Iraqi economist defends gas price hike, says subsidies benefit the wealthy

BAGHDAD — A leading Iraqi economist has defended the government’s decision to raise prices on premium and super gasoline, arguing the current system disproportionately benefits the wealthy and drains resources from critical social programs.

Mahmoud Dagher, an academic and former Central Bank official, said on Al Sharqiya satellite channel that subsidies for higher-octane fuels cost the government 3 trillion Iraqi dinars ($2.3 billion) annually.

“The primary beneficiaries are not the impoverished classes, but rather those who are undeserving,” Dagher said, pointing to individuals who own luxury cars requiring higher octane gasoline.

According to him, the new price adjustment will allow authorities to redirect funds from gasoline subsidies towards other social projects like hospitals and schools.

Iraq’s government raised the price of premium gasoline on March 26 from 650 dinars ($0.50) to 850 dinars ($0.65) per liter, and super gasoline from 1,000 dinars ($0.76) to 1,250 dinars ($0.95) per liter. Regular gasoline prices remain unchanged.

Dagher further argued that Iraq’s extensive subsidy system has misallocated resources.

“We’ve become a country of subsidies and support,” he said. “This diverts resources from the fragile and poor segments of society.”

The price increase, he added, reflects the high cost of producing premium fuel, which was previously sold at a significant loss. According to Dagher, the cost of producing premium gasoline is 1,141 dinars ($0.85) per liter, while the sale price before adjustment was 650 dinars ($0.50).

He acknowledged public concerns about the potential impact on lower-income Iraqis but stressed the government’s decision was data-driven and targeted.

“Focusing on the poor should not come at the expense of schools and hospitals,” Dagher said. “The [government] decision was based on research and discussions, and there are no plans for further increases.”

The price hike takes effect on May 1, 2024.