Iran Implements Three-Tier Gasoline Pricing: A Major Shift in Fuel Policy Amid Rising Shortages
Chronic under-investment, sanctions, rapid consumption growth, and heavy subsidies have generated a widening gap between supply and demand.
Iran faces a deepening paradox in its energy sector: it holds some of the world’s largest natural gas reserves and historically cheap fuel prices, yet is increasingly unable to supply its own people with reliable energy. Chronic under-investment, sanctions, rapid consumption growth, and heavy subsidies have generated a widening gap between supply and demand. This imbalance now affects every part of the energy ecosystem—from winter gas shortages to summer blackouts, from rising fuel imports to expanding flaring. Against this backdrop, the government of President Masoud Pezeshkian has taken one of the most controversial and politically sensitive steps of his administration: the formal introduction of a three-tier gasoline pricing system starting in mid-Azar 1404.
For weeks, officials issued mixed and contradictory statements. While the president and several senior spokespeople repeatedly denied any imminent price change, Mohammad-Jafar Qaem-Panah, the Executive Vice President, insisted that raising energy prices were “inevitable” regardless of which administration did it. The publication of the cabinet decree—signed by Mohammad-Reza Aref—revealed that the plan had actually been approved nearly a month earlier, confirming the government’s quiet decision to restructure fuel pricing even as public denials continued.
Under the new measure, gasoline in Iran officially becomes three-tiered: 1,500 tomans per liter (subsidized), 3,000 tomans (regular), and 5,000 tomans (new “rate three”). The government has determined that the 5,000-toman rate corresponds to roughly 10% of the refinery purchase price, a figure that will be updated every season based on market fluctuations. According to the decree, from mid-Azar onward, fuel purchased using station emergency cards will be priced at 5,000 tomans per liter, while the 1,500 and 3,000-toman rates will remain unchanged for cardholders—up to a combined total of 160 liters per month.
Owners of more than one vehicle will now receive subsidized rates for only one car, a direct attempt to prevent wealthier households from accumulating multiple subsidized quotas. Even more controversial is the government’s decision to eliminate subsidized quotas (rates one and two) for new domestic cars, imported vehicles, government-license plates (except ambulances), and cars in free-trade zones, forcing all of them to use the 5,000-toman rate. Oil Minister Mohsen Paknejad stated that “new-numbered” cars are those freshly released from the factory, a justification that triggered widespread criticism on social media due to the lack of transparent economic logic behind the choice. Even government spokesperson Fatemeh Mohajerani acknowledged live on national TV that “there were both supporters and opponents”, and could not provide a clearer rationale when pressed.
The policy also authorizes the Ministry of Oil to recalculate and announce gasoline prices at the end of every season, a clause that drew sharp reactions—including from the spokesperson of the previous administration, who argued that if fuel prices adjust seasonally, “workers’ wages must also be increased every season.”
Meanwhile, another significant change is expected in the coming week: imported super gasoline, priced between 68,000 and 75,000 tomans per liter, will enter the market. This reflects Iran’s widening supply gap. Members of parliament have recently warned that Iran’s domestic refineries will produce only around 107 million liters per day this year, while average station sales have exceeded 127 million liters per day, creating a shortfall of at least 20 million liters—requiring roughly $4 billion in imports. Lawmakers urged the government to pursue “non-price measures” instead of what they described as a “shock-based price hike.”
The political sensitivity surrounding gasoline pricing cannot be understood without recalling the November 2019 gasoline price increase, when the government abruptly tripled the price overnight and imposed strict monthly quotas. The sudden announcement—made without public debate, consultation, or gradual implementation—triggered one of the largest waves of nationwide protests in decades, spreading to more than 100 cities within hours. The unrest was fueled not only by the economic shock but also by the perception that the government had acted secretly and imposed the decision without transparency.
The state’s crackdown on protests resulted in hundreds of deaths, thousands of arrests, and a long-term erosion of public trust, leaving a deep political scar that continues to shape the government’s behavior today. Since then, every administration—including the current one—has approached gasoline pricing with extreme caution, aware that even modest adjustments risk reawakening the public trauma of 2019. It is within this historical memory that the Pezeshkian administration’s three-tier pricing policy will now be judged.
Despite this sensitivity, pressure for reform has intensified since the 12-day war and repeated winter energy crises. Pezeshkian himself recently stated that gasoline prices must eventually rise, but emphasized that it “cannot be a one-night decision.” In reality, the plan appears to have been quietly prepared and approved well before being publicly acknowledged.
The government argues that the three-tier system is designed to protect low-income households while discouraging smuggling. Mohajerani stated that Iran needed a system that both reduces environmental and livelihood harm and raises the cost of smuggling, given the enormous gap between domestic and regional fuel prices. But critics note that the structure still heavily subsidizes consumption and does not address Iran’s deeper structural issues: inefficient vehicles, aging refineries, outdated distribution networks, and consumption volumes far higher than global averages.
These fuel-pricing reforms unfold amid a broader energy crisis. Despite massive gas fields like South Pars and recent discoveries such as the Pazan field, Iran faces winter gas deficits estimated at 250–300 million cubic meters per day, forcing rolling blackouts, pressure drops, and closure of offices and schools. Gas flaring has surged to around 63 million cubic meters per day, placing Iran among the top global emitters. Power plants burn heavy fuel oil (mazut) during shortages, triggering toxic smog in Tehran, Isfahan, and Ahvaz, repeatedly pushing schools to close.
At the same time, Iran’s regional energy leverage is weakening. Gas exports to Turkey and Iraq—roughly 9–13 billion cubic meters per year—remain significant but vulnerable, while domestic consumption grows unchecked. New swap arrangements with Turkmenistan, Russia, and Azerbaijan may help balance seasonal shortages but do not resolve the fundamental supply-demand gap. Subsidies exceeding $50 billion annually, widespread leakage, and inefficient buildings continue to undermine the system.
In this environment, the three-tier gasoline pricing plan marks the government’s most substantial—yet controversial—attempt to impose order on a rapidly deteriorating energy landscape. By raising the cost of “extra” consumption and restricting subsidized quotas to a single vehicle per household, the administration hopes to manage demand without triggering the type of public anger seen in 2019. Yet the political risk remains significant: lawmakers openly oppose price increases, public trust is low, and the economic logic behind some elements—especially the exclusion of newly manufactured cars from subsidized rates—remains unclear.
Iran’s energy crisis is no longer a problem of geology but of governance. Massive reserves have not translated into stable supply due to structural distortions, outdated infrastructure, and inconsistent policy making. The new gasoline pricing system may slow the rise in consumption, but without deeper reforms—investment in efficiency, modernization of refineries, reduction of flaring, and rationalization of subsidies—Iran risks facing even more severe shortages in the years ahead.