Iran's Price Wars

By Rana Foroohar and Babak Dehghanpisheh
The news last week that Iran may stop subsidizing gas, food, and other basic goods came as a surprise. While experts agree that Iran's subsidies distort the economy and encourage overconsumption, President Mahmoud Ahmadinejad has not been known for his economic prowess before now. During his four years in office, his ill-conceived policies have created high inflation, and he's plundered Iran's sovereign wealth fund to reward cronies. 

It turns out that Ahmadinejad hasn't finally seen the light; he may just be preparing for coming sanctions. If Iran continues to defy the West over its nuclear program, more trade restrictions are likely--meaning more pain for a country that imports 40 percent of its gasoline. The president has already depleted the country's economic shields. Cutting subsidies is one way both to prepare for leaner times and to save some much-needed cash. But many in the government are worried the president will misuse the savings, a big reason the proposed cuts haven't passed parliament yet. If they do, civil unrest is likely. If that dovetails with ongoing opposition protests, subsidies may be the last thing Ahmadinejad has to worry about.