Iran’s Central Bank governor Mohammad Reza Farzin stepped down on Monday after protests erupted in Tehran and other cities following a sharp collapse in the rial. The currency plunged on Sunday to around 1.42 million rials per dollar on the free market before stabilizing slightly at about 1.38 million on Monday. For perspective, Iran’s currency traded at roughly 32,000 rials per dollar when Tehran signed the JCPOA nuclear accord in 2015 under then-U.S. President Barack Obama.
Iran’s economy has been grappling with major challenges, including soaring inflation (around 42.2% in December), currency collapse, near-stagnant GDP growth, and capital flight, driven by crippling U.S. sanctions.
Meanwhile, domestic mismanagement, systemic corruption, huge military spending (nuclear/proxies), regional conflicts (Israel war), deteriorating infrastructure, high youth unemployment, brain drain, and lack of investment have all made a bad situation worse and contributed to decreased living standards. The unfolding protests are reminiscent of the 2019 unrest where an estimated 1,500 people could have been killed.
Earlier this month, Iran announced a fuel price increase for the first time since 2019, introducing a tiered pricing system aimed at curbing rising consumption. Motorists will pay 15,000 rials per litre for the first 60 litres per month, 30,000 rials per litre for the next 100 litres, and 50,000 rials per litre for any additional fuel. President Masoud Pezeshkian has warned that the government cannot sustain ultra-cheap fuel indefinitely as domestic demand exceeds refining capacity, forcing costly gasoline imports. The move comes as inflation remains elevated and fiscal pressures on the state continue to build.
Iran spends an estimated $40-50 billion a year (as of 2023) on fuel subsidies, among the highest levels globally. Iranian officials have said the cost of importing gasoline has risen sharply, with some estimates putting import prices at around 700,000 rials per liter, far above domestic pump prices. The country is expected to spend roughly $6 billion on gasoline imports this year (based on 2024 patterns) as demand continues to outpace domestic refining capacity. The latest fuel price increase is partly intended to curb high fuel consumption and contain the growing fiscal burden of subsidies.
By Alex Kimani for Oilprice.com
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