Iran has reduced the ration of heavily subsidised gasoline motorists can buy each month, an official said on Saturday, in a tentative first step towards slashing long-standing government price supports.

Iranians have been expecting a big rise in the price of gasoline for the last three months as the government starts to phase out the $100 billion spent annually to hold down prices of essentials like fuel and food.

Amid fears over a hostile public reaction, gasoline subsidies which allow Iranians to fuel their cars for just 1,000 rials (about $0.10) per litre had not been touched until now and the measure announced on Saturday was less severe than expected.

People rioted when the government started rationing subsidised petrol in 2007 and some analysts say big price hikes could reignite unrest which flared after President Mahmoud Ahmadinejad's disputed re-election last year.

Iranian politicians have discussed cutting subsidies for years to stem wasteful consumption of valuable resources but Ahmadinejad has finally pushed the measure through at a time when Iran is under increasing pressure from sanctions imposed by countries concerned about its nuclear programme.

Recent sanctions have targeted a vulnerability caused by Iran's lack of refining capacity which means the world's fifth-largest oil exporter has until recently had to import up to 40 percent of its gasoline needs.

U.S. sanctions punish companies that sell gasoline to Iran and European Union measures ban the sale of equipment which can be used in Iran's refining sector.

The Iranian official in charge of rationing said subsidies would be cut in the next Iranian month, which starts on Wednesday, three months later than initially anticipated.

But rather than raise the price of fully subsidised gasoline, the ration will be trimmed, with each motorist allowed 50 litres per month, down from 60 litres. Beyond that amount they have to pay a "semi-subsidised" price of 4,000 rials.

"Government support for vehicles will decrease by 15 percent in (the month of) Dey and the price of rationed gasoline will be the same," Mohammad Royanian, head of Iran's Transportation and Fuel Management Office, was quoted as saying by state broadcaster IRIB.

Earlier this month the government denied a newspaper report which quoted the economy minister as saying the gasoline price would rise seven-fold.

Inflation fears

The total amount of fully subsidised fuel sold in Iran will be cut to 39 million litres per day from 45 million litres, Royanian told the semi-official Fars news agency. Iranians consume some 61 million litres per day, according to the Oil Ministry.

Officials announced in September that an emergency plan to refine gasoline in petrochemicals plants now meant Iran no longer needs to import the fuel. Iranians fear the home-made fuel is of lower quality and has contributed to a big increase in pollution, something the government denies.
Consumers and many politicians fear subsidy cuts could cause inflation to soar from the official rate of around 10 percent, something which could increase dissatisfaction with Ahmadinejad's government.

One member of parliament, Dariush Qanbari, said direct cash payments that the government has promised to pay to poorer families will not make up for price hikes.

"Based on what economy experts have said the country's inflation rate will increase by 20 to 70 percent in the coming year and the government's compensation policy should be such that the weaker segments of society can meet their basic needs," Qanbari told the semi-official ILNA news agency. – Reuters