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Iran’s Six Months of Targeted Fuel Subsidies Deemed Successful

Iran’s Six Months of Targeted Fuel Subsidies Deemed Successful

On 19 December 2010 Iran introduced targeted subsidies in an effort to control inflation. Iran was urged to do so by international organizations such as the International Monetary Fund.
 
Prior to the implementation of the targeted subsidies, Iranian analysts noted that even a small rise in the price of fuels over the past several years, particularly gasoline used by the general public, caused a ripple effect throughout the economy and resulted in price increases of many goods and services, Mashhad Khorasan newspaper reported.
 
One of the successes resulting from the implementation of the targeted subsidies was a reduction in the nation’s fuel consumption. While Iranian economists speculated that one possible cause of the reduced consumption could be a reduction in the smuggling of these fuels rather than decreased use by the people, a part of the subsidy that went straight into the pockets of smugglers and foreign consumers of smuggled products was cut off and the new reformed energy fuel price reduced the profitability of fuel smuggling.
 
The program has had shortcomings, however. Several months before the implementation of this law, concerns over compensating for the increase in the costs of production units, particularly those that use high amounts of energy, were reduced. Since the subsidy program was introduced, in practice, allocation of the subsidies in this sector was slow and support credits were low, while credits in the industrial sector were also allocated on a smaller scale than they should have been and the ones that were distributed were in the form of an energy credit line.

By. Charles Kennedy, Deputy Editor OilPrice.com



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