To say that Iran has had an eventful year and a half would be a gross understatement. This period began with an election, thought by many to be rigged, that kept President Mahmoud Ahmadinejad in power. Protesters took to the streets en masse, sporadically disrupting Iranian society and constantly infuriating and frightening the government. The violent response of the Ahmadinejad regime drew worldwide criticism for its harsh and indiscriminate tactics.
As the riots slowed and the dust settled, international attention again refocused on Iran’s ongoing nuclear program. After securing the support of Russia and the United Nations, the United States finally succeeded in imposing economic and military sanctions on Iran.
Though the efficacy of sanctions is hotly debated, many observers believe they have damaged the Iranian economy enough to be worthwhile. Iran’s recent actions may prove this analysis to be correct.
Over the weekend Ahmadinejad announced the impending elimination of massive state subsidies for gasoline and food. This bold move, which none of his predecessors had dared for fear of public reprisal, will in many cases prohibitively raise the prices of products that have been subsidized for decades.
Ahmadinejad argues that the huge subsidies, costing over $100 billion a year, encourage overconsumption of gasoline and makes Iran more dependent on imports. Eliminating them would allow Iran to adjust to a more market-based economy. In addition, a dramatic increase in the price of gasoline is expected to depress domestic demand, leaving more oil for export to the more lucrative international market.
Domestic critics of his plan contend that increased prices and the expected rise in inflation will cause chaos in a population already ailing from international sanctions. They cite the destruction of a dozen gas stations after a smaller rise in gas prices in 2007 as an example of what may come.
To address these concerns, Ahmadinejad plans on directly compensating poorer Iranians and small businesses for their hardship. He believes that increased oil sales and the money gained from eliminating subsidies will provide more than enough revenue to lessen the financial burden on the poor.
Foreign analysis of these reforms is mixed. Some believe the timing of the reforms will allow Ahmadinejad to blame increased prices and inflation on extra sanctions still being placed on Iran by the West. Others believe that these developments will prove more damaging to the Ahmadinejad administration than any sanctions ever could.
Whatever happens in Iran, it’s easy to predict that the next year and a half will be quite eventful.