Rock-bottom energy prices, not sanctions, are holding Iran back

The snows have fallen early this year in the Alborz Mountains above Tehran – earlier than last year. And they are much needed.

A month ago President Masoud Pezeshkian said Iranians had “no choice” but to move the capital because of persistent water shortages. He was exaggerating only slightly. Six years of droughts, along with a drive towards agricultural self-sufficiency – and filling swimming pools – have taken their toll on the dams and reservoirs that supply Tehran and other cities.

Now there is hope that the effects of water shortage will be alleviated by the snow. At the same time, power cuts – outages of up to four hours a day were not uncommon over the summer – have eased, according to residents, and limited gas supplies to neighbouring Iraq have resumed.

Inflation may be running at an annualised 40 percent and the open market rate for the rial has tanked to 1,250,000 to the dollar, but Iranians have learned to be self-reliant. No one holds rials unless they have to. Gold, crypto and Uncle Sam are the preferred assets.

Some reports put poverty rates in Iran as high as 40 percent, but residents say there is little of the deprivation of an Egypt or Morocco.

Last week the government raised the price of gasoline for heavy users of fuel. This is highly contentious in Iran – if in line with economic orthodoxy. In 2019, hundreds of demonstrators died in protests when fuel prices were raised.

But in a country with the second largest gas reserves in the world and ample oil, the root cause of the energy crisis is rock-bottom pricing. Even after the latest hikes, those paying the top rate on more than 160 litres of gasoline a month must now part with a princely 4 cents a litre.

In September, the UN reintroduced sanctions after France, Germany and the UK invoked the “snapback” mechanism foreseen in the Joint Collective Plan of Action, the 2015 agreement to limit Iran’s nuclear programme.

But the Islamic Republic now has other options. In response, Iran and Russia signed a deal to develop more nuclear power reactors, some of them small modular units, to add to the plant at Bushehr, which is also being expanded.

Russia and Iran are making much play of accelerating work on the International North-South International Transport Corridor, a 7,200km shipping, rail and road network designed to circumvent the Suez Canal.

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The US and others have imposed sanctions on the Islamic Republic for nearly 50 years. If anyone knows how to get round these restraints it is people of a country with long, porous borders.

So it is that, 10 months after the Trump administration’s announcement of a return to “maximum pressure”, the Iranian shadow tanker fleet is running at near-capacity, according to energy data provider Vortexa.

Crude and condensate exports have averaged between 1.5 million and 1.7 million barrels a day this year, 6 percent higher year on year, says Vortexa. Others put Iranian export levels even higher.

These are strange times in Iran but what can be said with some certainty is that the international sanctions regime against the Islamic Republic is looking distinctly threadbare.