally since then.
– 2021 begin reducing monthly quotas on smart cards. Down from 60L to 55L per passenger car.
– 2022 continuing reforms to subsidy structures, aimed at directing more benefits to lower income households.
– 2023 expected further hike in gas prices as the government struggles to shoulder the costs amid economic sanctions.
The reforms indicate Iran is attempting to cut back subsidies somewhat, but is limited by fears of inflation and political pushback. Thus far the subsidy system remains largely in place with gasoline prices very inexpensive, but the government is under constant pressure to reduce financial burden.
Outlook for Iran’s Gas Subsidies
Looking ahead, the future path of Iran’s fuel subsidies remains uncertain. On one hand, the government has a clear fiscal incentive to continue reforming subsidies and moving prices closer to market rates. However, domestic politics constrain how quickly it can act.
If sanctions were reduced, it may enable more subsidy reforms. Any rise in global oil prices would also force difficult choices between increasing domestic prices or paying for even larger subsidies.
Barring a major policy change, Iran still likely to have some of the cheapest gasoline globally for years to come. But the era of true ultra-cheap gasoline may be starting to fade. With continued economic pressures, Iran’s government will probably continue to take modest steps aimed at reducing subsidies over time.
While gas may grow more expensive, complete free gasoline remains unlikely any time soon. The domestic social contract depends heavily on providing cheap access to fuel for Iran’s citizens. A bold elimination of subsidies would carry major political risk. The government must tread cautiously.
Conclusion
In summary, while Iran has some of the world’s most heavily subsidized gasoline prices, it does not provide fuel completely free of charge to citizens. Drivers must still pay a small price at the pump, with the government subsidizing the bulk of the retail cost. Ongoing reforms may see prices rise further in coming years, but gas is still likely to remain highly affordable compared to other countries. The idea that Iran offers completely free gas is a myth, but reflects the reality of just how inexpensive fuel remains for its citizens given the enormous government subsidies.