Petrol is going to become more expensive for many motorists in Iran, as from December 6 they will have to pay higher prices at gas stations if they use more than 160 liters a month.

The fossil fuel is heavily subsidized in Iran, where gasoline offered to consumers is the cheapest globally. The Middle Eastern country also has the fourth-largest oil reserves and the second-biggest natural gas reserves in the world.

For consumers, the price paid for the first 60 liters (around 63 quarts) per month will remain unchanged at 15,000 rials (1.3 US cents) per liter, and the next 100 liters at 30,000 rials per liter. Each additional liter will cost the consumer 50,000 rials in the future.

The move comes amid pressure to reduce fuel subsidies.

The Iranian economy has been in deep turmoil for years, exacerbated by chronic mismanagement, corruption and stringent international sanctions due to its contested nuclear program.

Iran's economy gripped by structural problems

Jamshid Assadi, an expert on the Iranian economy, said the price increase is "objectively understandable."

"The production costs for fuel in Iran are 20 times higher than the price set by the state. Subsidies lead to excessive domestic consumption and massive smuggling," he told DW.

Gasoline smuggling to neighboring Afghanistan and Pakistan remains a thriving business due to the massive differences in the prices across these countries.

In those nations, a liter of gasoline costs about 80 to 90 cents, much higher than the price in Iran. According to estimates, 20 to 30 million liters of gasoline are smuggled out of Iran every day.

Given high government spending on subsidies and a chronic budget deficit, the price hike is long overdue, says Assadi, who lives in France. However, he emphasizes that the government is using the measure to gloss over structural problems.

"Decades of political tensions with the West, resulting sanctions, under-investment in the oil industry, and the monopoly-like grip of the Revolutionary Guards prevent competition and efficient price and production control," the expert said.

In recent decades, Iran's Islamic Revolutionary Guard Corps (IRGC) has massively expanded its economic influence and become closely intertwined with the country's oil and gas industry.

"As long as these problems remain unresolved, the state will shift the burden onto the population without implementing any far-reaching reforms," Assadi warned.

Rising public discontent

In Iran, the price of gasoline is considered the "mother of all inflation," meaning that when fuel prices rise, transportation and production costs increase, triggering a domino effect on all prices.

In 2019, a price increase sparked nationwide mass protests, which were brutally suppressed. According to Amnesty International, at least 304 people died — other sources say up to 1,500 were killed. At the time, the price was abruptly increased by 50%.

This time round, the rise is being implemented in stages, following discussions in parliament and months of reporting. Still, Assadi said, mass protests once again could not be ruled out.

"Given the high inflation rate of over 40% and growing poverty, social tensions are entirely possible," he stressed.

One day after the price rise announcement, government spokesperson Fatemeh Mohajerani said in an interview with Radio Goftogo that the goal was to "ensure fair fuel prices and prevent the waste of state resources."

More than 80% of users of personal fuel cards would not notice any change in their quotas or prices, she said, adding that only refueling via gas station cards would be increased to 50,000 rials per liter.

Weak management and organized smuggling networks

While the Iranian government aims to curb fuel smuggling and control consumption by hiking prices, Omid Shokri, energy policy expert at George Mason University in Virginia, US, remained skeptical.

"The Iranian government has so far been unable to stop fuel smuggling for several structural reasons," he said, pointing to weak administration, a lack of monitoring systems, and systematic corruption.

Weak border controls and large price differences between Iran and other countries in the region also contribute to the problem, he explained.

All these factors favor organized smuggling networks, so the price increase alone will not solve the underlying problems, Shokri said. "Although the living conditions of the population are inadequate and social discontent is looming, the government justifies the measure with the aim of reducing the budget deficit."

This article was originally written in German.