In the past two years, US and Israeli hostilities directed at Iran have proven highly consequential, causing substantial physical damage to four processing trains of South Pars Phase 14, approximately 2,000 points of the electricity transmission network, and key energy-related industrial assets. With cumulative damages estimated at $7–9 billion, this campaign has hit the petrochemical industry particularly hard, with production volumes declining significantly.
This year’s energy supply conditions are different from the past, and imbalances are greater than in previous years. Iran’s energy policies and strategy in the current situation are multidimensional, internal, external, tactical, and strategic.
Energy Security and Internal Infrastructure Resilience
Energy security is the backbone of Iran’s national security, social stability, deterrence power, and geopolitical authority. Iran’s energy governance is notably fragmented, with authority distributed among the Oil Ministry, the Energy Ministry, the Plan and Budget Organization, the Ministry of Industry, Mine and Trade, the Department of the Environment, the Majlis, the Economic Council, and numerous other stakeholders. Yet, the military campaigns have urgently necessitated a strategic reassessment of the national energy roadmap.
While energy and water infrastructure are cornerstones of national security and social stability, Tehran has successfully executed the largest energy crisis-management operation in the country’s contemporary history.
By shifting strategically from traditional management toward a ‘defensive resilience model,’ the Ministry of Energy has successfully secured the sustained continuity of essential infrastructure services throughout the wartime period—achieved by focusing on the decentralization of power generation, smart-grid digitalization, stringent water-resource management, and the concurrent expansion and reinforcement of transmission infrastructure.
Recently, the Minister of Energy identified the redirection of electricity toward productive economic activities as one of the government’s priorities in the energy sector. The expansion of distributed and small-scale power generation, coupled with the deployment of emerging technologies, is expected to usher in broad-based development across the electricity sector.
The Tavanir Company announced the start of the implementation of 25 key strategies in the energy governance system with the aim of improving efficiency, increasing the resilience of the electricity grid, institutionalizing a culture of efficient consumption in the country’s smart energy management community, and reducing national costs.
Complementing these efforts, various state and industrial bodies are also leveraging domestic engineering expertise to carry out repairs, recommission damaged energy infrastructure, implement intelligent and sustainable crisis-management protocols, and enhance the overall resilience of the energy systems. These coordinated actions are aimed at narrowing the supply-demand imbalance, achieving import independence, and ultimately intensifying support for domestic industries while reinforcing the resilience of the nation’s energy infrastructure.
Meanwhile, reconstruction of damaged facilities, restoration of affected industrial assets to full operation, increased production output, consumption management, and optimization efforts are all underway.
Currently, greater attention is being directed toward the relationship between energy security and the ability to effectively manage demand, curtail energy intensity, foster social participation in savings, democratize energy governance, and instill a nationwide conservation culture.
Although the country disburses roughly $127 billion annually in explicit and implicit energy subsidies, this has failed to translate into energy justice. The issue of “reforming consumption patterns” has become more of a focus for Tehran than ever before, and energy efficiency has become part of the grand strategy for overcoming imbalances.
Optimizing energy consumption across energy-intensive industries is an important component of Iran’s strategy to strengthen energy security and enhance industrial resilience. The deployment of smart energy-management systems, reductions in gas consumption without compromising output, and improvements in energy efficiency can collectively make a significant contribution to the country’s energy security.
The government’s stance on gasoline is currently being finalized, against a backdrop in which self-sufficiency, balancing consumption with production, eliminating reliance on gasoline imports, sustainable demand management, data-driven governance, the activation of alternative fuel capacity, network-based smuggling controls, and the enhancement of the country’s energy supply-chain resilience have all grown significantly more urgent.
There is broad consensus among government officials and private-sector actors on the urgent need to diversify the fuel mix and manage consumption, given the acute deficits in gas, electricity, and gasoline, as well as the failure to meet the 1.3 million barrel-per-day savings target mandated by the Seventh Five-Year Development Plan.
Iran is considering transitioning from one energy system to another, developing renewable and clean energy, and investing in technologies and decarbonization. Also, proven coal reserves can meet domestic needs for more than a century. Five thousand megawatts of coal-fired power capacity is likely to be created.
