The Associated Press reported yesterday that Iran’s parliament has approved slashing energy and food subsidies over the course of five years. The proposed move would bring Iran’s domestic prices more in line with international market prices to offset the $90 billion spent annually in subsidies.
While attempts to reduce subsidies were made in the past, the government was met with an infuriated Iranian citizenry that took to rioting and protesting. This time, the Iranian government may be employing a clever “bait and switch” – present their reforms for subsidy removal as an area of weakness. If the U.S. bites and imposes a “gasoline sanction” to instigate further unrest in Iran, “Tehran could simply ease its subsidies while pointing to Washington as the cause of pain,” according to Vivienne Walt of Time Magazine.
The AP article elaborated:
“The latest proposal could present Ahmadinejad with one of his government’s most serious challenges since the violence and protests resulting from the summer’s presidential elections that critics and the opposition contend he stole through widespread fraud.
Some economists contend…that the plan would only serve to sharply drive up inflation, further squeezing a country grappling with already high inflation and shouldering the weight of international sanctions.”
However, other economists rebuff the statements saying, “No Iranian government could afford to maintain [the subsidies] at current levels.”
This event can be seen as maneuvering in advance of proposed refined petroleum sanctions that could be levied in the event that Iran does not cooperate in the multilateral talks with the p5+1. If the sanctions were to pass and be put into place, it would give the regime the perfect “scapegoat” to catalyze its subsidy removal by blaming Western powers, thereby quelling any serious protest to the action.
In the end, proposed petroleum sanctions would only be temporary and not effective, according to Richard Dalton, former British ambassador to Iran and current associate fellow at think tank Catham House. He is quoted in the Time article:
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“Chinese firms and, until recently, India’s Reliance, have been working on massive upgrades of the country’s refineries. ‘If Iran can maintain its refinery upgrades, they’ll be self-sufficient in gas by 2013.’”