Syria has nearly doubled the price for diesel fuel to cut back on the cost of maintaining generous subsidies to the population after two years of war that crippled its economy.
The new official price of 60 pounds (33 U.S. cents) for a liter of diesel from state petrol stations is still a fraction of the commercial price for the fuel on the black market, the only way it is available in many parts of Syria.
Even in government-held areas, petrol stations that sell subsidized fuel at the official price often run out or experience long lines.
Syria's government boasts that it has managed to maintain subsidies on food, fuel and energy that give it some of the lowest official prices in the region, despite a war that has killed 93,000 people and displaced millions.
However, it is not clear how much of the subsidized goods actually reaches the population. The United Nations says many Syrians have little access to subsidized bread and have to pay commercial prices many times higher.
Businessmen and trade officials said this week's diesel price increases, which were not publicized widely, reflect growing official concern about the hard currency cost of imports needed to maintain the subsidies.
The price of a liter of diesel, used for transport, as heating oil and to power army tanks military vehicles, was raised to 60 pounds from 35 pounds, the biggest hike since the war's start. The price of gasoline, now 85 pounds a liter, has not yet gone up but is also expected to be raised soon.
Before the war diesel was sold for 20 pounds a liter under a subsidy program that then cost $8 billion a year.
The pound has lost about 75 percent of its value against the dollar during the conflict. Economists warn that Syria could be heading for hyperinflation with inflation running at around 60 percent since the start of the year.
Western sanctions do not bar companies from selling diesel to Syria, but restrictions on some financial transactions have raised the cost of imports and cut the exports that Syria uses to raise hard currency.
“With the increase in the value of the dollar, import costs have doubled. Our ability to export has dropped and on the other hand imports have increased in value and quantities,” Economy Minister Mohammad Zafir Muhabik said in an interview with state television.
A source close to a government procurement agency, who requested anonymity, said the price hike was given impetus by the increasing need to route imports over land through Lebanon rather than through Syria's own Mediterranean ports. The source said imports through Lebanon in the first four months of this year were already equal to all of 2012.
Imports via Lebanese ports incur lower insurance costs than through Syria's Mediterranean ports and provide better security of supply to Damascus. Syria's own ports are far from the capital over routes through areas that have seen fighting.
Smaller shipments from Iran have also arrived by sea to Syria's Latakia and Tartous ports in recent months. Syria sends surplus gasoline to Iran in return for Iranian diesel.
Rebels control most of Syria's main eastern oil-producing areas that produced around 380,000 barrels of crude oil daily, starving the government of a major hard currency earner.
Syrians have been grappling with fuel supply shortages for months, with areas under rebel control worst hit. That has helped reduce the cost of the subsidies for the government, since so many Syrians have no access to subsidized goods.
“We are facing worse shortages in our besieged areas, where people are relying on the black market instead of risking going through road blocks to petrol stations in regime-held areas,” said Rami al-Sayyed, a resident of the southern, rebel-held Damascus neighborhood of Hajar al-Asswad.
The price hike follows a debate within the Syrian cabinet and government whether to reduce subsidies, which use up two thirds of the budget. The government has also argued that raising prices will reduce smuggling of oil products out of Syria to neighboring countries such as Lebanon and Turkey.
“A lot of our petroleum products are being smuggled to neighboring countries as a result of its low prices,' said Muhabik.
The price increases in petroleum products have neutralized the impact of public sector salary increases on Saturday of between 20 to 40 percent that were announced to ease the social impact of the plunge in the local currency.
Already, public transport costs have shot up by an a average 20 percent this week alone, residents contacted by phone said. Many bakeries rely on subsidized diesel to run their ovens.