The Iranian regime has decided to liberalize the price of premium gasoline. Who are the winners and losers in this price liberalization?
Various labels such as imbalance and shortage are used, but the country is grappling with a major crisis.
The treasury is empty, and the government needs funds to cover daily operations and current expenses.
The primary issue concerning the import of premium gasoline is the source of its foreign exchange funding.
Under these circumstances, instability in the price of premium gasoline might start here and spread to other markets.
Currently, the FOB Gulf price of premium gasoline is approximately $1.2 (roughly 840,000 rials).
If imports are conducted at the free-market exchange rate, the price of premium gasoline will reach about 800,000 rials (approximately $1.4) per liter.
This means a cost of 40 million rials to fill a 50-liter tank.
This change might increase the prices of imported cars and public transportation costs.
It is worth noting that the minimum wage for a worker with two children is around 110 million rials (approximately $158).
If premium gasoline imports are conducted at the exchange rate for essential goods, the price per liter would decrease to about 610,000 rials.
This price would still be significantly higher than the subsidized price of regular gasoline.
The current price of premium gasoline is 35,000 rials (approximately $0.05). Now, the question arises: how will the price of imported premium gasoline be calculated under this policy?
Currently, 5% of the country’s gasoline is distributed as premium gasoline at a price of 35,000 rials.
The regime claims that it supplies 2 billion liters of premium gasoline annually. However, with the liberalization of imports, consumption is expected to grow due to increased availability.
Amidst this, a critical question arises currently, premium gasoline is offered at 35,000 rials, while the FOB Gulf price is $1.2.
This means that at the free-market dollar rate and FOB Gulf price, the government would need to allocate 1,530 trillion rials (approximately $2.185 billion) annually in subsidies for the 2 billion liters of premium gasoline it claims to supply.
Yet, the government claims it only pays about 200 trillion rials (approximately $285.714 million) in subsidies for premium gasoline. How can this discrepancy be explained?
This indicates that over 1,300 trillion rials (approximately $1.857 billion) in subsidies are benefiting the wealthy segment of society that uses premium gasoline.
The government of Masoud Pezeshkian claims that with the liberalization of imports, these subsidies might be removed from the budget.
In reality, the government claims it would save 200 trillion rials annually by liberalizing premium gasoline prices. However, as calculated, this figure would be 1,530 trillion rials, not 200.
Another point to consider is the inflationary effect of premium gasoline price liberalization, which is typically used by the wealthy, on the lives of lower-income groups.
Currently, the price of aviation-grade premium gasoline is 300,000 rials (approximately $0.42), and subsidies ensure airlines pay only 6,000 rials (approximately $0.008) per liter.
On average, 4 to 4.5 million liters of jet fuel are consumed daily, equivalent to 1.6 billion liters annually.
This massive subsidy placed a significant financial burden on the government, amounting to 470 trillion rials (approximately $671.428 million) annually.
Now, the government has increased the price of aviation fuel from 6,000 rials to just 66,000 rials (approximately $0.094) per liter, meaning it still provides a subsidy of 234,000 rials (approximately $0.33) per liter.
This means the government is still providing over 370 trillion rials (approximately $528.571 million) annually in subsidies for airplane fuel to the wealthier segments of society.
According to Pezeshkian the production cost of regular gasoline is 80,000 rials (approximately $0.114).
Lower-income groups benefit significantly less from gasoline subsidies compared to wealthier segments, while a substantial amount of money is extracted from their pockets through the cost of regular gasoline and transferred to the government’s coffers.
If energy subsidies, including those for gasoline, are to be reduced to bolster government revenue, this burden should be placed more on higher-income groups rather than lower-income ones.
