Iran is moving closer to politically sensitive changes in gasoline pricing as the government struggles with a widening gap between domestic fuel production and consumption, exacerbated by the ongoing conflict with the US.
On July 25, government spokesperson Fatemeh Mohajerani said changes to fuel prices or rationing are “certain and unavoidable,” although officials have yet to confirm whether the response will come through new quotas, higher prices or both.
Iran uses a tiered subsidized fuel price system with monthly quotas currently ranging from 1,500 tomans ($0.008) per liter at the lowest rung, to 5,000 tomans ($0.026) at the top. Iranian media have reported the new top rung for gasoline could jump to 10,000 tomans ($0.053) per liter, which would be nearly a 100% increase. The figure has not yet been officially confirmed.
Compared to the rest of the world, gasoline in Iran seems very inexpensive. But after years of sanctions and economic malaise, Iranians are also earning a lot less. Fuel may look exceptionally cheap in dollar terms, but so are the incomes used to pay for it.
For example, the basic monthly minimum wage in 2026 was set at around 16.6 million tomans, or about $87. Any hike in gas prices comes down hard on households.
The last major sudden increase in fuel prices in November 2019 triggered nationwide protests and one of the bloodiest crackdowns in the history of the Islamic Republic.
This time, the government faces another complication. Iran was already consuming more gasoline than it produced before the US launched the war in February. Damage to fuel infrastructure and restrictions on imports have made that imbalance harder and more expensive to manage.
Everyone needs fuel
Iranian officials argue that they need to suppress demand for gasoline with higher rates. But critics say that gasoline is a necessity and higher costs will not dampen demand.
A resident of Karaj, a small city near Tehran, said that said higher gasoline prices would quickly work their way through the economy, making everything more expensive.
“It will cause a chain reaction in the prices of goods and services, and the greatest pressure will ultimately fall on middle and lower-income households,” he told DW anonymously for safety reasons.
A car that consumes 12 liters per 100 kilometers (19 miles per gallon) will not suddenly become more efficient because gasoline costs more, he said. Without better vehicles or effective public transport, motorists have few alternatives.
“Transport fares will go up when fuel becomes more expensive,” he added.
Umud Shokri, an energy strategist and senior visiting fellow at George Mason University in the US, told DW that pricing could still play a role in reducing fuel consumption, but only as part of a much wider policy.
“Higher prices could discourage unnecessary driving and make fuel smuggling less profitable, but they would not solve the crisis by themselves,” Shokri said.
A gradual increase for consumption above monthly quotas could help control demand, he said. But it would need to be combined with financial support for poorer households and substantial improvements in public transport.
Otherwise, he warned, higher prices could add to inflation and provoke social unrest.
How is oil powerhouse Iran short of gasoline?
Iran has some of the world’s largest oil reserves, but crude oil production and gasoline production are two different things.
Shokri estimates that Iran currently produces around 121 million liters of gasoline per day, including blended fuel, while daily consumption is about 129 million liters. During holidays and peak travel periods, demand can rise even further.
The deficit has been developing for years.
Since 2019, domestic consumption has risen faster than production. Estimates cited in Iranian discussions suggest daily gasoline use has increased by around 39 million liters since 2019, while production capacity has risen by only around 16 million liters.
A country that once had surplus gasoline available for export has consequently become increasingly dependent on imports.
Shokri believes one of the quickest alternatives could be greater use of compressed natural gas, or CNG. Iran already has an extensive CNG network, but much of its capacity remains unused. Converting more vehicles to dual-fuel systems could reduce gasoline consumption relatively quickly.
Stronger rationing, measures against fuel smuggling and tougher efficiency standards could also help, he added.
Over the longer term, Iran would need to replace inefficient vehicles, improve public transport, electrify motorcycles and taxis, modernize refineries and increase strategic fuel storage, he said.
Imports could normally help compensate for shortages, but sanctions complicate payments, shipping and insurance. The war has added another layer of risk around maritime routes.
Russia might appear to be an obvious alternative supplier because of its close political relationship with Tehran. But Moscow has its own gasoline problem, with Ukrainian attacks on Russian refineries, pipelines and fuel storage sites disrupting production and contributing to shortages.
“Russia may be politically willing to help Iran, but currently it has less fuel available to export,” Shokri said.
Iran’s fuel problems predate US war
The war with the US has damaged fuel depots, storage tanks and parts of the distribution network, particularly around Tehran and Alborz. Shipping disruption also made imports more difficult and expensive.
However, Shokri cautions against overstating the physical destruction of Iran’s fuel infrastructure.
He said there is currently no reliable evidence that Iran has permanently lost a large share of its gasoline production capacity. Refineries appear to have returned close to full operation.
“The war did not create Iran’s gasoline crisis, but it made an already serious shortage more difficult and expensive to manage,” he said.
It is unclear how the Iranian public will respond to another sharp fuel shock. The war has added another layer of anger, insecurity and frustration to grievances that were already building over living costs and declining purchasing power.
In that environment, a fuel price increase would not take place in an economic vacuum. It could become a trigger for wider discontent, making the government’s decision over gasoline as much a political calculation as an economic one.
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Edited by: Wesley Rahn
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