Iran’s government is preparing the public for a possible increase in fuel prices as it struggles with worsening economic conditions, rising inflation and the impact of ongoing conflict and US sanctions.
The government is considering several options for changing the country’s heavily subsidised fuel system. Officials say the current system is placing a growing financial burden on the state, while fuel consumption continues to exceed domestic production.
The International Monetary Fund expects Iran’s economy to contract by 5.4 percent in 2026. Meanwhile, the Iranian rial fell to a record low of about 2 million rials per US dollar on the open market in Tehran on Sunday.
President Masoud Pezeshkian said the government was trying to protect citizens from the effects of the economic crisis, while blaming the United States and Israel for worsening the country’s difficulties.
Iran currently sells petrol at several subsidised rates. The cheapest price is 15,000 rials per litre, while other categories are priced at 30,000 and 50,000 rials.
Authorities have also reduced fuel quotas. The monthly allocation for one of the subsidised categories was reduced from 100 litres to 70 litres and later to 50 litres following renewed fighting between Iran and the United States.
Iranian consumers use about 135 million litres of fuel per day, while officials say domestic production is around 121 million litres daily.
Government considers three options
Iran’s energy optimisation chief, Esmail Saghab-Esfahani, said the government was considering three possible approaches.
The first would keep existing prices but allow petrol stations to stop supplying fuel once their allocated stocks run out.
The second would provide every Iranian, including those without vehicles, with about 30 litres of subsidised fuel per month. People who do not need the fuel could potentially sell their allocation.
The third option would involve liberalising fuel prices. The government has reportedly considered a price of about 872,000 rials per litre, close to the cost of refinery production.
However, officials are concerned that such an increase could trigger another wave of inflation because higher transportation and logistics costs would likely be passed on to consumers.
A planned pilot programme to introduce higher fuel prices at 204 petrol stations in Kerman province was cancelled at the last minute earlier this month.
First Vice President Mohammad-Reza Aref said on Friday that the cheapest fuel category, with its 60-litre monthly quota, should remain. However, he suggested that other quotas could gradually be reduced and that fuel prices could eventually be liberalised.
The potential increase comes at a difficult time for Iranian households. Official figures showed that consumer prices were 88 percent higher in July than a year earlier, while food prices increased by more than 128 percent.
Many Iranians fear that a fuel-price increase would further raise the cost of transportation, food and other basic necessities, adding to the pressure on households already struggling with high inflation and the economic consequences of war and sanctions.
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