Iran's Fuel Crisis: Government Plans Price Hike Amid Conflict
The Iranian government now stands on the brink of a highly sensitive political decision regarding changes to fuel prices. The move comes as Tehran struggles to address a widening gap between domestic fuel production and consumption, exacerbated by the ongoing conflict with the United States (US).
Government spokesperson Fatemeh Mohajerani stated on 25 July that a change in fuel prices or a rationing policy is inevitable. However, local authorities have yet to confirm whether the response will take the form of a new quota, a price increase, or a combination of both.
Iran currently operates a tiered subsidised fuel pricing system. Monthly quotas range from 1,500 toman (around Rp240) per litre at the lowest level to 5,000 toman (around Rp800) at the highest. Local media reports suggest the top-tier price could surge to as much as 10,000 toman (around Rp1,600) per litre, representing an increase of nearly 100 per cent.
Although nominally these prices appear very cheap by global standards, the purchasing power of Iranian citizens has plummeted due to years of sanctions. For context, the basic monthly minimum wage for 2026 has been set at around 16.6 million toman, or only about Rp1.4 million. A fuel price increase will inevitably strike a severe blow to household economies.
Iran faces additional complications because petrol consumption had already exceeded production capacity even before the conflict with the US erupted in February. Damage to fuel infrastructure from air strikes and restrictions on imports have made this imbalance even harder to manage.
Umud Shokri, an energy strategy expert from George Mason University, estimates that Iran produces around 121 million litres of petrol per day, while daily consumption reaches 129 million litres. This deficit has been building for years. Since 2019, petrol use has risen by 39 million litres, but production capacity has grown by only 16 million litres.
Critics argue that petrol is a basic necessity in Iran, so a price increase will not significantly curb demand. One resident of Karaj said a fuel price rise would trigger a chain reaction in the prices of other goods and services.
“The greatest burden will ultimately fall on middle- and low-income households,” he said. Without more efficient vehicles or adequate public transport, people have no alternative but to bear higher transport costs.
Although Iran holds the world’s largest crude oil reserves, its refinery capacity to process it into petrol remains limited. International sanctions complicate payments, shipping and insurance to cover shortfalls through imports.
Russia, a close political ally, is also facing its own petrol production problems due to attacks on its refineries. “Russia may be politically willing to help Iran, but at the moment they have less fuel available to export,” Shokri said.
For the Iranian government, the decision on fuel prices is not merely an economic calculation but a major political gamble. Amid public anger over living costs and declining purchasing power, a fuel price shock could become the trigger for broader social discontent.