The gas price hike – and ensuing protests – may be dominating headlines but the debate over whether gas is affordable or expensive rages on. Everyone agrees that the sudden threefold increase in gas prices was a serious error. But not everyone agrees on whether the move was extortionate or actually brought prices more in line with economic reality.
Analysts who say gas is now too expensive do so by comparing its price with people's purchasing power and income levels; they conclude that given income levels, Iranians are forced to purchase one of the most expensively-priced fuels in the world.
But advocates of liberalized economies convert the daily gas price into dollars and compare it to regional and international prices. They argue that the price of gas around the world – with the exception of Iran and Venezuela – is based on real and floating prices. And they add that nowhere is the price of gas set according to people's purchasing power; rather, prices are based on the cost of production, or on the cost of importing through the international market.
Iran’s government has for years controlled gas and oil prices regardless of actual prices – and the government has kept these prices at a constant level. During 2014 and 2015, when gas was priced about 3,000 tomans per liter, and the decline in world oil prices caused the gas price to fall, Iran's pricing neared the Persian Gulf FOB (“free-on-board”) prices for a short period of time. Many analysts said it was time to stop controlling gas prices and let market forces take over – but the government declined such a shift in policy. Since then, the government has always offset price differences by offering subsidies to maintain the price of gas at 1,000 tomans per liter. But for how long? Iran’s gas price has fallen below 10 cents, with the rise in foreign currency rates, which ranged from one fifth to one tenth of the gas price in neighboring countries. That is why gas smuggling has boomed in the last two years and officials in Iran, including President Hassan Rouhani, have said that about 10 percent of the country's total consumption is smuggled daily for sale outside Iran.
Gas smuggling has squandered national resources – though not enough to correct prices and break the taboo of the 1,000 tomans per liter price. The situation worsened as sanctions tightened and government funds continued to drop.
The question is: when and how should Iran’s government adjust gas prices to a more realistic level? When Iranians’ livelihoods dangle by a thread and are about to break? The price hike has sparked an explosion of impatience in Iran – as seen through widespread protests – and gas prices are a life-and-death issue in the country.
Iranians do not care whether the price of gas – even after its tripling – is still the lowest in the world after Venezuela. What matters is the wrath of an average Iranian worker, after spending an overwhelming share of income on gas, still has one of the worst purchasing powers on record. Economic logic makes no impression on people under such dire circumstances.
Comparison of Gas Prices Based on Per Capita income
The following national income per capita data has been retrieved from the World Bank’s Open Data site. It has been assumed that national per capita income has remained stable over the last two to three years; in reality, it has declined significantly due to the Iranian economic downturn.
Pricing information on gas has been taken from Bloomberg. The price covers the third quarter of 2019. The price of gas in Iran on this website is equivalent to 11 cents. We assumed this figure to be 30 cents due to the recent increase.
However, it should be noted that the consumption of gas varies from country to country. The dependence on gas is much higher in some countries, such as Iran or the United States, and less in other places, such as European countries that often have different transportation systems, as well as low-income countries, such as India and Pakistan.
Iran: The latest national per capita income figure is $5,470 per year or $15 per day. The price of 30 cents per liter of gas amounts to two percent of the daily national income per capita. Before the priced tripled, the price of one liter of gas in Iran was about 0.6 percent of the average daily income.
Saudi Arabia: The national income per capita in Saudi Arabia is $21,540 per year or $59.20 a day. The price of a liter of gas in the third quarter of 2019 was $0.58. The cost per liter of gas in Saudi Arabia is slightly less than one percent of the average daily per capita income.
Turkey: According to the latest statistics, per capita national income in Turkey is $10,380 or $28 a day. The average price of gas in the third quarter of 2019 was $1.25. Thus, the price of one liter of gas in Turkey accounts for about 1.5 percent of the average per capita income per day.
Brazil: Brazil's national income per capita is $9,140 per year or $25 a day. The price of one liter of gas is $1. Thus, the price of gas is about 4 percent of the daily national average per capita income.
United States: The national income per capita in the United States is $62,850 per year or $172 a day. The price of gas in the United States was about 80 cents in the summer. Thus, the price of one liter of gas is less than 0.5 percent of the average daily income of the people of this country.
United Kingdom: The national income per capita in the UK is $41,340 or $113 a day. In the third quarter of 2019 the gas prices were $1.58. Thus, the price of a liter of gas in the UK is about 1.4 percent of the average daily income of the people of the United Kingdom.
Pakistan: Pakistan's per capita national income is $1,580 or $4.3 per day. But the latest price of gas in Pakistan in the third quarter of 2019 was 72 cents. Thus, the price per liter of gas in Pakistan is about 17 percent of the average daily income of the people of Pakistan.
India: India's national income per capita is $2,020 or $5.5 a day. The average price of gas in the third quarter of 2019 was $1.08. Thus, the price per liter of gas in India is about 20 percent (equivalent to one fifth) of the average daily income of the people of India.
These calculations are, of course, based on the national income per capita, which is the average share of everyone in the Iranian economy. In addition, these calculations do not include gas consumption. In Iran, which has one of the highest gas consumption rates worldwide, the conditions are different from India and Pakistan and the Iranian people have to spend more money on gas; so the fluctuations in prices have a bigger impact on them.