Freeing Prices Alone Cannot Save the Economy; Three Gaps in Post-War Reconstruction

Polimalinews: In the previous three articles, we discussed the need to change energy governance. The supporting document of the 2026 budget bill explicitly stated, for the first time, that price controls are not just an inefficient policy but a crisis-creating factor in the economy, proposing “one-off price adjustment” as the solution. The Seventh Development Plan (Article 43) also stipulated that energy carrier prices should be based on “full production and distribution costs” – meaning the actual costs of extraction, production, transmission, and distribution, not administrative expediency.

But can price liberalization alone save the economy? The clear answer is: No. Freeing prices alone cannot save the economy.

In December 2025, the Deputy Minister of Industry warned that electricity prices for industries have increased by about 320% and gas prices by about 263% over the past four years. According to him, if the proposed price increase plans are fully implemented, industrial energy prices will rise by another 300% over the next three years – leading to what he called “the gradual death of small and medium industries” and mass layoffs. In the 2026 budget, the government increased workers’ salaries by up to 60% and employees’ salaries by up to 45% and is providing purchase subsidies in the form of commodity vouchers. But high inflation – rooted in structural imbalances and sanctions – quickly neutralizes these supports. A worker who receives a 60% salary increase but simultaneously faces a 300% rise in energy prices while runaway inflation shrinks his household budget ends up poorer in practice.

In December 2025, the Minister of Economy promised to unify the exchange rate. But in April 2026, the government was forced to reinstate the preferential exchange rate for essential goods to ensure food security. This temporary retreat shows that removing price controls during a crisis requires a strong social safety net and targeted subsidy distribution.

But there is a more fundamental question: Are domestic legal reforms alone sufficient to rescue the economy? The reality is that domestic economic decisions are not enough on their own. For post-war reconstruction, five international prerequisites are essential: foreign capital investment, access to fifth-generation industrial technology (Industry 5.0), effective banking connections, international marketing, and international agreements. Reports indicate that Iran is seeking “trade incentives” from the US including oil, gas, and mining, while simultaneously cooperating with Russia on technology transfer and the North-South Corridor. This shows that the government itself recognizes the limitations of a closed, inward-looking economy.

The 2026 budget and the Seventh Development Plan have taken historic steps in the right direction. But for post-war reconstruction, there are three fundamental gaps that, if left unfilled, will mean that price liberalization not only fails to save the economy but makes things worse:

First, ensuring justice in price adjustment – Without a transparent compensation mechanism for lower-income deciles, price hikes directly hit people’s livelihoods. Subsidy vouchers and salary increases are only effective when inflation is under control; otherwise, they are merely temporary painkillers.

Second, simultaneous investment in infrastructure – Without building new power plants, developing renewables, and rehabilitating the aging transmission network, electricity and gas outages will continue. People will experience the same old crises at higher prices.

Third, securing international prerequisites – Without foreign capital, new technology, banking connections, access to global markets, and international agreements, domestic reforms will hit a dead end. A closed, inward-looking economy, combined with higher energy prices and disconnection from the world, will drive the country toward collapse rather than rescue.

Freeing prices alone cannot save the economy. Price liberalization is a necessary condition, but not a sufficient one. What will save Iran’s economy after the war is an intelligent combination of three elements: price reform coupled with fair compensation for the people, massive investment in energy infrastructure, and opening the economy’s window to the world. Without this trio, price liberalization will only increase people’s suffering and destroy small industries.

Main themes of this article:

• Freeing prices is necessary but not sufficient
• 300% increase in energy prices; warning from Deputy Minister of Industry
• Salary increases and subsidies; but inflation neutralizes them
• Five international prerequisites for successful reconstruction
• Three fundamental gaps: justice, infrastructure, connection to the world