Iran’s Latest Wave of Electricity Outages

Iran has experienced extensive electricity outages across the country in recent weeks, with air pollution levels soaring as Iranians employ polluting fuels to generate power. The country’s electricity supply problems will likely worsen in the coming months, since natural gas shortages in Iran look likely to continue and Armenia plans to shut down for maintenance a nuclear power plant that exports half its output to Iran via Armenia’s power grid.

Despite holding the world’s second-largest natural gas reserves, Iran has had chronic natural gas shortages for decades, owing to habitual underinvestment in new production and to heavy subsidies that keep domestic gas and electricity prices low, encouraging waste. Natural gas provides most of the country’s electricity, though in recent months Iran has upped its use of heavy oil (or mazut) to compensate for gas shortages. Iran has a surplus of heavy oil, owing to U.S. sanctions on Iranian oil exports. In addition, adding to the pollution, many Iranian factories and homes are using generators running on diesel or other fuel oils, due to the electricity outages.

Over the last two years, U.S. sanctions on Iranian condensate exports have limited Iran’s natural gas production. The country’s natural gas has associated liquids, or condensate, that are produced together with natural gas production. A lack of storage and domestic demand for condensates has forced Iran to curtail natural gas production.

In a bid to limit electricity consumption, Iranian authorities have targeted the cryptocurrency industry, shuttering 1,600 cryptocurrency processing centers. Cryptocurrency production generally develops in places where cheap electricity is available, like Iran. Accordingly, Chinese and other foreign companies have established cryptocurrency “mining” operations in Iran and may be receiving subsidized electricity from the government to power their activities. Cryptocurrency is often a vehicle for money laundering, sanctions evasion, tax evasion, and other illicit activity, all clearly attractive to Iran. In light of the rapid devaluation of Iran’s currency under sanctions, citizens in Iran have reportedly been turning to cryptocurrency in an attempt to maintain their savings.

Iran’s electricity woes will likely increase this year due to the planned shutdown of Armenia’s nuclear power plant, Metsamor. Armenia exports half of Metsamor’s output to Iran. Presumably, Armenia will need to halt exports while its electricity production is down in 2021.

Meanwhile, Iran is a major exporter of electricity to Iraq yet may not be able to sustain those exports due to Iran’s own domestic shortages. This may cause outages in Iraq, especially in the summer, when Iraqi electricity demand increases.

Sustained electricity outages are often a trigger for social unrest, as seen in Egypt, Iraq, and elsewhere. If Iran’s electricity shortages continue, they may spur a new round of anti-regime protests.

Brenda Shaffer is a senior advisor for energy at the Foundation for Defense of Democracies (FDD), where she also contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). She is also a faculty member at the U.S. Naval Postgraduate School. For more analysis from Brenda, the Iran Program, and CEFP, please subscribe HERE. Follow Brenda on Twitter @ProfBShaffer. Follow FDD on Twitter @FDD and @FDD_Iran and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.