Monday, December 20, 2010

Oil subsidy cut: Is Iran turning free market?

Recent international news say that gas prices in Iran have rose from $0.38 a gallon to to $1.44 after the Iranian government drastically cut oil subsidy. That's a 3.78 x increase or almost quadrupling of oil prices. And that's only for the monthly ration level of 16 gallons per week per car. Beyond that level, the price further rises to $2.64 a gallon. These moves will drastically cut the $114 billion a year annual oil subsidies by the government. See the report, Gas Prices Soar in Iran as Subsidy Is Reduced.

Not only oil subsidy, but also subsidies for water, electricity, and bread will be cut piecemeal. Are these signs that the Iranian government is turning free market and moving away from a big nanny state?

Nope. The Iranian government is doing it because of heavy strains caused by global economic sanctions. So Iran cannot export as much oil as it wants to. Which shrinks potential global oil supply.

Statism often attracts statist counter-measures from other countries. So Iran government's nuclear ambition -- what for, erase Israel and other "infidels" from the face of the Earth? -- is attracting counter-measures from other governments.

I wonder if without the militant posturing by the big Iranian government, if the ordinary Iranians would share its view that Israel should be oblitated from the face of the Earth. Most likely not.

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