Rolling blackouts began in Iran this week amid severe fuel shortages, exposing the oil-rich country’s vulnerability to U.S. sanctions and highlighting the effects of years of underinvestment.
Iran has the world’s third largest oil reserves and second largest natural gas reserves. But exhausted Iranians have had to contend with painful energy shortages in recent months.
In the summer, gas stations in some popular northern destinations ran dry, forcing frustrated drivers to queue for hours. Currently, power outages for two hours every day occur as the winter cold sets in. The power outage has shut down traffic lights, worsening traffic congestion and causing residents of high-rise buildings to fear being trapped in elevators.
“Above all, a power outage! What a shame for a country rich in oil and gas and with huge potential for solar and wind energy,” said Javad, a Tehran engineer who gave his full name. I didn’t reveal it. “This is the result of incompetent administrators and officials who are all talk and no action.”
Chronic underinvestment in infrastructure is exacerbated by U.S. sanctions as well as mismanagement and massive state subsidies that drive up fuel consumption and overburden the cash-strapped nation. There is a serious shortage of electricity, gas, and gasoline.
The power outage was caused by “a sudden increase in household gas demand at the beginning of the cold season, leading to fuel shortages.” . . The Department of Energy said the decision was made to stop burning heavy oil at three power plants.
The economic and energy crisis is so severe that President Massoud Pezeshkian announced in September that the state development fund, a sovereign wealth fund that should protect current oil revenues for future generations, said the government was struggling to pay workers. He admitted that he is making use of the fund.
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Iranians are charged less than 3 cents for a liter of gasoline at the pump, competing with Libya and Venezuela to be ranked as the world’s cheapest prices. According to the IMF, Iran will spend $163 billion in explicit and implicit energy subsidies in 2022, representing more than 27% of GDP and the largest share of the economy among the countries on the list. The percentage is highest.
Questioning “unreasonable” gasoline subsidies when “we don’t have enough money to buy groceries and medicine,” Pezeshikian said at a recent press conference that “electricity, gas, gasoline (luxury) ) and paying a lot of money to the people who consume it.”
This week, for the first time, the government authorized the import and sale of premium gasoline without subsidies, targeting wealthy Iranians who drive luxury cars. Regarding domestic energy, Iran has also adopted a progressive pricing system in recent years to curb the overconsumption of natural gas and electricity by wealthy households.
But the need for deeper cuts to subsidies means we risk a repeat of what happened in 2019, when an overnight gas price hike sparked deadly protests in Iranian cities. This brings to mind concerns. Rising fuel prices will also push up inflation across the economy. “The rise in fuel prices will have a knock-on effect on the prices of goods and services,” said energy analyst Morteza Beherujfar.
Subsidies are so high and have been in place for so long that many Iranians, who suffer from high inflation, declining living standards and a depreciating national currency, feel they are entitled to cheap energy. It became like that.
“Iran’s fuel prices have been static for a long time, so the gap between the subsidized price and the actual price is very large,” said energy expert Saeed Mirtoravi.
The country faces a shortage of about 20 million liters of gasoline each day, according to official estimates, and imported nearly $2 billion worth of fuel last year, the oil ministry said. At the same time, millions of liters are smuggled across the border into neighboring countries such as Pakistan and Afghanistan every day by traders who profit from the difference between the market price and Iran’s subsidized price.
When it comes to electricity, officials say the country’s power grid faces an output deficit of more than 17,000 MW. One reason is that the power plant is aging and in need of updating.
Mr. Behrzifar said a lack of access to new technologies, including limited domestic refining capacity as a result of sanctions, was contributing to the crisis. “We have not been able to increase production commensurate with our national resources,” he says.
Government spokeswoman Fatemeh Mohajerani suggested on Tuesday that the rolling blackouts were a trade-off to protect public health by reducing the burning of heavy oil, which causes toxic gases and air pollution during the winter.
Some are skeptical. “I have a strong suspicion that this is not about air pollution. I suspect that there is also a shortage of heavy oil,” said Hashem Olayeh, chairman of the Iranian Energy Association Syndicate, an industry group.
While sanctions have dealt a major blow to Iran’s economy, Mr. Pezeshkian, who took office as president in July, has expressed an openness to resuming negotiations with Western countries.
However, the prospects for new talks are uncertain after Donald Trump won the US presidential election. The first Trump administration adopted a hawkish policy, pulling the US out of the 2015 nuclear deal with Iran and reinstating sanctions against Tehran under a “maximum pressure” campaign.
The energy shortage comes at a strategically difficult time for the Islamic Republic, which has been engaged in an escalating conflict with Israel in recent months that has involved direct attacks on each other’s territory.
For a country known as the world’s largest oil and gas producer, the domestic energy shortage is embarrassing. South Pars is the world’s largest natural gas field, which Iran shares with Qatar, supplying more than 70% of the country’s gas needs. However, production from oil fields on the Iranian side of the Gulf has fallen sharply.
“We have not been able to properly invest in the upstream oil and gas industry. We are incurring huge losses from the failure of the South Pars gas field development, while Qatar is profiting,” Behrzifar said. said.
For now, the situation remains difficult. Iran is expected to face a daily natural gas shortage of 260 million cubic meters this winter. “As long as we don’t resolve our issues with the rest of the world, the imbalances will continue to grow,” Beharjifar said.
Data visualization by Alan Smith
