The Islamic Republic of Iran has announced a fuel price hike for the first time since 2019, with the increase coming at a time when the authorities are struggling with economic pressures and environmental disasters.
The new pricing system, which took effect at midnight on December 13, will see motorists pay 15,000 rials per litre (~4.7 U.S. cents per gallon) for the first 60 liters consumed in a month; 30,000 rials a litre (~9.4 cents per gallon) for the next 100 liters and 50,000 rials per litre (~15.7 cents per gallon) for anything beyond that. Iranians enjoy the cheapest gas of any country in the world, thanks to generous subsidies by the government, with production costs 20 times higher than the price set by the state.
Previously, President Masoud Pezeshkian warned that the government cannot maintain ultra-cheap fuel indefinitely with domestic consumption exceeding refining capacity, forcing costly imports. The Iranian government is under pressure to lower spending with inflation spiking to around 40%.
Iran spends nearly $50 billion a year on fuel subsidies, the highest of any GCC nation. Last month, the Iranian government reported that the cost of importing gasoline had climbed to 700,000 rials per liter (~$2.34 per gallon), much higher than typical prices charged at Iranian gas pumps. The country will spend $6 billion on gasoline imports in the current year, with demand outpacing domestic output. The latest price hike is partially meant to curb high fuel consumption.
Still, the price hike risks triggering another wave of unrest with Iranians viewing cheap fuels as something of a birthright. Nationwide protests swept across the country in 2019 after the government hiked prices by as much as 200%, with rioters calling for the removal of Supreme Leader Ali Khamenei. An estimated 700 banks and gas stations were either attacked or burned in what became known as Bloody Aban or Bloody November, credited with being the biggest challenge to the regime since the Iranian Revolution of 1979. The Iranian authorities brutally crushed the unrest, with reports that as many as 1,500 people could have been killed.
Cheap Iranian oil has also triggered a spike in illegal oil trade, with an estimated 20 to 30 million liters of gasoline smuggled out of the country daily to Afghanistan and Pakistan where fuel costs nearly 20x higher.
Iran is a major global producer of oil, leveraging complex export routes and Chinese demand to generate significant revenue, with recent figures showing high production levels. Iran's oil production hovered 3.2 to 4.2 million barrels per day (bpd) in late 2025, with forecasts expecting stability around 3.34 million bpd in 2026, supported by increased output and sales to China despite sanctions, driven partly by Russian-Chinese cooperation in field development.
Iran primarily sells its oil to China, which buys the vast majority (around 90%), often using complex methods like "dark fleets" to circumvent U.S. sanctions, with other buyers including Syria, the UAE, and Venezuela, though these are much smaller shares. Major ports in China like Tianjin and Qingdao, regularly receive Iranian crude, while UAE ports like Fujairah serve as transshipment hubs, with oil also going to other Asian nations and some Latin American countries.
Iran has continued importing large volumes of oil despite U.S. sanctions, with Tehran shipping 2.15 million barrels per day (mbpd) in October, including 1.93 mbpd of crude. Iranian oil is typically sold at a 5-10% discount to Brent. Nearly 40 of the 53 vessels that transported Iranian crude in October have been sanctioned by the Trump administration.
Critics of the latest price increase by the Iranian government have warned that every 10,000-rial increase in gas prices increases inflation by 5%. Further, cheap gas creates ample employment opportunities for the country’s populace. Currently, more than 8 million Iranians, or nearly 10 per cent of the population, work as taxi drivers mainly through online platforms.
For some context, Uber has 8.8 million drivers and couriers globally. Interestingly, whereas Iran is noted for its high energy intensity and high per capita consumption relative to many other countries in the world, its consumption is still substantially below the levels seen across the GCC member states. Iran’s energy use per capita clocks in at 3,266 kgoe (Kilograms of Oil Equivalent), slightly higher than 3,189 kgoe average for Europe but just a fraction of Qatar’s 16,684 kgoe.
The GCC countries consistently rank among the highest in the world for per capita energy consumption due to factors like abundant hydrocarbon resources, energy-intensive industries and high use of air conditioning/desalination in a hot climate.
By Alex Kimani for Oilprice.com
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