Like a Rat Dying in a Barn: Iran Drowns in a War Dilemma

Iran is facing mounting energy pressures as summer arrives, amid an economy crippled by the effects of war and limited government fiscal space. A surge in the use of air conditioning and other electricity needs is widening the gap between energy supply and consumption in the country. The Iranian government has so far maintained various energy subsidies, keeping tariffs for electricity, gas, water, and fuel far below production costs. However, deteriorating economic conditions are increasingly limiting the government’s ability to sustain these subsidies. “Reforming and raising energy prices is currently not feasible or logical because of the current economic conditions and social concerns,” said the Deputy President of Iran’s Energy Strategic Optimisation and Management Organisation, Esmail Saghab Esfahani. Despite holding the world’s third-largest crude oil reserves, Iran has again been forced to import fuel because domestic demand exceeds refinery production capacity. President Masoud Pezeshkian has repeatedly appealed to the public and offices to conserve energy. Last week, he removed his jacket during a cabinet meeting as a symbolic call to reduce excessive use of air conditioning. The energy subsidy policy has long been a mainstay of household economics in Iran. However, its benefits are being steadily eroded by a combination of corruption, mismanagement, international sanctions, chronic inflation, and a weakening currency. The government also remains cautious about raising fuel prices following the nationwide protests that erupted in 2019 after a petrol price hike. Consequently, energy prices are kept at low levels even as pressure on the state budget continues to mount. Currently, vehicle users in Iran receive a quota of 60 litres of subsidised petrol per month at a price of 15,000 rial per litre, plus a further 100 litres at a higher rate. Consumption above this quota is charged up to 50,000 rial per litre via a government-issued fuel card system. During the war, the government has tightened fuel distribution restrictions. Each card can now only be used to purchase a maximum of 30 litres of petrol per day. Several reports also mention that petrol station operators have been asked to limit the use of emergency cards that were previously usable to obtain additional fuel. Although the government rejects drastic tariff hikes, several business operators are beginning to feel the impact. A 35-year-old welding workshop owner near Tehran reported that his energy bill had tripled compared to last year, surging from 40 million rial per month. “I went to the electricity company, and they just kept saying that tariffs have gone up,” he said, adding that several of his colleagues experienced similar cost spikes despite relatively unchanged energy consumption. “It seems we have to pay the costs of the war.” Iranian authorities say they will review all complaints regarding the surge in energy bills. The government is also offering incentives for households that manage to reduce consumption, while excessive users can be charged tariffs up to 45 times higher than the standard price. Pressure on the energy sector has intensified after attacks on Iranian energy facilities reduced daily petrol production capacity from around 115 million litres to 110 million litres. Meanwhile, consumption has soared to around 140 million litres per day. Threats from US President Donald Trump to launch further strikes on Iran’s energy infrastructure have also triggered fears of power blackouts and gas shortages, meaning the energy crisis is expected to continue for months to come.