Installed petrochemical production capacity exceeded the 100-million-tonne threshold by the end of the year.Also, the rehabilitation of more than 700 shut-in and marginally productive wells, together with the engagement of 76 technology-driven companies, constitutes part of the administration’s record during its first two years in office.
However, crude supply to domestic refineries—accounting for roughly 55–60 percent of Iran’s total oil production—continues unabated.
Energy Diplomacy and International Outreach
Undoubtedly, energy is directly linked to national power, energy security, economic development, and foreign policy.
Tehran seems to be moving crude oil in new ways. The United States has imposed restrictions on Iran’s maritime crude oil exports. However, crude supply to domestic refineries—accounting for roughly 55–60 percent of Iran’s total oil production—continues unabated, while a portion of the country’s energy exports are being redirected through land and rail corridors. Tehran has sought to sustain—and, where possible, increase—Iran’s exports of crude oil and gas condensates despite the intensification of sanctions pressure and even amid periods of armed conflict.
The establishment of oil and oil product export terminals, the development of petrochemical industries, the establishment of energy storage centers, and the formation of energy trading hubs on the Makran coast in the southeast of the country are expected to increase the resilience of Iran’s energy economy.
Against this backdrop, Iran has sought to preserve its foreign-exchange revenue streams through an active energy-diplomacy strategy, identifying alternative markets, and deepening ties with China, traditionally the largest purchaser of Iranian crude.
The United States has imposed restrictions on a portion of Iran’s maritime crude oil exports, while other energy exports are being redirected through land and rail corridors.
The value of Iran’s petrochemical exports reached approximately $12 billion in the preceding year.
One of Iran’s greatest challenges today is its dependence on southern geography in its energy strategy, and a strategic orientation toward the north must become an integral part of the national energy roadmap. Therefore, Tehran is gradually envisioning a strategy aimed at reducing dependence on maritime routes by strengthening land-based links, laying the groundwork for the development of electricity trade, and transforming Iran’s geographical position into a connectivity hub.
Furthermore, within the realm of energy diplomacy, the significance of Eurasia is increasing—encompassing oil and gas exports, the development of electricity trade, the implementation of energy swap projects, the interconnection of transmission networks, the completion of the International North–South Transport Corridor, and participation in regional energy markets.
Recently, Iran and Tajikistan agreed to conclude a long-term contract for the export of petroleum products, the supply of crude oil to Tajikistan’s refineries, and the supply of fuel.
Cooperation with Tehran’s allies—particularly China and Russia—could contribute to financing Iran’s energy sector, compensating for energy imbalances, and reconstructing the country’s energy infrastructure.
Initiatives such as the 2015 Russia–Georgia–Armenia–Iran electricity corridor agreement, the transit of Russian gas to Iran through Azerbaijan, the development of the International North–South Transport Corridor (INSTC), and the strengthening of energy grid connectivity among BRICS members could enhance the security and stability of energy trade at both the regional and global levels.
Furthermore, in line with the development of trade with neighboring countries, there is potential for cooperation with Turkmenistan, Azerbaijan, and Russia in the sphere of natural gas trading.
Within the framework of cooperation with Russia, an agreement is expected to be signed in the near term to facilitate the annual transmission of 55 billion cubic meters of Russian natural gas to Iran via an overland route crossing the territory of the Republic of Azerbaijan.
The existing pipeline infrastructure with Turkmenistan facilitates this swap. Beyond direct gas trade, Iran and Azerbaijan also collaborate through swap agreements.
Beyond the participation of Iranian companies in Iraq’s energy projects, the extension through 2028 of Iran’s gas-export agreement with Iraq—reportedly valued at approximately $14 billion per year—represents another significant development.
The Ministry of Petroleum has made effective use of the institutional and diplomatic capacities of international organizations. In addition to its engagement with OPEC and the Gas Exporting Countries Forum (GECF), the ministry has advanced the proposal for a “BRICS Energy Security Partnership.”
BRICS is seeking to strengthen supply chains and enhance the economic resilience of its member states. Recent remarks by Masoud Pezeshkian, Iran’s President, on the country’s readiness to assume a role in BRICS energy and transit supply chains reflect Iran’s efforts to position itself within these emerging networks.
