Iran: What is the true energy situation and what about its oil reserves?

Despite holding the world's second-largest gas reserves and the third-largest proven crude oil reserves, Iran has suffered for several years from shortages of gas, gasoline, and electricity during the summer and winter months. This energy deficit, whose causes are well-known but which the country's government has never managed to resolve, has predictably worsened considerably with the spring airstrikes, which amplified its effects across all sectors.

Regarding gas, the shortage is a true paradox for a country that shares with Qatar the exploitation of the world’s largest gas field, South Pars, which accounts for three-quarters of a national production of approximately 260 billion cubic meters. Estimated at 51 trillion cubic meters – 15 trillion of which are in the Iranian portion – the potential of this offshore field is equivalent to 19% of global reserves.

Even before the armed conflict, gas production was almost entirely absorbed by domestic consumption (250 billion cubic meters annually), with regular shortages in winter, a period when building heating is at its peak in a country lacking a thermal insulation program. Anxious to honor its export contracts with Turkey and Iraq, for political reasons, Iran was consequently forced to import the missing volume of gas from Turkmenistan.

The airstrikes disrupted this fragile balance. In addition to the destruction of reprocessing plants near the South Pars site, which is expected to result in a 10-12% national production loss until they are repaired, 230 million cubic meters of gas storage have been destroyed and several gas pipelines damaged. These disruptions to the gas network are hindering Iran’s ability to fulfill its export contracts and are consequently reducing the output of its power plants, the vast majority of which are thermal.

For electricity, the production loss attributable to the gas shortage is compounded by the destruction of numerous electrical transmission relays. The corresponding deficit is approaching 12 GW, reducing national production to around 65 GW out of an installed capacity of 85 GW (72 GW of which comes from thermal power plants).

Furthermore, it is worth noting that Israeli pilots also destroyed two stockpiles of solar panels ready for installation, worth $2 billion. As a result, Iranian authorities have scheduled daily power outages starting next month, with industrial sites bearing the brunt of the disruption. Depriving businesses of several days of production each month, these outages will undoubtedly worsen the situation for industries already severely impacted by airstrikes (steel, petrochemicals, and pharmaceuticals).

As for gasoline, due to the destruction of a refinery near Tehran and several storage facilities, fuel production is capped at 110 million liters per day, while daily consumption ranges from 130 to 140 million liters.

This unprecedented gap, exacerbated by massive fuel smuggling across the country’s borders, is leading the government to consider a significant increase in pump prices despite the inherent social risk of such a decision (see the bloody riots of 2019). These measures will contribute to fueling inflationary pressures (+71% year-on-year, +140% for food products) that have pushed 40% of Iranians below the poverty line (20% in 2018).

In addition to these three shortages, there is the structural shortage of water, resulting from the ongoing progression of drought.

While less impacted by bombing than energy sites, dams, wells, and reservoirs have nonetheless suffered, even though their levels were historically low before the conflict. Overall, Iran’s water reserves are now estimated to be 50% lower than they were at the beginning of the century, a trend that is increasingly impacting the country’s agricultural production, forcing it to import significant volumes of grain even as its foreign exchange reserves are at their lowest levels.