By Kay Armin Serjoie and Thomas Erdbrink
Washington Post Foreign Service
Monday, December 20, 2010; 12:49 AM
TEHRAN - Police patrolled the streets of Tehran and other cities as Iran on Sunday started a politically sensitive overhaul of the way state subsidies are handed out.
Gasoline prices were increased overnight by nearly 60 percent, but most Iranians were allocated a small amount of fuel at severely reduced prices for the coming month in order to soften the price shock.
New, increased prices for products such as bread, heating oil, water and other utilities were expected to be announced Sunday, officials told state media.
The overhaul is highly sensitive because it will raise the prices of nearly all daily commodities and is expected to increase inflation. More than 60 million Iranians have been given the equivalent of $80 as compensation.
Many Iranians believe that cheap fuel - which until some years ago was less costly than water in the Islamic republic - is a birthright. When Iran introduced a gasoline rationing system in 2007, dozens of gas stations were burned down in the capital, but generally people adopted quickly to the change.
No incidents were reported Sunday, but riot police were seen on standby near key squares and gas stations. "We were told this would happen, but I don't know how to pay for fuel in the future," said Hamid-Reza, a young man driving an old SUV. He declined to give his family name.
President Mahmoud Ahmadinejad, during a live speech broadcast Saturday, announced the start of the plan, part of a key economic package aimed at creating a more equal division of wealth. He called it the "biggest surgery" to the nation's economy in half a century.
Serjoie is a special correspondent. Erdbrink reported from Amsterdam.