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Will Iran's subsidy phaseout spill over?

Jan. 20, 2011 at 9:40 AM   |   Comments

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WALTHAM, Mass., Jan. 20 (UPI) -- Oil-rich countries in the Middle East might look to Iran as an example of how to balance the economy with the potential for unrest, an economic analyst said.

Rising unemployment, government issues and pressure from sanctions targeting the country's energy in part prompted Iran to cut generous fuel subsidies.

Nader Habibi, an economics professor at Brandeis University in Massachusetts, told The Wall Street Journal that other countries might see Iran as a model for how to advance economic reform while keeping the peace.

"Eventually all these countries have to phase out their subsidies," he said. "They can take it slowly but what made it urgent for Iran was fiscal pressure."

The International Monetary Fund tied Iran's subsidies to wasteful energy practices. Iranian President Mahmoud Ahmadinejad under a five-year economic plan aims to phase out the subsidy program, saving about $100 billion a year.

Energy officials in the country said gasoline and overall energy consumption has declined in the wake of the phase out. The cost of gasoline and public transportation is rising and Iranians have yet to get their January electricity bills.

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