The economy is plagued by paradoxical events that is worth studying as a way of curiosity and learning. One of them can be seen these days. The country with the seconds largest gas reserves in the world and the third largest oil reserves (about 210,000 million barrels of crude oil to be extracted), the most precious hydrocarbon on the market and which serves as a source of energy, is suffering a historic energy crisis. Closed schools, lifeless business centers… As if that were not enough, this was a relatively rich country a few decades ago and was even one of the great empires in the history of humanity. How can a territory with so much history, power and resources end up without energy? This is the perfect storm that is ravaging Iran’s energy system.
Iran has 90 million inhabitants and a territory that It is equivalent to the surface of three entire ‘Spain’. That complicates the power supply. A very large population distributed over a vast territory makes the energy supply more expensive. However, Iran in the past did not have these types of problems, at least in such a serious way. Before the Iranian Revolution that ended the Shah’s regime, Iran was a relatively prosperous economy, with an educated and educated population and a promising future. However, with the revolution everything began to change, which, aggravated by tensions with the West, Israel and neighboring countries such as Saudi Arabia, have ended up turning Tehran into a kind of ‘marginalized’ at a regional and global level (it has the support from Russia or countries like Venezuela).
Iran is almost paralyzed with schools, universities, public offices, banks and courts closed in twenty provinces due to energy shortages and high pollution, despite the fact that the country has the second largest reserves of gas and oil in the world. A true paradox that reveals the mismanagement of resources, the blow caused by sanctions and the marginalization that the country suffers among a large part of the Islamic world. Iran is a Shiite country, a branch of Islam that is not going through its best moment. The fall of the Al-Asad Government in Syria and the latest blows to Hezbollah (Shiite militia that operates in several countries) are evidence that Iran is not going through its best moment.
Patrick Clawson, senior fellow at the Washington Institute, exposes in his analysis the serious energy crisis facing Iran due to years of misdirected policies: “Mismanagement has consequences and now Iran faces greater pressures.” In a recent televised interview, the Iranian president, Masoud Pezeshkian warned that the country could face a “potential crisis” if it does not address its growing energy deficit. This situation has resulted in power outages, empty gas stations and an alarming shortage of natural gas, a resource on which 90% of Iranian households depend for heating and cooking. In addition, spending on gasoline imports has increased significantly: it went from 2 billion dollars in the last year to a projection of 4 billion for 2024-2025. Clawson notes that these circumstances make Iran particularly vulnerable to measures such as restricting its imports of petroleum products.
Waste with subsidies
One of the causes of the problem lies in the regime’s subsidy policies, which have encouraged energy waste. For example, the price of gas and gasoline is extremely low, with a liter of gasoline costing just 16 cents. This situation has encouraged fuel smuggling to neighboring countries such as Iraq and Türkiye, where prices are up to 30 times higher. Despite government-imposed restrictions, such as refueling limits per vehicle, domestic demand continues to skyrocket due to an aging and inefficient vehicle fleet. Additionally, natural gas storage infrastructure is insufficient, exacerbating shortages in particularly cold winters. Pezeshkian’s response to this crisis was almost sarcastic: “I wear warm clothes at home. Others can do the same.”
Clawson highlights how these shortcomings have weakened Iran’s attempts to expand its regional influence, exemplified by the recent interruption of gas supplies to Iraq, leaving the neighboring country in a precarious situation. Domestically, the energy crisis also affects the Iranian electricity grid, with generation capacity reduced to 75% due to aging facilities and transmission problems. This has led to scheduled electricity cuts in major cities, fueling social unrest and fear of new protests. Clawson concludes that, given this vulnerability, the United States could revive targeted sanctions to imports of petroleum productsa less diplomatically complicated strategy than sanctioning crude exports, given Iran’s dependence on small refineries in countries like China.
Although Iran is the second country with the most gas in the world, it suffers from an intense shortage of natural gas at the domestic level, first because companies prefer to export it (they make more money than selling it at subsidized prices domestically) and because the country’s energy mix ‘ wastes gas everywhere. “Iran uses this resource more intensively than almost any other country in the world: according to the Statistical Review of World Energygas accounted for 70% of its primary energy consumption in 2023, compared to 34% in the United States and 20% in the European Union. More than 90% of homes are connected to the gas network for heating and cooking, and the internal prices of this resource are ridiculously cheapwhich discourages efforts to improve energy efficiency,” says the expert.
An almost total energy collapse
At least 20 of the 31 Iranian provinces suffer some type of energy rationing in the face of a cold wave that has triggered resource consumption and highlights the energy crisis that the Persian country is facing with the lack of investments in the sector. in recent decades. The arrival of a cold wave in several regions has caused a daily deficit of 350 million cubic meters of natural gas and a shortage of 50 million cubic meters of fuel in power plants, which has led to the closure of operations in al at least 17 of them, according to the Tasnim agency.
Thus, in Tehran educational centers, public offices and banks were closed this Tuesday for the third consecutive day, which was seen in a decrease in traffic early in the morning, measures that also seek to reduce air pollution. In addition to the closure of institutions, two-hour power cuts have been scheduled for neighborhoods in the capital, with some nine million inhabitants, affecting businesses and causing discontent among the population.
The solution: stay cold
Last week there were already closures in the capital and other areas of the country due to strong air pollution, another evil that affects the Persian nation and for which there is no solution. Given this situation, the Government launched the “2 degrees less” campaign last week, aimed at reducing heating consumption in homes.
“I ask all the dear people of the country that if they reduce the heating of their homes by at least two degrees, we will save a lot of fuel so that in this cold wave we can supply energy to all the dear people of our country,” said the president. of Iran, Masud Pezeshkian, in a video at the launch of the campaign dressed in a jacket closed to the top.
This gesture shows analyst Esfandyar Batmanghelidj that it is simpler for the Government “change consumer behavior” to address the structural problems of the sector. Batmanghelidj stated in a social media post that US economic sanctions are “partly to blame” for the energy crisis by closing the door to investment or access to technology, but he also points to government mismanagement.
An aspect in which the economist Mahmud Jamsaz agrees. “The energy shortage in the country is the result of years of lack of work, negligence and mismanagement by governments,” he told EFE Jamsaz. The analyst explained that in the last 20 years there have hardly been any investments in infrastructure such as oil refineries or power plants, partly because the country does not have the resources and there are no foreign investments given the country’s tensions with the West.
Jamsaz warned that this lack of energy and the electrical outages that it entails will fuel the dissatisfaction of the population, already under great pressure from the economic crisis and the lack of freedoms. “New protests can be expected in the country in the near future,” he said.
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