Hamid Mollazadeh
Iran’s energy system has reached a breaking point—one fundamentally different from the pressures of past decades. A combination of long-ignored structural flaws, mounting economic distortions and years of political hesitation has pushed the country into an energy crisis.
The era in which cheap fuel, abundant gas reserves and routine subsidies could mask policy failures is over. Today, Iran faces a stark choice: undertake painful but necessary reforms, or brace for an accelerating collapse of its energy infrastructure and industrial base.
For years, Iranian policymakers reassured the public that a country with some of the world’s largest oil and gas reserves could never face an energy shortage. That illusion has evaporated. Despite holding the world’s second-largest natural gas reserves after Russia, Iran now grapples with wintertime gas deficits, industrial shutdowns, electricity shortages and the real possibility of widespread blackouts.
This paradox is rooted not in resource scarcity, but in runaway domestic consumption, fueled by near-free energy prices and decades of misaligned policies. Gas consumption per household in Iran stands several times above global norms, a trend amplified by inefficient buildings, outdated heating systems and a culture shaped by subsidized energy. Under such conditions, even the most resource-rich nation cannot meet the rising demand.
Subsidy Distortions
The cornerstone of Iran’s energy dysfunction is its price-control system. For decades, governments have justified cheap fuel as a tool to protect households, yet the outcome has been the opposite. Ultra-low prices have destroyed incentives for conservation, prevented modernization in industry and saddled energy companies with huge financial losses.
The government now spends an estimated $100 billion annually on energy subsidies—resources that could otherwise rebuild infrastructure or stabilize the economy. Meanwhile, the biggest beneficiaries are not low-income households, but high-consuming industries and wealthier segments of society.
Analysts increasingly refer to this model as a “poverty-production engine”—a system that erodes national wealth, suppresses investment and entrenches inefficiency.
Iran’s most severe bottleneck is its deepening gas imbalance. Despite enormous reserves, the country faces winter deficits because domestic consumption has outpaced production growth. Industrial units often lose gas access during cold spells, forcing power plants to rely on expensive, polluting fuels.
Experts warn that without urgent reform, Iran will face even harsher shortages, permanent industrial rationing and declining energy exports—consequences that would reverberate across the entire economy.
Starved Sector
No industry can expand without investment. Yet Iran’s energy sector—despite its strategic value—is operating with some of the lowest investment levels in its history.
Revamping gas fields, adding pressure-boosting turbines to South Pars, modernizing power plants and scaling up renewable energy all require billions of dollars. But in a market where electricity and gas prices are next to free, investors—domestic or foreign—have little incentive to participate.
An economy built on unrealistic prices is, by definition, incompatible with sustainable development. Successive governments—regardless of ideology—have avoided meaningful reform, fearing public backlash. The result is a crisis decades in the making. Today, however, delay is no longer an option. Energy reform has shifted from a policy preference to a national imperative.
Narrow Window
Despite the gravity of the crisis, Iran still has a window to reset its energy future—if it chooses bold actions.
Realistic pricing, targeted subsidies, consumption management, infrastructure modernization and investment mobilization could turn the crisis into a historic turning point. But this requires political courage. Iran now stands at a crossroads. The future of its energy system—and by extension, its economy—will hinge on a decision long postponed: confront reality and reform, or continue on a path that leads inevitably toward deeper shortages, widespread blackouts, industrial decline and escalating social and economic instability.
