Last Updated: Sun Dec 19, 2010 09:03 am (KSA) 06:03 am (GMT)

Iran securities on alert after gasoline subsidies cut

Gasoline cuts comes amid sanctions on gasoline imports, pollution fear  
Gasoline cuts comes amid sanctions on gasoline imports, pollution fear

Iranian security forces are put on high alert on Sunday to prevent anticipated unrest in the wake of a government's decision to cut gasoline subsidies, raising prices four-fold in the coming days.

The most politically sensitive part of President Mahmoud Ahmadinejad's subsidy cuts plan takes effect on Saturday, state television announced.

Iranians have been expecting a big rise in the price of gasoline for the past three months as the government starts to phase out the $100 billion spent annually to hold down prices of essentials such as fuel and food.

People rioted when the government started rationing subsidized petrol in 2007, and some analysts say big price hikes could reignite unrest that flared after Ahmadinejad's disputed re-election last year.

Gasoline subsidies have allowed Iranians -- who see cheap fuel in the oil-rich country as a birthright -- to fuel their cars for just 1,000 rials (about 10 U.S. cents) per liter for the first 60 liters they buy per month.

The price hike will push that up to 4,000 rials, and beyond the 60-litre ration the price will be 7,000 rials, TV announced. Further price rises, on other essential subsidized items, were to be disclosed overnight, it said.

Ahmadinejad said in a live televised interview that the government would seek to soften the price hike.

"So that the plan starts in a good way and with less tension ... we have made extra moves including announcing gasoline (at the fully subsidized price) for one extra month," he said.

That softener will mean Iranians can buy 50 liters of fuel at the old 1,000 rial price next month, before having to pay the new price, according to the television announcement.

Iranian politicians have discussed cutting subsidies for years to stem wasteful consumption of valuable resources, but Ahmadinejad has finally pushed the measure through at a time when Iran is under increasing pressure from sanctions imposed by countries concerned about its nuclear program.

Inflation fears

 This is the country's greatest economic overhaul and also the most popular 
President Ahmadinejad

Ahmadinejad has said the plan will be a boost to the economy and that direct payments to poorer families, due to start being paid from Sunday, would make it painless.

"This is the country's greatest economic overhaul and also the most popular," he said.

Consumers and many politicians fear subsidy cuts could cause inflation to soar from the official rate of around 10 percent, something that could increase dissatisfaction with Ahmadinejad's government.

One member of parliament, Dariush Qanbari, said direct cash payments would not make up for price hikes.

"Based on what economy experts have said, the country's inflation rate will increase by 20 to 70 percent in the coming year, and the government's compensation policy should be such that the weaker segments of society can meet their basic needs," Qanbari told the semi-official ILNA news agency this month.

The total amount of fully subsidized fuel sold in Iran will be cut to 39 million liters per day from 45 million liters, Mohammad Royanian, head of Iran's Transportation and Fuel Management Office, was quoted as saying by news agencies earlier on Saturday.

Iranians consume some 61 million liters per day, according to the Oil Ministry.

Sanctions have targeted a vulnerability caused by Iran's lack of refining capacity, which means the world's fifth-largest oil exporter has until recently had to import up to 40 percent of its gasoline needs.

U.S. sanctions punish companies that sell gasoline to Iran and European Union measures ban the sale of equipment that can be used in Iran's refining sector.

Officials announced in September that an emergency plan to refine gasoline in petrochemicals plants now meant Iran no longer needed to import the fuel. Iranians fear the home-made fuel is of lower quality and has contributed to a big increase in pollution, something the government denies.

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