By Bahram Khodabandeh
November 17, 2020
November 2019 saw the bloodiest street protests in Iran’s modern history. Media agencies and human rights organizations around the world have published widely on the people killed by security forces and police during the weeks of protests, as well as people physically assaulted and jailed. A new report published by Amnesty International reviews 304 of those killed during the demonstrations. Agence France Presse reviewed 750 images and videos of security forces shooting protesters, and Reuters quoted informed sources as saying that 1,500 people had been killed in the events of November 2019. In Iran, speaking on May 30, 2020, interior minister Abdol Reza Rahmani Fazil confirmed the deaths of between 200 and 225 people.
Even the lowest of these numbers is many times higher than the death toll of September 8, 1978, when the Shah’s military shot and killed at least 100 people in Tehran. Iran’s other major bloody pre-revolution incident took place on June 6, 1963, when at least 300 people were killed during protests against the arrest of Ayatollah Khomeini. These figures for 1963 have also been cited by Islamic Republic-approved sources.
The November 2019 protests erupted after the sudden hike in gas prices. At the time, Islamic Republic officials said these increases were necessary and inevitable. But a year on, Iranians and others around the world are asking: what economic benefit was achieved after taking this “inevitable decision?”
The Fantasy of Gasoline Exports
Three months after the increase in gasoline prices and the events of November 2019, the Minister of Oil announced that the move had reduced the consumption of gasoline by around 20 million liters per day. Even if it can be assumed that the government exported the entirety of this surplus gasoline and sold it at an average price of 30 cents per liter, over the last year, the total government revenue from gasoline exports would have been less than $2 billion. Of course, this has not happened despite the drop in gasoline prices due to the coronavirus epidemic and sanctions imposed by the United States.
In early 2020, on some days, the world price of gasoline fell to 10 cents (42 cents per barrel). At that time, the Iranian people, even with the free-market rates for the dollar, bought the quota gasoline at a higher price than the world price. Global prices rose later, but sanctions forced Iran to find informal customers demanding lower prices for gasoline.
Let’s assume the impossible and imagine that in the last year the government has added the total reduction in consumption of $2 billion to its foreign exchange earnings. Based on this assumption, the total foreign exchange earnings of the Iranian government would have been less than 5 percent of the total oil exports of the country, and about 2 percent of the total foreign exchange earnings of the country under normal conditions.
According to Iran’s 2020-21 budget law, the Petroleum Products Production and Distribution Company had to deposit 89 trillion tomans [$3.56 billion] of the revenue from gasoline exports into a subsidy sources account. Even assuming the average exchange rate of the dollar to be 20,000 tomans, the total revenue of gasoline exports does not reach 40 trillion tomans [$1.6 billion]. This means that half of the government’s budget goals have not been achieved, and also means that the increase in gasoline prices has not created a change in export revenues.
Forgotten Gasoline and Subsidies
But in domestic sales, the government’s financial income was not as high as was expected. On November 14, the Minister of Oil predicted that, considering the amount of consumption of gasoline subject to quota and free gasoline, after the increase in prices, each liter of gasoline would be sold on average for about twice as much as the 1,000-tomans-rationed gasoline. With this in mind, the question arises: what has changed in the supply and sale of gasoline over the last year?
According to official statistics, the consumption of gasoline has decreased by about 30 percent over the last year. That is, if we assume that the government sold 100 million liters at a price of 1,000 tomans before November 2019 and sold 70 million liters per day at an average price of 2,000 tomans after November, the total revenue the government would make from the daily increase in gasoline prices would be 40 billion tomans per day, and yet it has even not reached 15 trillion tomans [$0.6 billion] a year, though it was predicted that the government’s revenue due to the increase in gasoline prices would be at least 34 trillion tomans [$1.36 billion].
Even worse, the reduction in gasoline consumption also put pressure on subsidy sources. According to the 2020-21 budget, the government was expected to earn about 77 trillion tomans [$3.08 billion] from domestic gasoline sales, while the figures shows that the total domestic gasoline sales this year will not exceed 50 trillion tomans [$2 billion]. This is a full-blown budget deficit for a government that thought it could increase subsidy sources by raising gasoline prices to the point where it could give so-called gasoline subsidies to more than 17 million households.
It had been said that the government was going to return all the gasoline revenues to the people in the form of gasoline subsidies. Gasoline subsidies of between 55,000 and 205,000 tomans were to be paid to the first seven deciles of lowest-income families, depending on the number of people in the family household. After all the bloody events of November 2019, not only was there no news of gasoline subsidies, but the crisis of the subsidy budget deficit became much more severe than it had been previously.
The Curse of Gasoline
November 2019 will be remembered as a bloody and significant chapter in the contemporary political history of Iran, but what happened is also instructive from an economic point of view.
Some Iranian officials believed that reforming the prices of fuel products was the key to resolving the government’s financial stalemate and that it would resolve problems such as fuel smuggling.
What happened in reality was not a price reform or groundwork for a lasting solution to Iran’s economic problems. Instead, it was a simplistic implementation of a one-dimensional plan, the designers of which had little knowledge of economic reform and no realistic understanding of the fragile state of society. Not only did November 2019 not untie the knot of the crisis-ridden state of Iran’s economy, but it also elevated the crisis in the Islamic Republic to a new level.