The Fuse

Protests at the Pump: Unpacking Iran’s Oil Woes and the Gasoline Protests

by Gregory Brew | December 02, 2019

Protests in Iran, triggered by the sudden increase in gasoline prices on November 13, have killed approximately 400 people, according to a report from the New York Times. An internet shutdown imposed by the Iranian government has made total casualty figures difficult to verify.

The protests have revealed some of the deadliest violence to occur inside Iran since the Islamic Revolution of 1978-1979. But underneath it all is a story about oil: Specifically, the government’s struggle to balance its budget in the face of declining oil exports.

Iran has been a major oil exporter for decades. After agreeing to the Joint Comprehensive Plan of Action in 2015, also known as the Iran nuclear deal, Iran received relief from sanctions, including the freedom to export large amounts of oil for the first time in several years. Despite a persistent global supply glut, Iran was able to increase exports from 1 million bpd to 2.5 million bpd in about a year.

In 2018, the United States withdrew from the nuclear deal. In November of that year, President Trump re-imposed sanctions on Iran’s oil exports, though waivers were retained for some of Iran’s customers. In May 2019, the U.S. revoked all remaining waivers.

From 2.5 million bpd in 2018, Iran exported only 485,000 bpd in September 2019.

For the last six months, Iran has faced major obstacles in selling its oil abroad. From 2.5 million bpd in 2018, Iran exported only 485,000 bpd in September 2019. Former customers like South Korea, India, and Japan have all cut their imports. Only China has chosen to defy U.S. sanctions, though it currently purchases only a small amount of Iranian crude.

Precise figures are difficult to determine, as Iran continues to sell an undisclosed amount on the black market. China may be purchasing Iranian oil routed through Malaysia, with the oil transferred between tankers to conceal its origin.

An official admitted to the Iranian press in early November that exports had essentially collapsed, saying that exports had fallen “twenty times,” which would put total exports at roughly 125,000 bpd in November.

This presented a major challenge to Iran’s government, which has historically relied on oil export revenue for 20-30 percent of budget expenditures.

By late 2019 it had become clear that new revenue, along with deep budget cuts, would have to make up for the falling oil revenue.

In the upcoming fiscal year, which in Iran begins in March 2020, the government faces a budget deficit of $8.4 billion. Though analysts have pointed out Iran’s resilience and the economy’s ability to absorb the export shutdown, by late 2019 it had become clear that new revenue, along with deep budget cuts, would have to make up for the falling oil revenue. President Hassan Rouhani admitted to the Iranian press that the government faced unique challenges in balancing its budget.

The International Monetary Fund expects Iran’s economy to shrink 9.5 percent this year, with inflation increasing by 35.7 percent this year and 31 percent next year, evidence of a deep depression caused by stagnation, corruption, and U.S. sanctions. Raising taxes would only further exacerbate the country’s economic problems, while most government expenditures have been cut to the bone.

This left Iran’s government with one option: reforming the country’s energy subsidies. Policies undertaken by the Islamic Republic have kept fuel and energy prices artificially low for decades. While this has stimulated the economy and promoted consumption, it has had a variety of negative economic side-effects and has kept billions in potential revenue from state coffers.

On November 13 the government opted to raise gasoline taxes by 200 percent.

On November 13 the government opted to raise gasoline taxes by 200 percent. The announcement was made on a Thursday night, before the beginning of the Iranian weekend on Friday. While the government no doubt expected some protests—acts of civil disobedience and demonstrations against taxes are common in Iranian—few could have expected the scale of the upheaval triggered by the new taxes.

An internet shutdown and the use of deadly force by the government ended the protests by the end of November. While accurate statistics are difficult to acquire, Amnesty International estimates more than 100 people died in the violence, while 7,000 were arrested or detained.

It is unclear what the long-term consequences of the protests will be. But it is clear that the sanctions shutting off Iran’s oil exports will continue to impact the government’s shaky finances. Further efforts to cope with sanctions could produce more economic pain—and potentially more internal instability.

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