Tehran is advancing toward politically contentious adjustments in gasoline pricing as the administration grapples with a growing imbalance between domestic fuel production and consumption, a crisis intensified by the ongoing conflict with the United States.
On July 25, government spokesperson Fatemeh Mohajerani declared that modifications to fuel pricing or rationing are “certain and unavoidable,” though authorities have yet to determine whether the measures will involve new quotas, price increases, or both.
Iran operates a tiered subsidized fuel pricing system with monthly quotas currently ranging from 1,500 tomans ($0.008) per liter at the lowest tier up to 5,000 tomans ($0.026) at the highest. Iranian media outlets have reported that the new top tier for gasoline could rise to 10,000 tomans ($0.053) per liter, representing a nearly 100% increase, though this figure has not been officially confirmed.
Globally, Iranian gasoline might appear remarkably affordable. However, after years of international sanctions and economic stagnation, Iranian citizens are also earning significantly less. While fuel costs look exceptionally low in dollar terms, so do the incomes used to purchase it.
For instance, the basic monthly minimum wage in 2026 was established at approximately 16.6 million tomans, equivalent to roughly $87. Any increase in gasoline prices therefore places a disproportionate burden on household budgets.
The last major abrupt surge in fuel prices, which occurred in November 2019, ignited nationwide protests and sparked one of the bloodiest crackdowns in the history of the Islamic Republic.
This time, the government faces additional complications. Iran was already consuming more gasoline than it produced before the United States launched the war in February. Damage to fuel infrastructure and restrictions on imports have rendered this imbalance both more difficult and more costly to manage.
Everyone needs fuel
Iranian officials argue that higher rates are necessary to suppress gasoline demand. However, critics contend that gasoline is an essential good, and increased costs will not effectively curb demand.
A resident of Karaj, a city near Tehran, stated that higher gasoline prices would rapidly permeate the economy, driving up the cost of goods and services across the board.
“It will cause a chain reaction in the prices of goods and services, and the greatest pressure will ultimately fall on middle and lower-income households,” he told DW anonymously for safety reasons.
He noted that a car consuming 12 liters per 100 kilometers (19 miles per gallon) will not suddenly become more efficient simply because gasoline becomes pricier. Without better vehicles or effective public transportation, motorists have few viable alternatives.
“Transport fares will inevitably rise as fuel costs increase,” he added.
Umud Shokri, an energy strategist and senior visiting fellow at George Mason University in the United States, told DW that pricing could still serve a role in reducing fuel consumption, but only as part of a much broader policy framework.
“Higher prices could discourage unnecessary driving and reduce the profitability of fuel smuggling, but they will not resolve the crisis on their own,” Shokri said.
He suggested that a gradual increase in prices for consumption exceeding monthly quotas could help regulate demand. However, this would need to be paired with financial support for poorer households and substantial improvements in public transportation.
Otherwise, he warned, higher prices could exacerbate inflation and provoke social unrest.
How is oil powerhouse Iran short of gasoline?
Iran possesses some of the world’s largest oil reserves, but crude oil production and gasoline production are fundamentally distinct processes.
Shokri estimates that Iran currently produces approximately 121 million liters of gasoline per day, including blended fuel, while daily consumption sits at around 129 million liters. Demand can rise even further during holidays and peak travel periods.
This deficit has been developing for years.
Since 2019, domestic consumption has outpaced production. Estimates cited in Iranian discussions indicate that daily gasoline use has increased by approximately 39 million liters since 2019, while production capacity has risen by only around 16 million liters.
A country that once exported surplus gasoline has consequently become increasingly dependent on imports.
Shokri believes one of the quickest alternatives could be a greater utilization of compressed natural gas (CNG). Although Iran already possesses an extensive CNG network, much of its capacity remains underutilized. Converting more vehicles to dual-fuel systems could relatively quickly reduce gasoline consumption.
Stronger rationing, measures to combat fuel smuggling, and tougher efficiency standards could also contribute to a solution, he added.
Over the longer term, Iran would need to replace inefficient vehicles, improve public transport, electrify motorcycles and taxis, modernize refineries, and increase strategic fuel storage, he said.
Imports could normally help compensate for shortages, but sanctions complicate payments, shipping, and insurance. The war has introduced an additional layer of risk around maritime routes.
Russia might appear to be an obvious alternative supplier due to its close political relationship with Tehran. However, Moscow faces its own gasoline challenges, as Ukrainian attacks on Russian refineries, pipelines, and fuel storage sites have disrupted production and contributed to shortages.
“Russia may be politically willing to aid Iran, but currently it has less fuel available for export,” Shokri said.
Iran’s fuel problems predate US war
The war with the United States has damaged fuel depots, storage tanks, and parts of the distribution network, particularly around Tehran and Alborz. Shipping disruptions have also made imports more difficult and expensive.
However, Shokri cautions against overstating the physical destruction of Iran’s fuel infrastructure.
He noted there is currently no reliable evidence that Iran has permanently lost a large share of its gasoline production capacity. Refineries appear to have returned close to full operation.
“The war did not create Iran’s gasoline crisis, but it made an already serious shortage more difficult and expensive to manage,” he said.
It remains unclear how the Iranian public will respond to another sharp fuel shock. The war has added another layer of anger, insecurity, and frustration to grievances that were already building over rising living costs and declining purchasing power.
In that environment, a fuel price increase would not occur in an economic vacuum. It could serve as a trigger for wider discontent, making the government’s decision regarding gasoline as much a political calculation as an economic one.
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