On Saturday, January 4, Iran regime’s President Masoud Pezeshkian announced the establishment of the “Energy Optimization and Strategic Management Organization” during a meeting of the working group for addressing the country’s energy imbalance. The meeting, attended by the heads of the three branches of government, emphasized the urgent need to reform Iran’s energy consumption policies. Among the proposals discussed were plans to fine high-consumption households and offer economic incentives to low-consumption ones.
However, the government’s focus on household energy consumption overlooks a critical fact: official statistics reveal that the majority of energy waste occurs in large industries, not in the household sector. Key industries like petrochemicals and steel dominate gas and electricity consumption, and their inefficient practices are a primary driver of the country’s energy crisis. Yet, government policies remain concentrated on influencing citizens’ consumption habits while largely neglecting industrial reform.
Energy Consumption Density: A Key Indicator of Industrial Inefficiency
A crucial metric for evaluating energy efficiency in industries is energy consumption density, which measures the amount of energy used to produce each unit of goods. According to the latest report from Iran’s hydrocarbon balance sheet, the energy consumption density of Iranian industries stands at 1,650 megajoules per production unit. This figure starkly contrasts with the much lower densities of International Energy Agency (IEA) member countries, such as Portugal (250 megajoules), Greece (400 megajoules), and Italy (600 megajoules). These comparisons highlight the excessive energy consumption of Iranian industries and its significant role in the energy imbalance.
Subsidized Energy and Its Disincentives
The issue is exacerbated by the widespread subsidization of energy for large industries. Many sectors, including steel and petrochemicals, receive electricity and gas at heavily discounted rates, removing any incentive to optimize energy consumption. As a result, government efforts to promote energy efficiency have had minimal impact.
For instance, the production of one ton of steel in Iran requires approximately 350 cubic meters of gas and 900 kilowatt-hours of electricity. This energy is provided at subsidized rates, leading to a hidden subsidy of over $175 per ton. Despite consuming massive amounts of energy, steel industries pay only 15% of the actual value of their energy usage, with the remaining 85% covered by government subsidies.
Rent-Seeking and Corruption in the Industrial Sector
Analysts point to the rent-seeking structure of Iran’s large industries as a major obstacle to energy reform. Many industries, particularly in steel and petrochemicals, generate enormous profits from subsidized energy while resisting changes to their consumption patterns. The profits from these subsidies often enrich corruption networks and economic mafias that wield significant influence over policymaking.
The steel industry exemplifies this dynamic. In June 2024, Tavanir Company’s CEO reported that steel production accounts for 50% of the total electricity consumption of Iran’s industrial sector. Not only does steel production consume nearly double the global standard of electricity—requiring 700 to 900 kilowatt-hours per ton compared to the global average of 450 kilowatt-hours—but it also heavily burdens the country’s water resources, using over 8,000 liters of water per ton.
Similar inefficiencies are evident in the petrochemical sector. Despite being one of Iran’s largest energy consumers, most of the petrochemical products are exported, and the foreign currency earned does not fully return to Iran’s economy. The government’s continued subsidization of energy for this sector further undermines the nation’s economic and environmental sustainability.
Implications of Energy Subsidies
Subsidizing energy for industries that sell their products at global market prices undermines Iran’s economy and exacerbates its energy imbalance. This policy has no economic justification and jeopardizes the country’s natural resources. For example, the deputy oil minister predicted a gas shortage of 300 million cubic meters this winter, yet steel industry managers argue their share of consumption is negligible. Independent experts, however, contend that the actual consumption of these industries far exceeds the reported figures.
