Iran Delays Cuts to Energy, Consumer Goods Subsidies, State TV Reports

Iran’s government will cut subsidies for fuel and basic consumer goods in the second half of the new Iranian year that started on March 21, state television reported, citing Welfare Minister Sadegh Mahsouli.

The government had announced plans to slash subsidies and replace them with targeted grants for the poor, starting this summer. On May 13, President Mahmoud Ahmadinejad said the measure would go into effect in September. Mahsouli didn’t give reasons for the delay.

The plan, which involves phasing out subsidies over five years, comes at a time of growing economic pressure on Iran. The Persian Gulf country is under four sets of United Nations sanctions over its nuclear program. The U.S. on July 1 passed additional sanctions targeting Iranian fuel importers and banks, while European Union governments are also preparing to impose their own punitive measures.

Subsidies have been a tenet of the Islamic establishment since it took power in 1979 and accounted for 27 percent of Iran’s economy in 2007, with energy consuming the largest share. Several Iranian lawmakers and analysts have warned that cutting back subsidies may encourage inflation and reduce growth.

“Subsidy reforms can be carried out when the economy is booming,” parliamentary member Hamid-Reza Fuladgar said in May. “When the country is faced with deep recession, it will undoubtedly harm the economy.”

Nuclear Program

The U.S. and its allies have been tightening restrictions on Iran, which they accuse of seeking to develop atomic weapons under cover of its nuclear program, an allegation Iran rejects.

President Barack Obama on July 1 signed legislation that punishes foreign suppliers of Iran’s gasoline and blocks access to the American financial system for banks that do business with the country.

European Union governments are also set to impose their own punitive measures, which include a ban on investing or selling equipment to Iran’s energy industries as well as restrictions on export-credit guarantees and insurance.

To contact the reporter on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net

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