Challenges
Natural gas accounts for approximately 71 percent of Iran’s total energy supply and 80 percent of the fuel mix used in power generation. National energy consumption is increasing by approximately 3 percent annually. This high degree of dependence on natural gas, combined with accelerating demand, means that overcoming the current constraints will require efficiency-oriented governance, alongside a more systematic approach to demand-side management.
The Energy Consumption Optimization Organization continues to face substantial institutional disagreements over the scope, responsibilities, and precise delineation of its mandate.
Available estimates indicate that approximately 17.5 percent of the gas supply is lost before reaching end users, while losses across the electricity transmission and distribution network are estimated at approximately 15 percent.
Currently, some phases of the South Pars field have been taken offline because of declining reservoir pressure. The geographical concentration of industrial activity in Bandar Abbas and Ahvaz also creates significant systemic vulnerabilities.
The economic pressure exerted on Iran by the administration of U.S. President Donald Trump has entered a new phase, further intensifying the external constraints confronting the Iranian economy.
While possessing about 12 percent of the world’s proven oil reserves and around 17 percent of its natural gas reserves, Iran faces fuel-product smuggling estimated at about 20–25 million liters per day.
Energy subsidies in Iran represent a substantial burden on the national economy, with the overall cost of energy subsidies estimated at approximately $127 billion.
The energy imbalance is attributable to a complex combination of structural and policy-related factors, ranging from energy economics and pricing mechanisms to aging infrastructure, inadequate investment, rising demand, power-plant efficiency, network losses, and the absence of a coherent, long-term strategy for expanding generation and transmission capacity.
Inter-agency fragmentation has emerged as a major impediment to adopting bold, long-term decisions in the country’s energy economy. Iran requires a more integrated energy-policy framework under which the respective mandates and responsibilities of the Ministry of Petroleum, the Ministry of Energy, and other relevant institutions can be clearly redefined. The Supreme Council for Energy constitutes the country’s highest statutory mechanism for inter-institutional coordination in the energy sector. Revitalizing the counciland reducing direct government intervention are critical to addressing the structural energy imbalance.
Outlook
Swap agreements could further strengthen Iran’s position as a regional energy hub. For Iran to transform into an energy hub and a major energy power, rebuilding the confidence of both domestic and foreign investors—together with its vast oil and gas reserves, privileged geographical position, access to open waters, proximity to high-consumption markets, and decades of industrial experience—could enable the country to make bold, coordinated, and long-term decisions.
In practical terms, moreover, both energy security and the extent of infrastructure damage remain inextricably linked to the trajectory of the confrontation with the United States.
Navigating the country’s energy crises requires a comprehensive combination of increased production, infrastructure expansion, demand-oriented management, and the deployment of advanced technologies.These factors, along with energy market diversification and reduced dependence on natural gas, should be elevated to core priorities in the national energy agenda.
Iran’s future energy strategy is also linked to several key principles of developing diverse energy infrastructure in different parts of the country: diversification, innovation, and sustainability; increasing the share of renewables; better energy security; attracting foreign direct investment and exports; strengthening regional energy corridors; and activating energy diplomacy at the regional and global levels.
Iran’s actions in the energy sector to counter Western pressure and economic blockade are very important. Iran considers maneuvering and self-sufficiency in the energy sector core means of resisting the US.
Tehran is gradually envisioning a strategy aimed at reducing dependence on southern maritime routes, strengthening land-based links, developing electricity trade, and transforming Iran’s geographical position into a connectivity energy hub. Therefore, a strategic orientation toward the north will likely become an integral part of the national energy roadmap.
Iran still possesses one of the world’s largest undeveloped energy potentials. To become an energy hub and a major energy power, Iran needs to rebuild the confidence of domestic and foreign investors, reform its energy structure, and cooperate with allies to enable bold, coordinated, long-term decisions.
Iran’s future energy strategy appears linked to key principles such as developing diverse energy infrastructure across the country, innovation and sustainability, stronger energy security, attracting foreign direct investment and exports, strengthening regional energy corridors, and advancing energy diplomacy at relevant regional and global levels.
