Iran Grapples with Fuel Price Hike Amid Economic Crisis

Iran's economy is reeling under pressure from the ongoing US-Israel war and severe economic sanctions. The country's government is facing a difficult decision on fuel prices, which have become a major burden for the treasury. Iran consumes around 135 million liters of petrol every day, while domestic production stands at about 121 million liters per day, resulting in a significant gap.

The government has tried to address this issue by increasing refinery output, using petrochemical products, and stretching available supplies by altering fuel quality. However, these measures have not been enough to remove the underlying problem. The International Monetary Fund expects Iran's GDP to shrink by 5.4 percent in 2026.

The government has three possible approaches on the table: keeping existing petrol prices but limiting supplies, providing every Iranian with a monthly fuel quota of around 30 liters at the cheapest subsidised rate, or removing much of the subsidy and moving petrol prices closer to the cost of production. The third option would result in a massive price hike, with reports suggesting that the new rate could be around 872,000 rials per liter, roughly 17 times the existing non-quota rate.

The potential shock from such a move is significant, as Iran's economy is already under severe pressure. The country's currency, the Iranian rial, has fallen sharply, with the US dollar reaching 2 million rials on Tehran's open market. This makes imported goods and essential products more expensive, further reducing the government's room to maintain costly fuel subsidies.