Iran kick-started a subsidy reform plan in December 2010 that was originally drafted to be implemented in three phases over five years. Given the change of government in 2013 and irregularities in the implementation of the original plan by the previous administration of President Mahmoud Ahmadinejad (2005-13), the second phase was only initiated in April 2014.

This article looks at the incumbent administration of President Hassan Rouhani�s potential options for how to wind down the current program, which was supposed to involve the removal of blanket subsidies and instead direct payment of cash handouts to vulnerable social classes.

It is evident that the Rouhani administration is faced with a dilemma: On the one hand, the law calls for the third phase of the original plan to be implemented, but on the other hand, economic realities have changed so dramatically that this implementation would damage�the economy. In the meantime, parliament is considering a provision in the 6th Five-Year Plan that would ask the government to discontinue the current cash handouts and to introduce a different approach to managing energy subsidies. This new law would once again change the dynamics of a plan that was misconceived from the beginning.
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This article was written by Bijan Khajehpour for Al-Monitor on Oct. 17, 2016. Bijan Khajehpour�is a managing partner at Atieh International, the Vienna-based international arm of the Atieh Group of Companies, a group of strategic consulting firms based in Tehran, Iran.