A planned hike in gasoline prices will cut consumption and reduce Iran's dependence on imported fuel, a senior official said on Monday, dismissing the threat of more international sanctions on the Islamic state.

Iran is the world's fifth biggest crude exporter but US sanctions mean it has suffered from lack of investment in refineries, forcing the Opec member to import 40 percent of its gasoline needs.

Commerce Minister Mehdi Ghazanfari said a plan to reform Iran's costly subsidy system, under which energy and food subsidies would be phased out over five years, would increase domestic gasoline prices.

'This will affect consumption and lower dependence on foreign imports,' he told a news conference, adding that Iran was also increasing its own production.

With the United States pushing for a fourth round of UN sanctions on Iran over its nuclear work, several of the world's top oil firms and trading houses have already curbed fuel sales to pre-empt potential penalisation of their US operations.

On Thursday, Malaysia's Petronas said it had stopped supplying gasoline to Iran, joining a growing list of companies taking similar action. Such pullouts may allow oil firms from China, which wants to maintain economic ties with Tehran, to strengthen their position in Iran.

Iran bought around 128,000 barrels per day (bpd) of gasoline in March, steady with imports the previous month, according to traders.

'Defeated'

Iranian motorists now pay just IR1,000 ($0.10) per litre of gasoline, for amounts of up to 80 litres per month. Above that level, they pay IR4,000s.

Low prices have encouraged demand and forced the country to import large quantities of gasoline, burdening the state budget and making it potentially vulnerable to any measures targeting such trade.

Iranian leaders have repeatedly shrugged off the impact of sanctions imposed over nuclear work the West fears is aimed at making bombs, but analysts say they are hurting the economy by deterring foreign investors and pushing up trade costs.

Iran says its nuclear programme is aimed at generating electricity.

A US sanctions draft proposes new curbs on Iranian banking, a full arms embargo, tougher measures against Iranian shipping, moves against members of Iran's Islamic Revolutionary Guard Corps and firms they control and a ban on new investments in Iran's energy sector.

While Washington hopes the UN Security Council will approve the sanctions in the coming weeks, Iranian President Mahmoud Ahmadinejad has said he will not beg to avoid them and that they do not pose a huge risk to the country's economy.

'The economic sanction process is a defeated one,' Ghazanfari said. 'Almost the entire world is after market ... and Iran has one of the biggest markets in the world,' he said.

Any sanction targeting Iran's oil sales would also be 'ineffective,' the minister said.

'Because it is the Western countries that depend on oil for their livelihood ... they would actually be helping the Islamic state to preserve its oil for future generations,' Ghazanfari said. – Reuters