Iran has deployed security forces around sensitive locations, including fuel stations Sunday, as cutbacks on subsidies began to take effect, meaning hefty price increases for fuel.
President Mahmoud Ahmadinejad justified subsidy cuts in an interview on state TV Saturday night, explaining that they were necessary for the country’s well-being. Subsidies, he said, are draining close to $100 billion from the national treasury each year.
He thanked Iranians for their unity, solidarity and understanding in accepting the subsidy cuts. He asked Iranians to stay the course and implement all phases of the program.
Nader Hashemi, who teaches Middle East politics at the University of Denver, says the subsidy cuts are risky for the government.
“This is a game of high stakes politics that can badly go wrong, with huge consequences for the regime’s stability given the fact that Iran’s economy is already hurting due to mismanagement and economic sanctions.”
Hashemi says the government also tried to reduce gasoline subsidies in 2007, but had to backtrack after major demonstrations.
Subsidy cuts are due to be imposed not only on gasoline, but also on water, electricity and natural gas. The government has announced that it will deposit about $80 in the bank accounts of each Iranian citizen to help cope with the cuts over two months.
Houchang Hassan-yari, who teaches at Canada’s Royal Military College, warns of inflation in the wake of the subsidy cuts.
“If the government does not control the situation, inflation is going to jump drastically. Some economists, including the former Minister of Economics Danesh-Jaffari, talk of a 25 percent jump in inflation, so if you add that to the normal [rate] of 10 to 15 percent, which in my view is optimistic, we’re talking about an inflation [rate] of 40% or more.”
Under the new measures, gasoline increased to about 40 cents a liter for the 60 liters allotted per car per month, up from about 10 cents a liter.