Prices for energy due to skyrocket, squeezing the pocketbooks of ordinary Iranians
From President Mahmoud Ahmadinejad to housewives and shopkeepers, all of Iran is on tenterhooks as the government readies to slash the subsidies that have kept down the cost of everything from gasoline to flour.
Ordinary Iranians, already hard-pressed by inflation and unemployment, are hording goods and wondering how they will get through the month as prices of basic goods jump. The government fears the economic dislocation could spark renewed unrest.
“They are very, very much afraid of a backlash,” Hossein Askari, a professor of international business and relations at George Washington University in the U.S., told The Media Line. “Whenever they try to lift subsidies or raise taxes they’ve always have demonstrations. There’s not much room to squeeze people further.”
The subsidiary reform gets underway at a difficult time for Iran, which is feeling pressure on multiple fronts. Sanctions imposed by the United Nations to block the country’s nuclear-development efforts were tightened in June, followed by even tougher unilateral steps by Western countries. Also, the government remains tense about internal opposition after Iranians took the streets to challenge the results of 2009 elections.
The subsidies, begun to help beleaguered households during the hard-fought war with Iraq from 1980 to 1988, cost the government some $100 billion a year. The International Monetary Fund estimates the average family of four benefits to the tune of $4,000 a year just from subsidies for oil and natural gas. That is a huge help for a typical family, which earns the equivalent of about $300 a month, although the rich with their private cars and bigger homes to heat profit the most.
But the subsidies are also a heavy and unsustainable burden on the economy. Iranians waste energy on gas-guzzling cars and an estimated one third of the bread produced is thrown out. Iran has the world’s third biggest reserves of oil, some 136 billion barrels worth an estimated $10 trillion, but it strains to produce enough for export because domestic demand is uncontrolled.
“The structure created in the war economy of the 1980s has become unsustainable because of the demographic explosion of the country, compounded by international sanctions and the departure of technically competent people,” said Anoush Ehteshami, a professor of international relations at Britain’s Durham University.
Iran’s economy has experienced sluggish growth in the last two years, a performance that won’t improve much this year as gross domestic product expands only 1.6% even as world oil prices and demand have recovered, according to the International Monetary Fund. Inflation has fallen in the last year, but the Washington DC-based organization warned last week it was beginning to rise again – and that’s without taking into account the subsidy cuts.
The subsidiary reform is shrouded in mystery. About all the average Iranian knows if that it will affect energy and water prices, though not flour or bread for now. The government has not said exactly when subsidies will be cut or by how much. A program to put money into people’s bank accounts to help them through the transition to higher prices is no less foggy. While accounts have been credited, the government has reserved the right to decide when the amounts can be withdrawn and has not said how long it will continue to make payments.
Ehteshami of Durham said the secrecy is aimed at preventing unrest by keeping disgruntled consumers and opponent of the regime off balance.
“They are deliberately implementing the reform in stages to avoid it becoming a milestone event,” he told The Media Line.
The Green Movement, which led Iranians into the streets after the disputed 2009 elections, is no longer in a position to lead opposition after a government crackdown, Ehteshami said. Instead, resistance may begin with businesspeople, who face the prospect of government-backed vigilantes monitoring prices on store shelves to prevent gouging.
Although the Revolutionary Guards, the quasi-army that many analysts believe now holds real power in Tehran, is likely to benefit from the reforms, many officials in Ahmadinejad’s government are nervous. Since parliament approved the reforms last January, D-Day for putting them into effect has been postponed at least twice. Ayatollah Ahmad Jannati Amsterdam, the hardline leader of the Guardian Council of clerics, warned the government earlier this month about the consequences of the subsidy cuts, Farsi-language Radio Zamaneh reported from Amsterdam.
"The government must not do anything to dissatisfy the nation,” he told worshippers at a Friday sermon.
Ironically, cutting the subsidies may help Iran cope with increasingly onerous Western sanctions by forcing Iranians to consume less energy and reduce the country’s dependence on imported refined oil.
But even though cutting subsidies are usually regarded by economists as good for economic growth and efficiency, Iran is unlikely to benefit, said Askari of George Washington. The government hasn’t explained what it will do with money it saves, but Askari suspects it will be used to reward supporters of the regime and punish opponents.