On July 25, government spokesperson Fatemeh Mohajerani confirmed that changes to fuel pricing or rationing are coming. The government has yet to decide whether to raise prices, impose quotas, or use a combination of both. This move follows years of economic strain, with Iran's domestic fuel consumption outpacing production since 2019. The situation has been further exacerbated by an ongoing conflict with the U.S., which has damaged fuel infrastructure and limited import options.
The current subsidized pricing system offers monthly quotas ranging from 1,500 tomans to 5,000 tomans per liter. Reports suggest the highest tier could rise to 10,000 tomans, nearly doubling the cost and creating significant financial pressure on households already struggling under years of sanctions and inflation. While the dollar value of fuel in Iran seems low, it's worth noting that incomes have also been severely impacted by economic hardship, making even small price increases burdensome.
The memory of November 2019 looms over this decision. A sudden 50% price increase then led to nationwide protests and one of the most violent crackdowns in recent Iranian history. Now, with an ongoing conflict with the U.S., fuel shortages worsened by infrastructure damage and import restrictions, the government walks a tightrope. A resident of Karaj, near Tehran, warned that higher prices would not just affect drivers.
Iran currently produces around 121 million liters of gasoline per day, while daily consumption sits at about 129 million liters. The gap has widened with consumption rising by 39 million liters since 2019, compared to just 16 million liters of increased production. The country, once a gasoline exporter, now imports to meet demand. During holidays and peak travel periods, consumption can climb even higher, making the challenge more acute.
According to Umud Shokri, an energy strategist at George Mason University, a sudden price hike could discourage unnecessary driving and reduce smuggling. But it would not solve the broader crisis. Without a clear plan to support affected communities and enhance alternatives, the move could backfire.
Shokri proposed alternatives such as greater use of compressed natural gas, stronger rationing, and vehicle efficiency standards. But without these complementary steps, price hikes alone may only worsen inflation and deepen social tensions. A resident of Karaj warned that higher gasoline prices would ripple through the economy, pushing up the cost of goods and services. Middle and lower-income households, already facing severe economic pressure, would bear the brunt of these changes.
A car that uses 12 liters per 100 kilometers will not suddenly become more efficient because fuel costs rise, the resident explained. Without better vehicles or an effective public transport system, many people have few options. As fuel prices increase, so too will transport fares, further squeezing household budgets. Shokri emphasized that any pricing adjustments should be gradual, targeting consumption beyond monthly quotas, and should be part of a broader strategy to support vulnerable groups.
How is a country with massive oil reserves facing a gasoline shortage? Iran's crude oil production and gasoline production are not the same. Shokri estimates that domestic gasoline production, including blended fuel, is about 121 million liters per day, while consumption is around 129 million liters. Over the past several years, demand has risen faster than production, leading to a growing reliance on imports. However, sanctions and conflict have limited Iran's ability to import fuel easily.
Shokri suggested quick measures, such as expanding the use of compressed natural gas (CNG). Iran already has an established CNG network, but much of it remains underutilized. Other steps could include stronger rationing, measures against fuel smuggling, and stricter efficiency standards for vehicles.
Over the long term, Iran would need to replace outdated, inefficient cars and improve its public transport system. Electrifying motorcycles and taxis, modernizing refineries, and increasing strategic fuel storage are also essential. These steps would require significant investment and planning, but they are necessary to address the crisis and prevent future disruptions.
The government's challenge is to balance economic stability with the need to manage fuel consumption. Raising prices could help reduce demand, but it could also lead to social unrest, especially if not accompanied by support for lower-income households. The stakes are high, and the path forward will require careful planning, public communication, and a commitment to broader energy and economic reforms.