Recent Developments in Iran’s Energy Subsidy Reforms

This policy brief examines the implementation and impacts of Iran's Targeted Subsidies Reform Act, which began in December 2010 to phase out energy subsidies and replace them with cash transfers. It details the challenges of price adjustments, the fiscal burden of universal cash payments, and the complicating effects of international sanctions on inflation and the foreign exchange market.

• The Targeted Subsidies Reform Act, ratified in March 2010, mandated a five-year transition (2010–2015) to raise retail prices for petrol, diesel, fuel oil, kerosene, and LPG to at least 90 per cent of Persian Gulf free on board (FOB) prices, and natural gas to at least 75 per cent of average export prices.
• The Iranian government adopted a "shock therapy" approach by implementing substantial overnight price increases. For example, regular petrol prices were split into subsidized (IRR1000/litre), semi-subsidized (IRR4000/litre), and free market (IRR7000/litre) categories.
• Despite the Reform Act's intent to target payments based on income, the government provided universal monthly cash payments of IRR455,000 (approximately US$45) to 73 million Iranians. This created a fiscal deficit of IRR15 thousand billion in the first year, forcing the government to divert funds from industrial support and government infrastructure shares.
• The reforms led to a general decrease in the consumption of most energy products in the first year, including fuel oil (down 36.4%), diesel (down 9.8%), and petrol (down 5.6%). However, natural gas consumption grew by 6.1% overall, supporting an 82% increase in gas export capacity from 5.67 bcm in 2009 to 9.1 bcm in 2011.
• Inflation rose significantly following the reforms, moving from approximately 12% in October 2010 to 18% by February 2011. International sanctions imposed in January 2012 further accelerated this, with the Central Bank reporting 23.9% inflation in April 2012, though other sources suggested rates as high as 60% to 63%.
• The industrial sector faced a dual crisis of rising production costs due to energy price hikes and strict government price controls on finished goods to prevent public unrest, leading to bankruptcies among small- and medium-size businesses.

APA

Hassanzadeh, E. (2012). Recent Developments in Iran’s Energy Subsidy Reforms. International Institute for Sustainable Development. https://www.iisd.org/gsi/sites/default/files/pb14_iran.pdf

Chicago

Hassanzadeh, Elham. Recent Developments in Iran’s Energy Subsidy Reforms. International Institute for Sustainable Development, 2012. https://www.iisd.org/gsi/sites/default/files/pb14_iran.pdf.

Wikipedia

{{cite report |last1=Hassanzadeh |first1=Elham |title=Recent Developments in Iran’s Energy Subsidy Reforms |publisher=International Institute for Sustainable Development |date=October 2012 |url=https://www.iisd.org/gsi/sites/default/files/pb14_iran.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{hassanzadeh2012recent, author = {Hassanzadeh, Elham}, title = {{Recent Developments in Iran’s Energy Subsidy Reforms}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = oct, url = {https://www.iisd.org/gsi/sites/default/files/pb14_iran.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }