Iran – The Chronicles of the Subsidy Reform: Successes, Controversies, and Shortcomings of the 2010-2014 Reforms and Lessons for Future Reformers

Abstract

We review the experience of Iran’s Targeted Subsidies Reform, from the early successes that followed its implementation in December 2010 to the challenges encountered in 2012-13. We discuss briefly the key elements of the second phase of the reform launched in March-April 2014. The short interval between the start of the reform in December 2010 and the intensification of international sanctions against Iran in late 2011, in particular the country’s crude oil exports and access to the international financial system, made the reform particularly difficult. The sanctions severely impeded Iran’s access to international technologies, expertise, and investment needed to facilitate more rapid and orderly reduction of the economy’s energy intensity and its re-orientation towards non-oil exports.We address several popular criticisms of the key elements of the reform design, implementation record, and broader economic and social impact. We identify and elaborate on the most critical design and implementation shortcomings. We propose options for the next steps in subsidy reforms, and put them into the context of broader reforms to modernize the economic architecture in Iran and other oil and gas exporting countries.