* Price up by 25 percent per litre of diesel
* Fuel for industry, coming harvest in short supply
* Military use for tanks increased (Adds details and quotes from business leaders)
By Suleiman Al-Khalidi
AMMAN, May 16 Syria has raised the price of state subsidised diesel by a quarter, after doubling electricity prices, as a shortage due to reduced imports threatens industry and the use of machinery for the coming wheat harvest, while military use has increased.
Syrians have been grappling with fuel supply shortages for months as Western sanctions, imposed in response to the government's crackdown on a revolt that has cost thousands of lives, has prompted most European oil firms to cut trade.
The government increased the cost of a litre of gasoil, used as diesel in vehicles and as heating oil, to 20 pounds (31 cents) from 15 pounds, the first price change since May last year when the authorities cut it by the same amount.
International trading sources have said Syria was facing a halt in imports of diesel, needed to power army tanks and other heavy vehicles, as a stream of shipments from Russia and elsewhere has dried up in recent weeks.
Wednesday's announcement was published on the Syrian state news website SANA.
The authorities have justified the moves as a step to curb smuggling and increase government revenues, saying the annual cost of subsidies topped 250 billion pounds. Syria says it subsidies almost two thirds of the cost of gasoil.
Officials say annual consumption is around 7.5 billion litres.
Some industrialists welcomed the move as a step towards reducing subsidies that created market distortions during a period of civil upheaval.
"Gasoil has to be liberalised because it's already being sold at higher prices and those who have been benefiting from this are people in the black market, so let this increase go to the state," Essam Zamrick, vice president of Damascus chamber of industry told Reuters.
Local traders and residents say severe shortages in rural areas and some cities hit by major violence, such as Homs, Idlib and the eastern province of Deir al-Zor, have allowed blackmarketeers to resell subsidised gasoil at a hefty premium.
The gasoil price increase follows last week's doubling of electricity prices, which industrialists have warned would deal a heavier blow to struggling plants already hit by the unrest.
"This will hurt industry already facing losses and could lead to closures," Faris Shahabi, head of Aleppo's chamber of industry, was quoted by local media as saying.
Shahabi said the authorities should have given priority to helping industrialists, rather than focus on raising revenue.
Businessmen said the price increases reflect growing official concern about a steep drop in government revenues that was worsened by the heavy cost of subsidising fuel and electricity at a time when the country faces a foreign currency crunch.
Others said electricity price rises that exempted households - which account for 55 percent of the country's total consumption - agro-industry and small workshops, would limit the inflationary impact at a time when prices of basic commodities have been soaring.
Hotel owners and restaurants appealed for an exemption from the power price rises as their revenues have plummeted.
"The circumstances the tourism sector is facing means it cannot also incur an rise in electricity prices and this will contribute to the closure of a number of large investments that are already struggling to repay debt let lone now after the hike," said Mohammad Rami Martini, the head of Syria's Chamber of Tourism lobby group.
Tourism was once the country's key hard currency earners.
The timing of the rise in gasoil, at the start of the wheat harvest season, threatened to raise costs for farmers already unable to secure enough fuel for tractors, pumps and other agricultural machinery, commodity traders said.
"With the drop in agricultural production in areas that are now battlegrounds, even these rises, which are not that big, will push costs up and ultimately consumers will suffer," said Ali Anwar, a industrialist in the southern city of Deraa, who owns a tomato processing plant.
(SYP = $0.015) (Reporting by Suleiman al-Khalidi; Editing by Anthony Barker)