Iran’s taxi drivers reel from end to fuel subsidies

Parked up in the hot streets of Tehran and waiting for customers, Ali, a taxi driver, scoffs at the reason given for the latest increase in petrol prices.

“If the government has no money, how can it help Syria and Lebanon?” he asks, alluding to the country’s military adventures abroad.

Iran’s cab drivers were left reeling by the removal of fuel subsidies last week — a move that many Iranians fear will have a domino effect on other sectors of an economy hard hit by years of sanctions.

The price of petrol increased by 43 per cent from 7,000 rials (24 cents) per litre — for which all car owners had a monthly quota of 60 litres — to 10,000 rials, a price many were already paying if they consumed beyond their subsidised allocation. Gas prices for domestic and commercial consumption also rose by 15 per cent.

Taxi drivers are particularly hard hit. Although their monthly quotas of 300 to 750 litres at the lower rate vanished overnight, they are banned from increasing fares. “I am furious. My colleagues, too,” says Ramin, a taxi driver at a private agency. “Our income goes down but our expenses dramatically go up. How fair is this?”

Scrapping the petrol subsidy was “a choice between bad and worse”, government spokesman Mohammad-Baqer Nobakht said on state television.

Referring to the impact of international economic sanctions over Iran’s nuclear programme, he said: “We have to accept that our income has gone down.”

Iran’s oil revenues — the country’s economic lifeblood — have halved over the past three years and the government cannot access tens of billions of dollars frozen in overseas banks due to EU and US oil and banking sanctions.

Ending the flow of cheap fuel to its citizens is just one of many economic reforms that the centrist government of president Hassan Rouhani is struggling to push through. Earlier this year bread subsidies were reduced and they are scheduled to be scrapped by year-end. The price of one loaf of sangak — a popular traditional bread — has almost tripled, which bakers say has led to decline in consumption.

For ordinary Iranians, ground down after years of stagnant wages and high inflation, such measures symbolise a further threat to their living standards.

Mr Rouhani, a moderate who swept to power in the summer of 2013, inherited an economic mess that was largely the legacy of his predecessor’s populist policies. Former president Mahmoud Ahmadi-Nejad began to reduce subsidies on basic commodities in 2010 — a move initially lauded by economists, but which ended in failure as his government instead introduced monthly cash payments to almost all Iranians as compensation.

Despite imposing a massive burden on state coffers, politicians have long balked at ending the largesse. The strain is reaching breaking point, with the government saying it can only cover two-thirds of the 480tn rials ($16.6bn) due in payments to individuals and industry this year.

The Rouhani administration has announced that at least 4m better-off Iranians — out of more than 70m who receive 455,000 rials ($15.7) each month — may no longer receive the money. This has stoked concerns among poorer people reliant on the handouts that their payments may be targeted next.

Zahra, a 37-year-old cleaner, was worried that the cuts would be applied universally. “My husband and I are both working but we still count on that money. God help those who don’t have jobs.”

Many Iranians express disappointment with Mr Rouhani, who they say has done little to prevent their purchasing power from eroding. Yet few give credit to his government for slashing the inflation rate from more than 40 per cent to 15 per cent in less than two years, or for economic growth of more than 3 per cent after two consecutive years of contraction.

“Rouhani has been in power for two years but we have not seen any improvement yet whereas we experienced welfare under Ahmadi-Nejad,” says Fatemeh, a 36-year-old housewife married to a pick-up truck driver. “My husband earns on average 2m tomans [$694] per month which means we barely make ends meet. What shall we do now with the further rise in prices?”

In the face of rising expectations — and growing disillusionment — analysts say the political fate of Mr Rouhani depends on a comprehensive nuclear agreement with world powers by the end-of-June deadline. Such a deal could eventually lead to the lifting of painful sanctions and give the economy a boost.

But those at the sharp end of cuts, like Ali, are sceptical that this will improve their standard of living. “The government takes money from our pockets and spends it somewhere else,” he says.

Copyright The Financial Times Limited 2015.