What can Iran do to escape one of its worst energy crises?

It has been a cold, dark winter in Iran. As an energy crisis strikes, the Islamic Republic faces the most challenging time in its history since the end of the war with Iraq in 1988. Tehran looks vulnerable – but there are smarter and stupider paths ahead. Iran has been struck simultaneously by shortages of gas, oil fuels and electricity . Winter gas shortfalls are not new, but this one is particularly bad. The government has curtailed working hours at offices and schools, shut off street lights and cut gas supplies to industry. The causes are many and complex, but boil down to a mix of sanctions, mismanagement, subsidies, lack of investment and sabotage. US-led measures against Iran have curbed access to funds and technology to develop new gas resources and alternative energy. The New York Times reported that Israel sabotaged gas pipelines in Iran in February of last year. Gas shortages were met by burning oil, but that ran down stocks which were not sufficiently replenished ahead of this winter. The crucial South Pars field shared by Iran and Qatar is the largest gas accumulation in the world and is known to Qatar as the North Field. Iran's part yields 70 per cent of the country's gas output. But as its off-take from the field has risen to become proportionately more than Qatar’s, the gas volume has fallen and the pressure needed to extract the gas has declined. Qatar has compensated by installing compression systems on its side, but Iran cannot readily access suitable compressors nor manufacture them at home. This could be detrimental to Iran, as a collapse of South Pars production could not be compensated by other fields and would be catastrophic for Iranian electricity and industry. Some suggest that Iran’s multi-front crisis is an opportunity for US action to weaken or overthrow its government or push it to some kind of diplomatic settlement. Goldman Sachs thinks stronger sanctions imposed by Donald Trump’s government will moderately push down Iran’s oil exports, by about 300,000 barrels a day by the second quarter. However, since the bank also expects somewhat higher oil prices, the impact on Iran’s oil revenue is almost nothing. A more extreme scenario cutting a million barrels per day would approximately halve revenue, but Iran survived heavier pressure in 2020. The loss of its ally in Damascus is politically bad news but at least removes a financial black hole from Tehran’s accounts. The US would probably also target Iranian allies in Iraq, an opening for a political reset there but raising risks to the Iraqi economy and its oil exports, which are double those of Iran. The US would call on the rest of Opec+ to boost output to keep prices moderate. But that’s not a foregone conclusion: Opec was offended in 2018 when Mr Trump abruptly reversed course on sanctions, and Tehran may not react well to others taking market share at its expense. Of course, some hardliners in the incoming Trump administration see the opportunity to reimpose their policy of “maximum pressure”, or even to launch military action. Iran, having lost its outer line of defence in Palestine, Lebanon and Syria, might race for nuclear weapons. Supreme leader Ali Khamenei is well capable of weighing the contrasting fates of former Libyan leader Muammar Qaddafi, who gave up nuclear ambitions and was killed in a sewer, and North Korean leader Kim Jong-un, who has pressed ahead and secured a handshake with Mr Trump last time around. It is not surprising that nuclearisation is tempting, sandwiched as Iran is between nuclear-armed near-neighbours in Pakistan and Israel, facing US hostility and not trusting Washington to stick to any deal. This dangerous brinkmanship could bring a campaign of bombing, cyber attacks and other measures from Israel and/or the US. However immediately successful, that would rally domestic support for the Iranian regime, further erode the US’s international image, and kick off another episode of unsustainable containment and dangerous regional instability. Russia and China would certainly take advantage of a US bogged down again in the Middle East. A far less solid and domestically popular regime, Saddam Hussein’s Iraq, was not overthrown by a catastrophic military defeat followed by more than a decade of intense sanctions. Venezuela’s Nicolas Maduro has so far survived one of the worst peacetime economic collapses yet recorded. Of course, the Iranian ruling system might collapse through revolution or infighting – such things are unpredictable, as we know from Iran’s own revolution in 1979 or the fall of longtime leaders across the Middle East in 2011. But relying on the idea that sanctions or bombing bring favourable political change is not a strategy. A weakened Iran still has the ability to hurt its neighbours. They have to live with the consequences of bad US policies. And while Washington think tanks complain about an “axis” of Russia, China, North Korea and Iran – they do everything to push these countries together. There is a different road. Iran's defence policy is already discredited, and its confrontational approach has delivered economic malaise. To assure a smooth succession of power, perhaps to his son Mojtaba, the 85 year-old Mr Khamenei might agree to a change of course. Power-brokers in Iran may be open to an opportunity for security and personal profit. This could take the form of a regional diplomatic initiative to solve Iran’s energy crisis, and integrate it into regional energy and economic networks. Exploring such a move would have to be blessed by the US, but it would be unlikely to lead. China’s role in some places has not been constructive, as in supporting Russia’s war in Ukraine. But in the Middle East, so far, it has been a low-key but responsible actor, certainly much more than Washington or Moscow. Its mediation in the restoration of Saudi-Iran relations in March 2023 was crucial. Iran’s Gulf neighbours are experts in renewables and water desalination. They are capital-rich and their domestic markets are growing quickly. Meetings with Qatar have apparently yielded some positive information on best practices in managing the North Field. Several other shared oil and gasfields with Kuwait and Saudi Arabia would benefit from joint development. Iran has enormous potential for solar, wind and geothermal power, so far hardly tapped. It has just 1.2 gigawatts of solar power across its vast territory, compared to more than 5 gigawatts in the UAE. Pakistan, suffering its own power crisis, is estimated to have installed 17 gigawatts of mostly Chinese panels last year. Seasonal exchanges of gas and electricity between Iran and its neighbours would boost all their economies, reduce greenhouse gas emissions, and give an incentive to keep the peace. The third generation of post-revolutionary leadership could reinvent Iran as an independent-minded, often prickly but overall prosperous and constructive regional player, something more like Turkey. That prospect may be elusive. But giving it a chance is better than yet another cycle of sanctions and bombing. For regime insiders, it offers a safer and more comfortable future. And ordinary Iranians would be delighted at an alternative to hunger, cold and darkness.