Hamid Mollazadeh
By introducing a new gasoline price of 5,000 tomans (3.57 cents) per liter under a three-tier system, Iranian policymakers appear to have altered the trajectory of one of the country’s most pressing structural imbalances: the relentless growth of fuel consumption.
According to the CEO of National Iranian Oil Refining and Distribution Company, the policy marks a turning point in demand management—one that is already reshaping consumption patterns across the downstream energy sector.
Under the new scheme, which took effect on December 13 (Azar 22), monthly personal fuel card quotas of 60 and 100 liters continue to be allocated at 1,500 and 3,000 tomans per liter respectively. In cent terms—based on the official conversion benchmark—these translate into approximately 1.07 cents and 2.14 cents per liter.
The critical adjustment lies in the marginal price. Gasoline consumed beyond the monthly quota is now sold at 5,000 tomans per liter, equivalent to roughly 3.57 cents. While still heavily subsidized by international standards, the differentiated pricing structure has introduced a clearer economic signal into a market long characterized by distortion.
Demand Growth: From Double Digits to Deceleration
Comparative data between December 13 and February 13 over recent years reveal a striking shift. Gasoline consumption growth in 1401 (2022–23) reached 14 percent year-on-year. The pace moderated to 7 percent in 1402 and 6 percent in 1403.
These figures were already raising alarms within the refining industry, given limited domestic refining capacity and mounting pressure on fuel imports. However, in 1404, following the implementation of the three-tier pricing model, growth in the same period dropped sharply to approximately 2 percent—effectively halving the previous year’s expansion rate.
For industry observers, the message is unambiguous: even modest price corrections can significantly influence consumer behavior when paired with tighter distribution controls and enhanced monitoring mechanisms.
The four-percentage reduction in growth acceleration, according to company officials, is not attributable solely to price adjustments. It reflects a broader reconfiguration of supply mechanisms, anti-diversion measures within the distribution network, and improved transparency in fuel allocation.
Tackling the Black Box: Station Fuel Cards
One of the most consequential structural changes has occurred in the share of gasoline dispensed through emergency station fuel cards.
Historically regarded as one of the least transparent nodes in the distribution chain—and a key leakage point vulnerable to diversion and smuggling—the share of fuel supplied via these cards has fallen from roughly 43 percent to around 25 percent.
The decline suggests a decisive push toward mandatory use of personal fuel cards, thereby enhancing traceability and real-time consumption monitoring nationwide.
For regulators, this represents more than administrative tightening; it is an attempt to reassert control over a fragmented distribution ecosystem.
Broader Fuel Basket Contraction
The ripple effects extend beyond gasoline. Over the past 16 months, consumption of liquefied petroleum gas (LPG) and kerosene has each declined by 14 percent, while gasoil (diesel) consumption has fallen by 4 percent.
The contraction indicates that demand-side management is not confined to a single product but is reshaping the broader fuel mix.
Significantly, last year Iran imported nearly $1 billion worth of diesel to bridge domestic shortfalls. This year, authorities report navigating the winter season without diesel imports and without electricity blackouts—an outcome portrayed as evidence of improved balance between production and consumption.
On the supply side, domestic refinery output has surpassed 110 million liters of gasoline per day. Notably, this expansion occurred alongside 22 major overhauls conducted across 90 percent of the country’s refineries.
For example, a long-delayed overhaul of the gasoline-producing unit at the Arak Oil Refinery—postponed for three to four years—was completed this year without disrupting fuel supply.
This operational feat underscores a simultaneous commitment to infrastructure renewal and supply continuity.
Parallel to quantitative expansion, qualitative upgrades have advanced. Over the past 16 months, four major refining projects valued at over $875 million have entered operation.
These include a hydrocracking unit at the Abadan Oil Refinery, an isomerization unit at the Shiraz Oil Refinery, a diesel quality enhancement project in Shiraz and a kerosene upgrading unit at the Isfahan Oil Refinery.
The result has been a three-percentage-point increase in the average share of gasoline and diesel meeting Euro 4 and Euro 5 standards compared to the previous period.
In a sector often criticized for lagging environmental compliance, this incremental improvement carries strategic weight, particularly as domestic air quality concerns intensify.
Revenue Measure or Behavioral Lever?
Officials insist that the 5,000-toman tier—3.57 cents per liter—is not primarily a fiscal maneuver but a behavioral instrument. The empirical evidence thus far supports the claim.
Slowing consumption growth from 6 percent to 2 percent in a structurally fuel-intensive economy suggests that calibrated pricing mechanisms, when reinforced by digital oversight and distribution reform, can influence demand elasticity even within a subsidized framework.
The broader question, however, remains unresolved. Can this moderation in growth be sustained, or is it merely a short-term correction following policy shock?
Structural consumption drivers—expanding vehicle fleets, aging transport infrastructure and limited public transit penetration—continue to exert upward pressure.
Future phases of reform are likely to focus on fuel diversification, fleet optimization, and efficiency enhancement.
Without parallel investment in transport electrification, natural gas vehicle infrastructure and demand-side efficiency, pricing alone may struggle to lock in long-term equilibrium.
For now, the three-tier system appears to have bent the curve. Whether it has fundamentally reshaped it will depend on the coherence of subsequent reforms—and on policymakers’ willingness to deepen structural adjustments in a politically sensitive domain.
