Like a Rat Dying in a Barn: Iran Drowns in a War Dilemma
Iran is facing increasingly heavy energy pressures entering the summer season, amidst an economy slumped by the impacts of war and limited government fiscal space. A surge in air conditioning use and other electricity needs is widening the gap between energy supply and consumption in the country.
So far, the Iranian government has maintained various energy subsidies that keep electricity, gas, water, and fuel tariffs well below production costs. However, the worsening economic conditions are increasingly limiting the government’s ability to sustain these subsidies.
“Reforming and raising energy prices is currently neither feasible nor logical due to the current economic conditions and social concerns,” said Esmail Saghab Esfahani, Vice President of Iran’s Energy Optimisation and Strategic Management Organisation, as quoted by Al Jazeera on Thursday.
Despite possessing the third-largest crude oil reserves in the world, Iran is once again forced to import fuel because domestic demand exceeds refinery production capacity. Iranian President Masoud Pezeshkian has repeatedly urged citizens and offices to conserve energy. Last week, he even removed his jacket during a cabinet meeting as a symbol of his call to reduce excessive air conditioning use.
Energy subsidy policies have long served as an economic buffer for Iranian households. However, their benefits are being increasingly eroded by a combination of corruption, mismanagement, international sanctions, chronic inflation, and the weakening of the national currency.
The government also remains cautious about raising fuel prices following the wave of national protests that erupted in 2019 following petrol price hikes. Consequently, energy prices are being maintained at low levels even as pressure on the state budget continues to rise.
Currently, vehicle users in Iran receive a quota of 60 litres of subsidised petrol per month at a price of 15,000 rials per litre, with the next 100 litres available at a higher rate. Consumption above this quota is charged at up to 50,000 rials per litre through a government-issued fuel card system.
As the war continues, 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 indicate that petrol station operators have been asked to limit the use of emergency cards, which were previously used to obtain additional fuel.
While the government rejects drastic tariff increases, several business owners are beginning to feel the impact. A 35-year-old welding workshop owner near Tehran admitted his energy bills have surged from 40 million rials, or approximately US$23, to three times that amount compared to last year.
“I went to the electricity company, and they just kept saying that the tariffs have risen,” he said. He added that several of his colleagues are experiencing similar surges in costs despite energy consumption levels remaining relatively unchanged. “It seems we have to pay the costs of war.”
Iranian authorities have stated they will review every complaint regarding surges in energy bills. The government is also offering incentives for households that successfully reduce energy consumption, while excessive users may be charged rates 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 approximately 115 million litres to 110 million litres. Meanwhile, consumption has surged to around 140 million litres per day.
Threats from US President Donald Trump to launch further attacks on Iranian energy infrastructure have also sparked fears of power outages and gas shortages, meaning the energy crisis is expected to persist for several months to come.