A banner shows pictures of Iraq's top Shia cleric, Grand Ayatollah Ali al-Sistani, and Iran's late Supreme Leader Ayatollah Ali Khamenei, on a street in Tehran, Iran [Majid Asgaripour/WANA via Reuters]By Maziar MotamediPublished On 23 Aug 202623 Aug 2026
Tehran, Iran – The Iranian government is preparing the public for another increase in fuel prices as it attempts to buoy the country’s ailing economy.
With the United States’ siege of Iran’s seaports and the economic impact of the war continuing, the offer of heavily subsidised fuel to the country’s 93 million population is a burden that the government is struggling to afford.
The International Monetary Fund predicts that Iran’s gross domestic product (GDP) will contract by 5.4 percent in 2026.
Hiking the price of petrol in this oil-rich country has already sparked unrest before, including nationwide demonstrations in 2019. Such measures also preceded the January 2026 protests by several weeks.
So authorities are treading carefully, with a final decision expected over the coming weeks.
“I understand that we have many problems in society now. We are doing our best so the people are not afflicted, but the enemy is doing its absolute best so we won’t succeed,” President Masoud Pezeshkian said during a speech on Sunday morning, alluding to the six-month US-Israel war on Iran.
After US President Donald Trump threatened to target Iran with the “most crushing economic operation” ever undertaken against any country, the Iranian rial hit a new all-time low of 2 million rials per the US dollar in Tehran’s open market on Sunday afternoon.
On Friday, Pezeshkian noted that the price of fuel in Iran is considerably lower than in most countries in the world.
He said his administration pays 1.3 million rials (65 US cents at the current rate) per litre of petrol produced by refineries. The lowest price tier offered to the population is 15,000 rials (less than 1 cent) per litre (0.26 gallons).
Two other price categories for personal vehicle use – one at 30,000 rials (1.5 cents) per litre and the third at 50,000 rials (2.5 cents) – are also eating into the government’s finances.
Meanwhile, Iranians with imported, free-zone or newly registered vehicles are liable for the highest-price tier.
Still, there are limits to the amount of subsidised fuel Iranians can purchase, with each category having its own monthly quota, and sales are only allowed with a fuel card.
Pump stations have their own cards that offer some extra fuel at the highest-price category, but with a single-use limit of 25 litres in Tehran.
The quota for the cheapest category is 60 litres. From the start of the current calendar year in late March, authorities cut the quota for the second category from 100 to 70 litres. After two weeks of fighting between Iran and the US erupted again in July over the Strait of Hormuz, this allowance was cut again to 50 litres.
Iranians now consume roughly 135 million litres per day of fuel, with authorities saying earlier this month that production was at about 121 million litres per day.
To compensate for these financial losses, the government has attempted to increase refinery production, used petrochemical products, and reduced the quality of fuel by diluting it. Fuel imports have also stopped due to the war.
The government’s head of energy optimisation, Esmail Saghab-Esfahani, told state television last week that there are three options – each with their own complexities.
One option, he explained, is a first-come, first-served mechanism whereby prices would remain unchanged, but pump stations would simply shut down after running out of their allocated petrol.
Another is to offer all Iranians – including those without a vehicle – roughly 30 litres of fuel per month at the lowest price tier. Those who don’t drive could sell their monthly quota if they choose.
The third option is to liberalise the price of fuel for all, with the government reportedly considering a price of 872,000 rials (about 44 cents) per litre. But the consequence of this would be to create another huge inflationary bubble, with the massive increase in transport and logistics costs for businesses being passed on to consumers.
This price is closer to the refinery production price tag, and was almost implemented in a pilot programme in Kerman, the country’s largest province, in southeastern Iran.
Local authorities, reportedly in conjunction with the government, announced the new prices would be enforced in 204 pump stations across the province overnight into August 13. But the government cancelled the pilot scheme at the last minute, and contradicted local officials by saying they were not consulted on the move.
Nevertheless, the government has signalled that a considerable price increase is in the works.
On Friday, First Vice President Mohammad-Reza Aref said that the cheapest price tier with the 60-litre quota must remain in place. But the second quota could gradually fall, and prices should ultimately be liberalised transparently with proceeds directed toward vulnerable people.
“The government keeps talking about how fuel prices don’t match other countries, but it doesn’t like to talk about how salaries don’t even begin to match other places, or other expenses,” Mostafa, who earns 300 million rials ($150) a month working at a clothing shop in western Tehran, told Al Jazeera.
He explained that while the cost of driving to work in his 15-year-old Iranian-made vehicle does not factor heavily in his monthly calculations, housing, food and other runaway expenses are a major challenge after months of war, blockade and intensified US sanctions, as well as domestic mismanagement and state-imposed internet shutdowns.
Figures released by the Statistical Center of Iran in July reported that prices were 88 percent higher compared to the same month last year, with food inflation standing at over 128 percent.
A 55-year-old man working as a driver for multiple online ride-hailing services told Al Jazeera that conversations with passengers often turn into expressions of anger and frustration about the deteriorating living conditions in Iran.
“Everything will get more expensive a little while after fuel gets more expensive,” he said. “We’re already getting crushed by the prices we have today.”
