Cutting gasoline subsidies in Iran, post-presidential election unrest, and expectations of hard-hitting economic sanctions from abroad

By: Ingrid Krüger

The Iranian parliament has decided to turn around and back the plan of president Ahmadinejad to cut gasoline subsidies. It is surprising that president Ahmadinejad still pushes this highly unpopular plan, considering the post-presidential election unrest in Iran. Or is it?

After Ahmadinejad was elected for his first term in office in 2005, he continued underpricing a range of consumer products, including gasoline. The Iranian president spent oil revenues on an ad hoc and populistic basis to the point where he was forced to curb spending.

In addition, because of Iran’s enrichment of uranium, the fear of gasoline supplies from abroad being cut in the near future – in a country dependent on gasoline imports – puts pressure on Ahmadinejad to make Iran less dependent on gasoline imports today.

After Iran revealed its second nuclear plant in September and also test-fired a long-range missile, concerns grew that Iran could unleash a nuclear arms race in the region, although Iran has stated repeatedly that their nuclear program is a peaceful civilian nuclear energy program. Hard-hitting economic sanctions might delay any plans to spend resources on needed investment in refining capacity. If these economic sanctions also include cutting gasoline supplies to Iran, Iranians might turn the blame on the sanctioning states for the increase in domestic gasoline prices.

Since economic mismanagement helps explain the Iranian dependence on gasoline import, it might appear that cuts in gasoline supplies from abroad would turn the public against its government and thereby push Ahmadinejad to new negotiations on Iran’s nuclear program. The sanctions are however a punishment for what Iranians consider their right, Iran’s nuclear program, and the protests are therefore likely to be turned against the sanctioning states instead.Ahmadinejad could argue that increasing the domestic gasoline price was a necessary step to adjust domestic consumption as gasoline supply from abroad was likely to be cut. The sanctions will then unlikely lead to the type of protests against president Ahmadinejad such as ‘you were the one that wanted this nuclear program, now look what economic problems it has brought with it’. Not only would cutting gasoline supplies be a bad targeted sanction, it is also likely to have some unwanted consequences for the sanctioning states.

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