Iran has raised fuel prices by 40 percent and scrapped an eight-year-old rationing program for private motorists as President Hassan Rouhani’s government seeks to shore up public finances.

Gas stations will sell regular fuel for 10,000 rials (36 U.S. cents), a liter, said Naser Sajadi, head of national Iranian Oil Products Distribution Co., according to Iranian state television. Under the plan that’s being discontinued, monthly consumption of up to 60 liters was at 7,000 rials a liter. The change will come into effect on Tuesday, Sajadi said.

Iran, an OPEC member, is scaling back a subsidy program that, along with international sanctions over the country’s nuclear program, has squeezed public finances. The decision to raise fuel prices will bring in about $1.8 billion in revenue in the Iranian year ending March 2016, said Saeed Laylaz, an economist and former adviser to ex-President Mohammad Khatami, downplaying its effect on inflation.

“This will create a better balance in the budget,” he said by phone from Tehran. “The government has succeeded in bringing the inflation to a third of what it was 20 months ago so there is no more unease” over inflation, he said.

Rouhani, who was elected last year, inherited one of the highest inflation rates in the Middle East as sanctions crippled the economy and pushed the government’s budget into deficit. The International Monetary Fund estimates this year’s budget shortfall at 2.7 percent of economic output.
An interim nuclear accord with world powers, though, has helped stabilize the currency and reduce the annual inflation rate to about 14 percent in the month ending May 20.
Ahmadinejad’s Legacy

Gasoline rationing was a legacy of former President Mahmoud Ahmadinejad, who introduced the plan in 2007 to cut consumption subsidized fuel and limit smuggling to neighboring countries. At the time, Iran spent some $5 billion a year to import gasoline.

Three years later, Ahmadinejad started phasing out food and energy subsidies, replacing them with monthly cash handouts to almost every Iranian. Rouhani’s government is attempting to restrict the handouts to the nation’s poorest by eliminating those deemed less needy.

In line with Monday’s decision, Iran will sell premium gasoline at 12,000 rials, gas oil at 3,000 rials and jet fuel to 6,000 rials per liter, Davoud Arab-Ali, a spokesman for National Iranian Oil Products Distribution Co. said, according to the oil ministry’s news website.

This article was written by Ladane Nasseri for Bloomberg Business on May 25, 2015.