The scale of Iran's economic crisis became clear yesterday when the regime increased petrol prices by 25 per cent overnight and prepared to introduce fuel rationing. These measures may damage President Mahmoud Ahmadinejad's popular standing still further. In a country with 70 million people - at least half of whom are under 25 - the economy is stagnant and failing. High unemployment means that millions of students are unable to find jobs while prices of basic goods rise every month.This has combined to undermine Mr Ahmadinejad's authority. Four newspapers in Teheran are now openly critical of his performance and recent local elections saw a heavy defeat for his allies. Parliamentary elections are due next year and the president's party is expected to face a new alliance of moderate opposition forces. Yesterday's fuel price rise could affect the outcome of this election.
Although Iran has the second largest oil reserves in the world and produces 4.2 million barrels per day, it cannot refine enough of this crude oil into petrol. Due to the parlous state of its refineries, Iran must import about 40 per cent of its petrol. Importing petrol and then subsidising it costs the authorities about £2.5 billion last year. To reduce this cost and bear down on consumption, Mustafa Pourmohammedi, the interior minister, announced that prices would rise from the equivalent of four pence a litre to five pence. Formal fuel rationing is expected to be introduced on June 5. From then onwards, Iranians will be able to buy only three litres per day at the official price. Anything above will be supplied at 10 times the fixed price.