25% hike in fuel prices jolts Iranians

Published May 23, 2007

TEHRAN, Iran - Iran increased gasoline prices 25 percent Tuesday in a new blow to consumers already disgruntled over high inflation, and the government said it will begin rationing fuel in two weeks.

The moves are sure to increase public dissatisfaction with hard-line President Mahmoud Ahmadinejad, whose oil-rich nation faces the same quandary as the United States and its rising prices at the pump: A lack of refinery capacity forces it to buy gasoline on the world market.

Discontent has been growing in Iran in recent months over soaring prices. The cost of housing has doubled, and prices for basic goods such as vegetables have tripled since last summer.

Portraying himself as a champion of the poor, Ahmadinejad was swept to power in 2005 on a populist agenda promising to spread oil revenues to every family, eradicate poverty and tackle unemployment, and he is facing increasingly fierce criticism for not delivering.

On Sunday, the government had said it would not increase fuel prices "at the moment." So drivers were shocked Tuesday morning to find gasoline prices were raised overnight to the equivalent of 38 cents a gallon from 30 cents.

Despite the hike, gasoline is still far cheaper in Iran than in most of the West. In the United States, the average price of self-serve regular gasoline hit a record high of $3.18 a gallon, up more than 11 cents over the past two weeks, according to a survey released Sunday.

But wages are much lower in Iran, where annual income averages $2, 600 a person, compared to $43, 500 in the United States, according to a 2005 World Bank survey.

The increase is part of the government's efforts to reduce state subsidies on gasoline and to discourage smugglers who have been buying fuel at Iran's relatively low price and sneaking it out of the country to sell elsewhere.