The Iranian government is faced with a major conundrum. On the one hand, all policymakers know that subsidized fuel prices are unrealistically low, leading to a series of socioeconomic crises. On the other hand, the government is very concerned about the social backlash of adjusting fuel prices. In 2019, a sudden price hike led to major civil upheaval—a scenario that the Islamic Republic cannot risk again, especially in a period when the government is trying to regain some of its lost legitimacy.

Impetus for change

President Masoud Pezeshkian has not hidden his desire to reform fuel subsidies in order to address various “imbalances” in the economy. In fact, a deliberate approach to this issue could address a number of disparities: it would...