The government announced Monday that it is abolishing the practice of selling one tank of gasoline each month at a super cheap price and will now market all regular gasoline in the country at 10,000 rials a liter or $1.15 per gallon, still one of the lowest prices in the world.
The government announced the change on Monday and it took effect at midnight that night.
In recent years, the government has marketed gasoline on a two-tier system. Drivers could buy 60 liters (16 gallons) each month for 7,000 rials a liter, about 80 cents per gallon currently. Drivers could buy any quantity they wanted above 60 liters at 10,000 rials a liter or $1.15 per gallon.
They had to provide their service station with a “smart card” that showed whether they had already bought their super cheap 60 liters that month.
Now the need for the smart card—in use since 2007—is gone and drivers can buy any quantity they want for 10,000 rials per liter.
That is an increase in price of 43 percent on the first 60 liters each month. Assuming usage of 250 liters a month, drivers will pay about 10 percent more for their gasoline.
The price hike will bring the government an additional $1.8 billion in revenues for the rest of this Persian year, economist Saeed Laylaz said he had calculated. The added revenue is presumably the reason for the decision.
It is not clear if the price of 7,000 rials per liter was less than it cost the government to produce, refine and distribute gasoline. In the United States, the cost of refining and distributing gasoline, including the refiner’s, distributor’s and retailer’s profits, was 79 cents a gallon as of last August. That does NOT include the price of the crude oil itself. The price of 7,000 rials per liter is the equivalent of 80 cents a gallon, which suggests that gasoline selling for 7,000 rials a liter actually costs the government much more.
At 10,000 rials per liter, the price is the equivalent of $1.15 a gallon and is more likely to be close to the actual cost of that gasoline.
There are seven countries with cheaper retail gasoline prices than Iran. All are oil producers, and four of the seven are Persian Gulf neighbors of Iran. Here are those cheaper states, with US gallon prices calculated as of the day of May 18 by GlobalPetrolPrices.com.
Venezuela $0.06
Libya .41
S, Arabia .61
Kuwait .88
Algeria .88
Bahrain 1.00
Qatar 1.02
The highest retail price by far is in Norway where regular gasoline currently retails for $8.19 a gallon.
The Iranian government authorized huge fuel subsidies shortly after the revolution. In less than a decade, many saw this as an error, especially with regard to gasoline subsidies. Gasoline is used primarily by the wealthy who can afford cars. Hence, the regime was spending a lot of money to benefit those who didn’t need a government handout.
President Ali-Akbar Hashemi-Rafsanjani said in 1989 that the country could not afford to continue heavily subsidized fuel prices and called for lifting the price each Now Ruz until it reached the free market level. He was able to get a price boost each Now Ruz for a few years. But the Majlis then lost interest and President Mohammad Khatami just ignored the issue during his eight years.
President Mahmud Ahmadi-nejad, like Rafsanjani, said the subsidies were killing the country economically and pushed for annual price hikes. He had the price raised from 800 rials a liter to 1,000 rials in May 2007, which was the equivalent of 41 cents a gallon then. At Now Ruz 2008, he got the price quadrupled to 4,000 rials per liter above 120 liters a month. That was equal to $1.66 a gallon then.
Since then, the price has been raised periodically and the number of liters sold at the cheap rate was whittled down to the 60 liters that was abolished Tuesday.
Last February, the Majlis voted to authorize the government to raise gasoline prices at Now Ruz by 5 percent from 7,000/10,000 rials per liter. But for some reason the government decided not to boost prices then.
Along with the announcement Monday abolishing the 7,000 rials per liter price, the government said that premium gasoline will now sell for 12,000 rials, gas oil for 3,000 and jet fuel for 6,000 rials per liter.
In the United States, the price of a gallon of gasoline includes:
Federal tax $0.184
State & local
taxes & fees .466
Refine & distribute .79
Crude oil 1.50
Total $2.94
State and local taxes and fees vary widely, from 29.7 cents in Alaska to 68.9 cents in Pennsylvania. The figure given is the average among 50 states. The federal tax has not changed since 1993. The crude oil component used here assumes a price of $63 a barrel.