Iran Analysis: Ahmadinejad Walks a Tightrope to Bring Out His Subsidy Cuts

On Saturday night, after months of delay, President Ahmadinejad finally declared that some subsidy cuts --including reductions on bread, gasoline, and utilities --- would begin in Iran at midnight. 

While there are still limits on the prices that can be set, the new cost of a subsidised, rationed litre of gasoline rose 300%, from 100 to 400 tomans ($0.10 to $0.40), and the cost of an un-rationed litre was moved to 700 toman ($0.70), a rise of 75%. Earlier in the day, Iranian officials also said the ration for subsidised gasoline for private motorists would be cut 15%.

Earlier Analysis: Will Ahmadinejad Succeed on Subsidy Cuts?

Even this first step, which was supposed to be taken in September, may prove a difficult one for the President. A leading EA correspondent who watched the speech summarises:

My initial feelings are that Ahmadinejad is conscious he was walking on a tightrope. He was continously is trying to convince people, as if he could feel their scepticism. At one point, he reached out by claiming ---- rather sensationally --- that he was a freelance taxi driver, so he fully knows the plight of motorists.

The economic reality is that, whatever the merits in principles of the subsidy cuts, Ahmadinejad's approach has been haphazard and remains so. On the one hand, the targeting of bread and gasoline guaranteed dramatic headlines and long queues at gas stations, as motorists tried to beat the implementation of the increased prices. Thousands of police in riot gear were reportedly at the gas stations to deter violence, and police were also seen patrolling streets and guarding banks.

On the other hand, the grand Presidential plan remains vague. He declared that each family member would receive 80,000 tomans ($80) over two months and could begin withdrawals on Sunday; however, he urged people not to rush to the banks to withdraw the funds. "Should they get the money and go shopping, it will disrupt the market and people themselves will be harmed." he cautioned.

Our correspondent continues:

There is not much substantial and hard fact information beyond the gasoline rise. Ahmadinejad said, "Wait for the new water and electricity bills to reach you in a couple of months and see what has changed" and "even if we don't get it right at the first stroke, we will correct things on the
second or third try".

There is no orderly method being applied across society. Gasoline and a very few other goods are being re-priced in a clear and universal way. The rest is unclear and murky.

And it is in that murk that we will try to make out some political as well as economic reactions today.