The issue of rising gasoline prices has once again been raised in our country’s public sphere. According to previous expectations, government officials have vehemently denied any increase in the price of this strategic commodity, but based on past experiences, public concerns about the high cost of gasoline are not entirely unfounded.

On the other hand, Iran’s economy is facing a series of structural contradictions regarding the gasoline price. On one hand, the increase in gasoline prices has led to inflation and widespread social and security unrest, and on the other hand, the low price of gasoline compared to neighboring countries has caused fuel smuggling to increase in Iran, creating a kind of abnormality in the country’s economy. The government is facing a significant budget deficit and is constantly monitoring the gasoline price and its increase. All of these statements are contradictions that the government is facing. To further examine this issue and address the issues and contradictions related to fuel and energy prices in the country, we sat down with Dr. Hadi Haghshenas, an economist, former governor of Golestan province, and representative of the seventh term of the Islamic Consultative Assembly.

Is increasing the price the solution to inefficient fuel consumption in the country?

The increase in energy carriers, especially gasoline, is completely contradictory to this year’s slogan of “controlling inflation and promoting production”. We are not saying that gasoline prices will not increase, but of course the prerequisite for that is an increase in per capita income. The majority of people have jobs that will be directly affected by the increase in gasoline prices.

Some political figures have recently cited the price of gasoline in neighboring countries as an example. Will they also talk about the difference in per capita income of $22,000 in Turkey and $6,000 in Iran?

Increasing the price of gasoline is acceptable by the people and caring experts only if it is accompanied by an increase in per capita income. Naturally, the price of gasoline is not important for affluent classes such as the “coalition party” who support its increase, but it will have a negative impact on people’s livelihood.

According to official statistics, nearly 40-50% of the population are living below the poverty line. In such circumstances, we should be looking for new solutions, not increasing the prices of energy carriers. One effective solution to reduce inflation is to establish connections with the world. Naturally, issues like war with Israel do not help in reducing inflation and improving the economic situation in our country.

The increase in gasoline prices has an immediate and significant impact on all prices; from food prices and transportation to student textbooks and service rates, they will all be affected by the increase in gasoline prices. In addition to the direct impact, it also has a strong psychological effect. Currently, we are facing a budget deficit of 500 trillion tomans in the middle of the year, along with the failure to achieve a 200 trillion tomans income, which will have a considerable inflationary effect and will add up to 700 trillion tomans.

In this economic situation, the increase in gasoline prices will have far-reaching social consequences. Evidence also suggests that this year will be very difficult economically. Despite slogans, it does not seem that we will see a decrease in inflation in the near future, as the government does not consider the necessary measures to achieve this, one of which is making real efforts to lift sanctions and reconcile with the world.

The current situation, where we are asking countries like Iraq to pay us 500 million dollars out of a 5 billion dollar debt, and they can only do so with the permission of the United States, is indicative of the economic crisis we are in, because we cannot accept the world’s decisions. Even within our own country, there is a limit to the people’s tolerance, and this issue must be taken into consideration.

Does increasing energy prices help to reduce consumption and prevent fuel smuggling?

The subject is who consumes gasoline. We do not have gasoline eaters for people to consume a spoonful of gasoline every day; it is the cars that consume gasoline. Various sources such as the head of the national company and refineries, or the head of the gas station union and the national standard organization confirm that cars in Iran consume 3 to 4 times the international fuel consumption standard. A large portion of our gasoline consumption goes to outdated and old cars and their outdated technology, which unfortunately are still roaming in all our cities; from Pride to other cars that are produced domestically. Even many of the cars that are assembled do not have the necessary quality.

Now the question arises whether the solution to the current situation is to increase the price of gasoline. I believe that increasing the price is not the solution, because before they can raise prices, car imports must be completely liberalized. If the government is honest and truly wants to solve this problem, it must lower the import tariffs on cars to the lowest level, so that tariffs for hybrid and electric cars are zero and then apply the increase in gasoline prices. Conditions must be created where a car that consumes 10 liters of gasoline per 100 kilometers is replaced with a car that consumes only 3 liters for the same distance. In such conditions, the price of gasoline will no longer be so noticeable.

I think if the government announces any number, we will still witness such an action. We should not start with increasing prices for consumers, but rather create the necessary infrastructure and technology in the automotive industry first. After increasing imports and replacing fuel-efficient, hybrid, and electric vehicles in the country, we can then proceed with increasing prices after 2 years; otherwise, increasing the price of gasoline without taking these measures will be pointless and ineffective. Therefore, the idea that increasing the price of gasoline will solve all problems is wrong. It’s like saying that increasing the price of meat will solve everything, while people suffer from malnutrition.

Now I will complete your question in this way; Did fuel consumption decrease during the past fourteen years when the government increased the price of gasoline, except for the initial periods of price increases? Or did smuggling decrease? And if we make gasoline more expensive, shouldn’t we make it even more expensive after a while and where does this cycle continue?

All of these important questions are a result of wrong monetary and financial policies in the country. Our monetary variables are facing problems. Why should our economy always have double-digit inflation? Why is no one responsible for reforming the monetary system and everyone keeps saying that gasoline should become more expensive? Therefore, as long as our monetary system is not reformed, this cycle will continue and the price of gasoline will have to increase every few years, causing a major shock to society.

People are condemned on one hand to buy expensive gasoline and on the other hand to use vehicles with high fuel consumption. Now, if they raise the price of gasoline, they should allow people to use foreign cars, instead of forcing them to pay customs fees if they want to import a foreign car.

