Iran says gas price hike could deliver $17bn

Iran should raise domestic gas prices by around 10 times to help boost development of the sector and generate up to $17bn savings in state spending, Oil Minister Massoud Mirkazemi said in remarks published Monday.

The semi-official Mehr News Agency said the Oil Ministry had asked the government to allow it to hike prices to prevent a "consumption crisis," referring to growing household demand for heavily-subsidised natural gas.

"To deal with this problem I proposed to increase the price of gas by at least 900-1000 rials (about 10 US cents) per cubic metre," Mirkazemi said, adding that an "improved consumption pattern" would lead to savings of $16-17bn.

Iran sits on the world's second-largest natural gas reserves after Russia, but sanctions blocking access to modern technology and other factors have slowed its development as an exporter.

The government of hardline President Mahmoud Ahmadinejad, whose disputed re-election last year sparked widespread opposition protests, wants to phase out costly energy and food subsidies over five years.

The government argues this would help boost the economy by freeing up resources for use elsewhere and that those in need would be compensated with cash payments.

Lower subsidies and a subsequent fall in demand could also reduce Iran's vulnerability to any move to impose sanctions affecting its gasoline imports.

But parliament has rejected plans to save about $40bn through subsidy reductions in the 2010-11 Iranian year, adopting a budget with savings of about half that amount.

Analysts say subsidy cuts could stoke inflation and trigger further unrest, with many ordinary Iranians complaining of rising consumer prices.

Mirkazemi said the price of gas used as feedstock for refineries should also be increased, arguing this would benefit investments in the sector by creating greater certainty.