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Iran petrol prices surge after subsidies cut

Prices rise by up to 75 percent as president makes potentially risky bid to used saved money to tackle unemployment.

Last updated: 25 Apr 2014 06:23
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Rouhani plans to use the money saved by cutting subsidies to reduce youth unemployment [Getty]

Petrol prices in Iran have leapt by up to 75 percent, after state subsidies were cut, in a risky move that President Hassan Rouhani hopes will improve an economy battered by Western sanctions.

The price hikes, which began at midnight on Thursday, will test Rouhani's support among a population fed up with the high inflation that he has pledged to reduce, as he pursues talks with world powers aimed at ending sanctions imposed over Iran's nuclear programme.

Iranians rushed to the pumps to fill their cars before the price surge, but there were no immediate reports of unrest, unlike in 2007 when there were riots at some petrol stations when cheap fuel was rationed for the first time, the Reuters news agency reported.

"We have been preparing for two months to implement these plans in provinces, cities and rural areas," state news agency, IRNA, quoted Interior Minister Abdolreza Rahmani Fazli as saying.

"But it is expected that [it] will take place without any problems or displeasure from people."

Subsidised petrol, available to each motorist in limited amounts, rose from $0.16 a litre to $0.28.

The price for petrol sold outside that ration rose from $0.28 to $0.39. Diesel and compressed natural gas prices also rose.

Infrastructural projects

Despite the increases, car fuel in Iran is still among the cheapest in the world, but the price hikes will be unwelcome in a country where a quarter of the adult population is jobless or under-employed.

Rouhani's predecessor, Mahmoud Ahmadinejad, launched the subsidy cutting programme in December 2010 when prices of staple foods and utilities bills, as well as petrol, soared overnight.

The move, coupled with the impact of tightened sanctions by Europe and the United States, pushed inflation from 8.8 percent in August 2010 to around 40 percent by the end of Ahmadinejad's term in 2013.

Rouhani, who secured a surprise election win last June, has said the money saved by cutting state subsidies will be used to generate jobs for masses of unemployed youth.

The jobs are set to be created by using the saved money for production and infrastructural projects, the AP news agency reported.

If Rouhani can convince Iranians he can improve the economy, they may forgive him the price rises which will, in the immediate term, counter his efforts to reduce inflation, which is currently at 35 percent.

"Of course I don't want prices to go up, but the reality is that the prices have to become real," said a 30-year-old communication specialist in Tehran.

"But I expect more services from the government in return, such as health and transportation."

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Source:
Reuters
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