Media Guide: Iran’s Blackouts and Energy Crisis
/By Research Associate Connor Bulgrin
How can one of the most energy-rich nations in the world be plagued with rolling blackouts? This paradoxical situation has fuelled discontent across Iran during the summer of 2021, and many explanations have been provided to explain the electricity shortage. Indeed, increased consumption, the climate crisis, government corruption, neglect of industry, and American sanctions all contribute to Iran’s electricity crisis. In this Media Guide, we will explain these causes and the unrest they have produced.
What is the primary explanation for Iran’s energy crisis?
The primary explanation for the recent rolling blackouts in Iran is that demand for electricity has increased markedly. This increase is both caused by and will contribute to the global problem of climate change, which has ratcheted up summer temperatures across Iran. Scorching summer heat, which has led to a greater reliance on air conditioning, is a primary culprit for the recent increase in consumption. In Tehran, temperatures have regularly been above 35 degrees Celsius (95 degrees Fahrenheit). In Khuzestan, a hotbed of protest, a heatwave brought temperatures to 50 degrees Celsius (122 degrees Fahrenheit). Minister of Energy Reza Ardakanian has noted that energy consumption in Iran during April 2021 increased 22% since the previous year.
Politically, the idea of cutting electricity consumption any further is untenable as Iranians demand more electricity to handle the hotter summer weather. The discourse surrounding power outages in Iran has thus focused on electricity production and why it has failed to keep up with demand. This problem has been the source of great acrimony. It has left homes and businesses with limited power, brought protesters into the streets, and forced former President Rouhani to issue a rare apology on behalf of the government.
Why is energy production in Iran insufficient?
In terms of electricity production, Iran is a powerhouse. In 2017, it ranked 16th globally, generating 265 billion kWh per year and trailing only Saudi Arabia among its regional competitors. In terms of consumption, Iran ranks 18th due to the many billion kWh of electricity that it exports to its neighbors. But in terms of per capita consumption, Iran falls to 92nd. Even under normal circumstances, Iran’s large population, electrified homes, and industrial sector quickly consume the electricity supply.
The private sector typically builds Iran's power plants, but the state-owned Power Generation and Distribution Company, Tavanir, connects the process of electricity production, transmission, and distribution into a single enterprise. Tavanir regularly schedules daily power outages, allowing citizens to plan their day around them, but unscheduled blackouts are a new phenomenon and have frustrated many Iranians.
Part of this crisis is decidedly ecological. Average rainfall in Iran is down over 50% from the previous year, leading hydroelectric power generation to be “almost zero” this year, according to former President Rouhani. In Iran, roughly 25% of power generation is dependent on dams, but they are currently less than half full, significantly reducing Iranian energy production. And this problem is expected to persist in the coming years because of climate change. The Iranian government has struggled to respond to this challenge, but it is not entirely a product of its own making.
How have the Iranian people responded to this crisis?
Many Iranians blame government mismanagement for the current electricity shortage. On July 15, protesters across Khuzestan province took to the streets and faced violent suppression from the government. In solidarity, protests erupted across the country. In Tabriz, protesters insisted that “Azerbaijan supports Khuzestan.” In Tehran, protests took a more revolutionary tone. Tehranis heard protesters chanting “Death to Khamenei” and “Death to the dictator” in the streets.
Iranian hardliners have also been quick to blame the government but have deflected blame to former President Rouhani. The hardline speaker of parliament, Mohammad Baqer Qalibaf, lambasted the Rouhani administration, arguing, “Frequent power outages throughout the country and disruption of people's lives and businesses require planning and management.” The Raisi administration has been similarly unable to resolve the crisis; Javad Owji, the new oil minister, has warned of upcoming shortages this winter. Still, hardliners and many outlets in the Iranian press have continued blaming Rouhani for the crisis while providing few solutions.
But no single administration is responsible for Iran’s current crisis. Iran’s power grid has suffered from decades of neglect, low investment, and poor management. Iran’s generous subsidization of electricity —which pushes the price per kWh down to $.003, 45 times less than the average global price— encourages wasteful electricity consumption among Iran’s wealthier citizens. This waste is typified by Bitcoin mining, an industry that has thrived in Iran due to the nation’s cheap electricity. Earlier this summer, Iranian officials were quick to blame Bitcoin mining for Iran’s energy dilemma, even though cryptocurrency mining uses less than 2% of the energy Iran produces. In recent months, the Iranian government has largely abandoned this tack and will reauthorize cryptocurrency mining for legal farms in September.
The lack of investment in electricity production is an even more difficult problem for the government to solve. It could, in theory, provide a larger share of its scarce currency toward energy production, but subsidies to the energy sector already account for around 25% of Iranian GDP. Representatives of Iran’s private sector cite more structural problems in increasing that percentage. Karim Kabiri, an industry representative, recently acknowledged that “Costs and incomes don't match. There is no profit in generating power."
American sanctions also contribute to the problem.
To the extent that there is profit to be made in improving Iran's energy infrastructure, sanctions make it difficult to attract foreign capital. Due to America’s sanctions policy, Iran has delayed approximately $4.5 billion worth of water and electricity projects that would increase Iran’s daily generating capacity by 15,000 MW, enough to solve the current crisis. Sanctions have stifled investment and made it difficult to conduct maintenance on crucial power plants, the most important being the Bushehr nuclear plant. While sanctions have been less effective in slowing the development of other sectors of the Iranian economy, they have seriously harmed Iranian efforts to generate electricity. Sanctions make it nearly impossible to import some of the complex technology (and services) produced in Western countries.
How has the government attempted to respond to this crisis?
The Iranian government has taken several actions to mitigate the electricity shortage, all of which have proven unsuccessful.
Efforts to divert a greater portion of Iran’s oil to the task of generating electricity are untenable. Doing so would require either an increase in Iran’s subsidization of the oil industry or a higher domestic market price for oil. The former is financially problematic; the latter politically so. In 2019, a sudden decision to increase oil prices was met with some of the largest protests in Iran in recent memory. As an alternative, Iran has recently burned mazut, a low-grade oil, to help produce electricity but its contribution to air pollution makes it a source of discontent in itself and not a long-term solution to Iran’s electricity shortage.
The Iranian government has also suspended its electricity exports to Iraq and increased imports from Azerbaijan, Armenia, and Turkmenistan, but this has done little to close the massive gap between supply and demand, which stands at 11,000 MW of electricity per day.
Mohammad-Hassan Motevalizadeh, the managing director of Tavanir, has recently hinted that the supply of electricity to the industrial steel sector might be limited. Such a drastic move might temporarily allow Iranian households a bit more electricity, but it will come at the expense of the economy.
Without massive changes in Iran's geopolitical position or improvements to its production capacity, there is only one readily available solution to Iran’s energy crisis: burn more mazut. Iran International recently summarized the situation well. This winter, Iranians will have “electricity or breathable air.” Not both.
Conclusion
While Iranians want their government to take action to alleviate the electricity shortage, there are no easy fixes. Attempts to decrease consumption are vehemently opposed, and efforts to increase production have stalled. While electricity shortages are currently a problem across the Middle East, the culmination of climate change, poor management, and American sanctions have created a particularly acute crisis in Iran.
