Iran’s Raisi cuts back on bread subsidies

Iranian president Ebrahim Raisi has announced plans to cut back bread subsidies as wheat prices soar globally and Tehran tries to steer an economy hard hit by US sanctions on oil exports.

The government will offer citizens digital coupons that will allow them to access a limited amount of bread at subsidised prices, while the rest will be available at market rates. The bread scheme will come into force in about two months. The scheme will later include other goods such as chicken, cheese and vegetable oil, officials have said.

In a live televised interview on Monday night, Raisi extolled the benefits of reforming a subsidy scheme that covers everything from oil to bread, costs up to $100bn a year and that many cash-strapped Iranians have come to rely on.

“Today, subsidies are being wasted and people are witness to corruption and discrimination in this regard. How can we let this continue?” Raisi said. “People and the elite urge us to reform the economy and we are determined to do so.”

Tehran has previously been loathe to tackle subsidies. When it increased petrol prices three years ago, there were widespread protests, the most violent since the creation of the Islamic state in 1979. Hundreds of demonstrators were killed in the subsequent crackdown, according to Amnesty International.

The price of wheat on the global market has jumped since the start of the Russian conflict with Ukraine, adding to the cost of subsidies. Russia and Ukraine account for about 30 per cent of Iran’s grain imports. Inflation was already high in the Islamic republic, hitting 39.2 per cent in April.

The rising price of bread has already sparked sporadic demonstrations in southern towns over the past week and authorities have increased wages of labourers and civil servants by up to 60 per cent to compensate for the rise in consumer prices.

Saeed Laylaz, a reform-minded economist, said the plan was “a necessary, painful surgery” for the country’s economy. Rising wheat prices had made the situation even more urgent. “Iran’s economy cannot afford to continue its money-splashing any more,” said Laylaz. “Festivities are over.”

The rise in global oil prices and China’s emergence as a buyer of Iranian crude have helped Tehran withstand the impact of economic sanctions imposed by the US after former president Donald Trump abandoned the nuclear deal in 2018. Raisi has promised economic growth of 8 per cent this year.

The Biden administration has been holding indirect talks, mediated by the EU, with Iran for about a year in the hope of securing an agreement that would lead to Iran reducing its nuclear activity. In return, the US would rejoin the accord and lift sanctions. The talks in Vienna have stalled since March. Iran has urged the US to remove its Islamic Revolutionary Guard Corps — which is designated as a foreign terrorist organisation — from the sanctions list. 

Raisi’s efforts to reform the economy faces no serious political opposition, analysts say. Iran’s supreme leader Ayatollah Ali Khamenei on Monday called on all politicians to back the government to implement its reforms.

Iran’s parliament speaker Mohammad Bagher Ghalibaf said on Sunday that the legislative body and the government of Raisi would co-ordinate the issuance of coupons. Prices will rise gradually and only once people have digital coupons, he said.

It is unclear when the rest of the subsidy system will be reformed. The subsidy of foreign currencies for importers of food and medicine will not immediately change, Ghalibaf said. One US dollar, under the subsidised currency system, buys IR42,000. The rate in the open market is about seven times higher. Abolition of subsidised currencies could further boost the cost of imported wheat.

While Iranians’ diet is a mix of bread, rice, potato and pasta, the poorest Iranians and also millions of Afghan refugees rely on subsidised bread.

“Our income keeps shrinking and it seems we have to sell everything only to afford food,” said Sara, a housewife and mother of two children. “It’s been some years that I cannot afford red meat. And now chicken and fish have almost become unaffordable. It seems this will soon happen to bread, pasta and potatoes, too.”