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Fuel prices in Iran could rise as latest subsidy reforms begin

By the CNN Wire Staff
An Iranian motorcyclist pumps gas in downtown Tehran in 2006.
An Iranian motorcyclist pumps gas in downtown Tehran in 2006.
  • President Mahmoud Ahmadinejad says prices of energy-related items could change Sunday
  • That's when the government initiates its latest round of subsidy policy changes
  • Iran has trillions of dollars in natural resources, but its economy still struggles, experts say
  • The changes aim to dampen domestic demand for fuel and oil, and bolster overall revenues

(CNN) -- Oil and gas prices in Iran could rise starting Sunday, as the government initiates the latest phase of a subsidy regulation initiative aimed at bolstering the nation's struggling economy.

President Mahmoud Ahmadinejad told Iranian TV on Saturday evening that prices for some energy-related items could change starting the next day.

"In this stage, we don't want to release prices, rather we are going to regulate and reform them," Ahmadinejad said, as quoted by the state-run IRNA news agency.

Five years ago, Ahmadinejad's government announced its plan to cut government subsidies and help adjust prices in Iran's economy. That includes a policy to phase out subsidies on staples such as fuel and food, likely causing consumers' costs of such items to rise.

According to IRNA, the "Subsidies Regulating Plan" endeavors to improve efficiency in the production of goods, more equitably distribute subsidies and protect what it describes as Iran's "huge reservoirs of petroleum and natural gas."

Iran has $10 trillion in oil resources alone, plus natural gas reserves worth between $3.5 and $4.5 trillion, International Monetary Fund mission chief Dominique Guillaume said in an interview posted earlier this fall on that world body's website. But its economy nonetheless has seen lackluster growth, including between 1% and 2% of GDP this past year.

Despite its abundance of fuel, Iran has been pushing to expand its nuclear program. Many in the international community, including U.S. officials, have expressed grave concerns and successfully pushed for sanctions fearing that Tehran might be trying to develop nuclear weapons.

But Iranian leaders have said the nation wants nuclear power, in part to free up more oil to export and pump more money into the economy.

With subsidies that effectively allowed domestic consumers to pay relatively little for oil and gas -- far below what they or people anywhere else would pay on the world market -- Iran was forfeiting potentially huge revenues, explained IMF Senior Economist Roman Zytek on his group's website.

The IRNA news agency reported Saturday that Iranians' use of commodities like fuel "has not followed a reasonable pattern" -- with Zytek saying that many Iranian citizens have been buying excess amounts of oil and gas. Iran's subsidy reforms, he said, aim to decrease domestic demand for fuel (and make the country more fuel-efficient) and allow Iran to profit more from its natural resources.