Iran's energy crisis hits 'dire' point as industries are forced to shut down

Government offices in Iran are closed or operating at reduced hours. Schools and colleges have moved to online only. Highways and shopping malls have descended into darkness, and industrial plants have been denied power, bringing manufacturing to a near halt.

Although Iran has one of the biggest supplies of natural gas and crude oil in the world, it is in a full-blown energy crisis that can be attributed to years of sanctions, mismanagement, aging infrastructure, wasteful consumption -- and targeted attacks by Israel.

"We are facing very dire imbalances in gas, electricity, energy, water, money and environment," said President Masoud Pezeshkian in a live televised address to the nation this month. "All of them are at a level that could turn into a crisis."

While Iran has been struggling with issues with its infrastructure for years, the president warned that the problem had reached a critical point.

For most of the past week, the country was virtually shut down to save energy. As ordinary Iranians fumed and industrial leaders warned that the accompanying losses amounted to tens of billions of dollars, Pezeshkian could offer no solution other than to say he was sorry.

"We must apologise to the people that we are in a situation where they have to bear the brunt," Pezeshkian said. "God willing, next year we will try for this not to happen."

Officials have said the deficit in the amount of gas the country needs to function amounts to about 350 million cubic meters a day, and as temperatures have plunged and demand has spiked, officials have had to resort to extreme measures to ration gas.

The government faced two stark choices. It either had to cut gas service to residential homes or shut down the supply to power plants that generated electricity.

It chose the latter, as turning gas off to residential units would come with serious safety hazards and would cut off the primary source of heat for most Iranians.

"The policy of the government is to prevent at all costs cutting gas and heat to homes," Seyed Hamid Hosseini, a member of the Chamber of Commerce's energy committee, said in telephone interview. "They are scrambling to manage the crisis and contain the damage because this is like a powder keg that can explode and create unrest across the country."

By Friday, 17 power plants had been completely taken offline and the rest were only partially operational.

Tavanir, the state power company, warned producers of everything from steel to glass to food products to medicine that they needed to brace for widespread power cuts that could last days or weeks. The news has sent both state-controlled and private industries into a tailspin.

Mehdi Bostanchi, the head of the country's Coordination Council of Industries, a nationwide body that acts as a liaison between industries and the government, said in an interview from Tehran that the situation was catastrophic and unlike anything industries had ever experienced.

He estimated that losses from just this past week could reduce manufacturing in Iran by at least 30% to 50% and amount to tens of billions of dollars. He said that while no enterprise had been spared, smaller and medium factories were hit the hardest.

"Naturally, the damages from the widespread and abrupt power outage that has lasted all week will be extremely serious for industries," Bostanchi said.

The energy crisis has hit Iran at a particularly difficult geopolitical time.

Iran's regional status as a power player has been severely diminished following the collapse of the Assad government in Syria and Israel's decimation of Hezbollah in Lebanon. The return of President-elect Donald Trump is expected to bring maximum pressure on the regime, with policies that will further squeeze the economy.

The country's currency, the rial, has also been in free fall this past week, plunging to its lowest rate ever against the dollar.

All this has left the government vulnerable as it scrambles to contain each crisis.

A lesser-known factor has exacerbated the energy crisis this year: In February, Israel blew up two gas pipelines in Iran as part of its covert war with the country. As a result, the government quietly tapped into emergency gas reserves to avoid service disruption to millions of people, according to an official from the oil ministry and Hosseini, the member of the Chamber of Commerce's energy committee.

Pezeshkian, elected president in July, has said that his government inherited a depleted energy store that it has not been able to replenish.

Natural gas accounts for about 70% of Iran's sources of energy, a rate much higher than those in the United States and Europe, according to international energy studies. The government implemented an ambitious project of taking gas to all corners of Iran, including small villages, and now about 90% of Iranian homes rely on gas for heat and cooking.

Analysts attributed the current crisis to a host of problems, including an ailing infrastructure across the entire production and supply chain. Because of sanctions, Iran has found it difficult to attract foreign investments to expand and modernize its energy sector, analysts said. Mismanagement, corruption and cheap prices that fuel wasteful consumption are among other factors.

"All across the chain you basically see challenges where Iran is not able to produce as much electricity as it needs, and at the same time it is not able to reduce its consumption," said Esfandyar Batmanghelidj, CEO of the Bourse & Bazaar Foundation, a London-based economic think tank that tracks Iran's economy. "It's very difficult to keep this going."

Iran began enforcing two-hour scheduled daily power cuts to residential homes in November, but that did not suffice. The power cuts now happen more randomly and last longer. For two days last week, schools, universities, banks and government offices were shut down with a day's notice in all but three of Iran's 31 provinces to save energy.

By Thursday, the government said all schools and higher education would move online, a measure not taken since the pandemic, for the remainder of the semester, which runs for about three more weeks. Then, on Friday, the governor of Tehran, the capital, said schools there would be open Saturday because of final exams.

Government offices will be working at reduced hours, ending work at 2 p.m. until further notice to reduce energy consumption.

Saeed Tavakoli, the head of the state gas company, said the gas service to some 73,000 housing units was cut off after agents, knocking door to door, identified them as second vacation homes in the mountains near Tehran and the shores of the Caspian Sea in the north.

Ordinary Iranians are waking up every day not knowing if they will be able to go to work or send their children to school, or if the elevators or traffic lights will function.

"The power outage has severely affected daily life and work. When the power goes out, the water is also cut off and the boilers are turned off, and, as a result, all the heating devices are out of order," said Sephideh, a 32-year-old teacher in Tehran, who said her online English classes are routinely canceled because internet goes out. She asked that only her first name be used, out of fear of retribution from authorities.

Nader, a dentist who also requested only to be identified by his first name, said he sometimes had to stop work on patients' mouths midway because of power cuts.

The owner of one of the largest manufacturing plants for construction material said in an interview from Tehran that his business had survived revolution, war and sanctions but that none of those things had been as chaotic and stressful as events of the past week. He said an overwhelming sense of uncertainty was spreading among the private sector, with the country slipping into uncharted territory with crisis after crisis that the government seemed unable to control.

Soheil, a 37-year-old engineer at a household appliance production factory in Isfahan, said the power cuts would force the factory to lay off workers and downsize because power cuts had led to higher production costs.

Pezeshkian has started a video campaign of officials and celebrities urging Iranians to reduce energy consumption by lowering the temperature of their homes at least 2 degrees. Videos on state media showed the presidential compound with no lights at night.