Daily Israel Report

Economic Woes May Spur Ahmadinejad’s Downfall

Colossal hikes in Iran may throw its troubled economy into chaos and spur renewed street protests. Police arrest economist for opposing policies.
By Tzvi Ben Gedalyahu
First Publish: 12/29/2010, 1:45 PM / Last Update: 12/29/2010, 4:13 PM

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Removal of heavy subsidies has sparked colossal hikes in the price of oil and utilities in Iran, possibly throwing its troubled economy into chaos and spurring renewed street protests. Police already have arrested one economist for opposing the removal of subsidies.

The price of gasoline jumped by 600 percent and more within days after last week’s announcement by Iranian President Mahmoud Ahmadinejad that state subsidies are being overhauled in order to prevent spiraling inflation.

However, the removal of subsidies has had the opposite effect, and the Washington Post reported that some truck drivers have protested by a work stoppage.

Although Ahmadinejad has cut subsidies, he has retained price controls, meaning that while the cost of bread has tripled, sandwich sellers cannot raise prices. Despite the sharp rise in gasoline prices, the government allowed only an 8 percent hike in taxi fares.

He has ordered the feared police militia to make sure merchants do not charge beyond the allowed prices.

Price hikes in the 1990s spurred riots that were quelled with the use of helicopter gunners. The government already has warned that opponents of the new economic policy will be treated as rebels.

Iranian police arrested economist Fariborz Raeis Dana after he told the BBC that the subsidy cuts are a "hallucination" because they will worsen poverty and unemployment.

The removal of the subsidies means that “at least one major part of the Islamist Revolution is begining to fall apart, CBS Marketwatch reported Tuesday.  

Ahmadinejad for years has been a champion of “tax the rich and help the poor,” but the drastic move of removing most of the subsidies will drastically hurt merchants in all sectors of society. Some factories have stopped operating, causing more unemployment, which is estimated at between 12 and 22 percent, coupled with inflation of approximately 20 percent.

Coupled with crippling sanctions imposed by most of the international community, a continuing adverse effect on the economy by Ahmadinejad’s latest policies could spur the anti-government turmoil that the United States has been hoping for, Fox News reported Monday.

The Obama administration is turning up the pressure on Iran, announcing last week new sanctions on banks that are linked with the Iranian Revolutionary Guards, a major owner of the country’s factories and oil facilities.