I say that when the purchasing power of Iranian consumers stabilizes over the course of two to three years, authorities have the right to increase gasoline prices according to the usual high inflation rate. If people in foreign countries pay higher prices for gasoline, it does not lead to inflation, car and refinery problems.

Given the contradictions in regards to gasoline consumption, how can the executive structure resolve these contradictions and benefit the economy and livelihood of Iranians from them? 

In general, Iran’s economic system and program differ from existing models in the world and it is not possible to replicate global versions for Iran’s economy. In the past year, the prices of most goods in Iran have increased several times. For example, the price of cooking oil suddenly rose from 9,000 tomans to over 120,000 tomans. The origin of these goods does not matter, as both imported goods and domestically produced items have faced a several-fold increase in prices. Contrary to claims, the thirteenth government has never been able to withstand price fluctuations in various markets. If the government had authority and a proper understanding of the markets and utilized the country’s scientific and specialized capacities, it could have controlled some of these fluctuations.

Government oversight tools, such as sanctions, inspection organizations, competition councils, unions, etc. have not been able to properly monitor the markets. Some profiteers would import goods at a rate of 28,500 tomans per dollar (equivalent to the old rate of 4,200 tomans per dollar) and then sell them at the free market rate. Others went even further and directly sold the received currency in the free market, making astronomical profits and pocketing billions of tomans.

Regarding gasoline, there is also a similar trend; despite being a strategic commodity, gasoline is smuggled to various places. Some trucks smuggle gasoline during the day; others install extra tanks and export fuel. Even kolbars (cross-border porters) also engage in fuel smuggling. Continuous fuel subsidies are also paid to online taxis and regular taxis, while these subsidies are given to prevent transportation costs from rising in society. However, online taxis in Iran increase their rates whenever they want. This flawed cycle is a result of government negligence, and its losses are borne by the people.

The government can (and should) block the possibility of fuel smuggling by building special gas stations in border areas. On the other hand, regulatory institutions must be revived and their efficiency increased. More supervision should also be exercised over the allocation of fuel to transportation fleets. These reforms cover a part of the government’s resource wastage and improve the quality of services provided to the people. But will this solve the government’s problem?

The root cause of Iran’s economic problems lies in the alarming budget deficit. Sanctions and internal mismanagement have resulted in Iran presenting a larger deficit in its budget every year. According to some reports, the deficit in the 1402 budget has even reached up to 600 trillion tomans. When such a deficit exists, the government resorts to any means necessary to compensate for it.

Currently, the government is facing such a shortage of resources that it has even raised taxes on credit card transactions and bank transfers as much as possible. But the economic men in the cabinet know well that controlling the price of gasoline is not an easy task. Even the smallest decision in this regard can have major political, social, and security repercussions. The latest example of this was in 2019 when it caused unrest in society. This is due to the fact that news of gasoline price hikes is occasionally released and then denied after a period of time. It is a repetitive cycle that no one knows how it will end.

The most serious concern regarding the “increase in gasoline prices” plan is its significant impact on domestic inflation. In light of this issue, what urgent measures does the government have in place to address the “energy sector issues” in the country?

According to officials, the average daily consumption of gasoline is currently 110 to 120 million liters. This is while it is reported that a record consumption of 142 million liters has been recorded this year. Several factors play a role in the increase in gasoline consumption in the country. One of the important and influential factors is non-standard and outdated vehicles.

Statistics show that there are approximately 29 million cars in Iran, of which more than 5 million are old and in addition, 10 million motorcycles are also on the roads across the country. Before the coronavirus, gasoline consumption in the country was 87 million liters, but after the pandemic, the daily average consumption has increased to 120 million liters. On occasions such as Tasua and Ashura, a record high of 140 million liters was also recorded.

We produce 1.5 million cars each year, which is roughly equivalent to a 5 million liter increase in gasoline consumption. However, in the past 3 to 4 years, while we should have had a maximum increase of 15 million liters, the average consumption has doubled compared to before. The main reason for this is the low quality of cars and gasoline, as well as the smuggling of gasoline and its products.

Currently, a significant portion of our goods transportation is done by trucks dating back to the 1960s and 1970s, which consume 60 liters of gasoline per 100 kilometers. Meanwhile, most countries in the world today are rail-centric and the transportation of goods is done via sea or rail routes.

The imbalance between gasoline production and consumption in the country today has resulted in an estimated $20 billion economic loss in seasons like winter due to air pollution, which in addition to that, also causes a high number of deaths. Therefore, now that the first hybrid and electric cars have been introduced, in order for these cars to replace current vehicles, both the government and parliament, as well as all agencies, must be involved and a good budget must be allocated for this important matter in order to achieve this goal within a period of 10 to 15 years.

In the current situation, we are facing a crisis in consumption in the fields of electricity, water, and energy, including gasoline. In Iran, we spend the equivalent of 150 billion dollars on oil, gas, and energy in a year, while with the adoption of optimization and consumption management policies, we can save billions of tomans annually in the energy sector. For example, the production of one kilowatt-hour of electricity costs 16 cents with liquid fuel and 10 cents with natural gas, but the production of one kilowatt-hour of electricity from renewable energy sources costs between 3 to 5 cents. So if we can produce at least 10% of our electricity from renewable energy, we can save billions of tomans annually.

Solving the problems in the energy sector requires urgent action, otherwise the issues in this area will become even more profound. In this regard, the government, parliament, and all national organizations must mobilize. For example, in order to address the issue of energy imbalance, a joint task force or commission should be formed under the leadership of the First Deputy of the President and involving relevant ministries such as oil, roads and urban development, and the Ministry of Industries, as well as other organizations like the Fuel Consumption Optimization Organization.

Thank you for the opportunity you have given us to use the peace line.