Iran is moving closer to politically sensitive changes in gasoline pricing as the government grapples with a growing gap between domestic fuel production and consumption, which has been exacerbated by the ongoing conflict with the US.
On July 25, government spokesperson Fatemeh Mohajerani said that changes in fuel prices or rationing are “definite and inevitable”, although officials have not yet confirmed whether the response will come through new quotas, higher prices, or both.
Iran uses a tiered subsidized fuel pricing system, with monthly quotas currently ranging from 1,500 tomans ($0.008) per liter at the bottom to 5,000 tomans ($0.026) at the top. Iranian media have reported that the new top level for gasoline could reach 10,000 tomans ($0.053) per liter, which would be an increase of almost 100%. This figure has not been officially confirmed yet.
Gasoline seems to be very cheap in Iran compared to the rest of the world. But after years of sanctions and economic misery, Iranians are also earning much less. Fuel may seem exceptionally cheap in dollar terms, but revenues are used to pay for it.
For example, the basic monthly minimum wage in 2026 was set at about 16.6 million won, or about $87. Any increase in gas prices falls heavily on families.
The last major sudden increase in fuel prices in November 2019 sparked nationwide protests and was one of the bloodiest crackdowns in the history of the Islamic Republic.
This time the government faces another complication. Even before the US started the war in February, Iran was consuming more gasoline than it produced. Damage to fuel infrastructure and restrictions on imports have made it harder to balance and more expensive to manage.
everybody needs fuel
Iranian officials argue that they need to suppress demand for gasoline at higher rates. But critics say gasoline is a necessity and higher costs won’t reduce demand.
A resident of Karaj, a small city near Tehran, said higher gasoline prices would quickly hit the economy, making everything more expensive.
“This will cause a chain reaction in prices of goods and services and the greatest pressure will ultimately fall on middle- and low-income families,” he told DW, speaking anonymously for security reasons.
A car that consumes 12 liters per 100 kilometers (19 miles per gallon) won’t suddenly become more efficient because gasoline costs more, he said. Without better vehicles or effective public transportation, motorists have little choice.
“When fuel becomes expensive, transport fares will increase,” he said.
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 broader policy.
“Higher prices may discourage unnecessary driving and make fuel smuggling less profitable, but they alone will not solve the crisis,” Shokri said.
He said a gradual increase in consumption above the monthly quota could help control demand. But this will need to be coupled with financial support for poor families and substantial improvements in public transportation.
Otherwise, he warned, higher prices could fuel inflation and stoke social unrest.
How come there is a shortage of gasoline in oil powerhouse Iran?
Iran has some of the largest oil reserves in the world, but crude oil production and gasoline production are two different things.
Shokri estimates that Iran currently produces about 121 million liters of gasoline per day, including blended fuels, while daily consumption is about 129 million liters. During holidays and peak travel periods, demand may increase even further.
The deficit has been developing for years.
Since 2019, domestic consumption has grown faster than production. Estimates cited in Iranian discussions show that daily gasoline use has increased by about 39 million liters since 2019, while production capacity has increased by only 16 million liters.
A country that once had surplus gasoline available for export has become increasingly dependent on imports as a result.
Shokri believes that one of the fastest options could be greater use of compressed natural gas or CNG. Iran already has an extensive CNG network, but much of its capacity remains untapped. Converting more vehicles to dual-fuel systems could reduce gasoline consumption relatively quickly.
Stronger rationing, measures against fuel smuggling and stricter efficiency standards could also help, he said.
In the long term, Iran will need to replace inefficient vehicles, improve public transportation, electrify motorcycles and taxis, modernize refineries and increase strategic fuel storage, he said.
Imports can usually help offset shortages, but sanctions complicate payment, shipping and insurance. The war has added another layer of risk around sea routes.
Russia may seem an obvious alternative supplier because of its close political ties 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 it currently has little fuel available for 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, especially around Tehran and the Alborz. Shipping disruptions also made imports more difficult and expensive.
However, Shokri cautioned against exaggerating the physical destruction of Iran’s fuel infrastructure.
He said there is currently no credible evidence that Iran has permanently lost a large portion of its gasoline production capacity. The refineries appear to be nearing full operation.
He said, “The war did not create a gasoline crisis in Iran, but it made an already severe shortage more difficult and expensive to manage.”
It is unclear how the Iranian public will react to another acute fuel shock. The war added another layer of anger, insecurity and frustration to grievances that already existed over the cost of living and declining purchasing power.
In that environment, fuel price increases will not occur in an economic vacuum. This could lead to widespread discontent, making the government’s decision about gasoline a political calculation as well as an economic one.
Edited by: Wesley Rahn