Iran Blackouts Leave Industry in Tatters Ahead of Trump’s Return

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(Bloomberg) — Iranian businessman Amin Samipour is no stranger to power outages during his three-decade career, yet he can’t think of a worse time than the current power outage that paralyzed his kitchenware factory.

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“It’s terrifying when the power goes out during working hours, leaving your employees out of work,” Samipour, 42, said. “The current situation is at its most disastrous, and it will get worse in the near future.”

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Since November, producers have been without electricity for up to two days a week, as the aging grid falters under international sanctions and a lack of foreign investment. The regime is preparing for a more difficult road ahead, with the next US President, Donald Trump, pledging to exert maximum pressure and prepare a new sanctions package targeting the oil industry.

The series of power outages are the worst in Iran in decades, and have affected large sectors of the economy, crippling key industries and pushing the energy-resource-rich country further into crisis. Manufacturers are already suffering from a combination of sanctions, 30% inflation and a failing currency.

“I don’t feel optimistic about the future with this path,” said Abdul Karim Masoumi, 36, who runs supplier Surin Chemicals. “I seriously considered downsizing, and several times even considered closing my business.”

The danger for the Islamic Republic is not only limited to the survival of energy, steel and automobile producers, but also to the theocratic system on which the nation has been based since the 1979 revolution.

The clerics ruling the country have in recent years faced unprecedented levels of unpopularity, a weakness exacerbated by their rapidly diminishing regional influence amid Israel’s wars in Gaza and Lebanon, and regime change in Syria.

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Even after the ceasefire agreement between Israel and Hamas, direct conflict with Israel remains a possibility. If Iran suffers a military strike on significant parts of its network, nuclear facilities, or other key infrastructure, sanctions will hamper its recovery.

The Iranian Chamber of Commerce, Industry, Mines and Agriculture estimates that power outages cost the economy about $250 million per day.

About 40% of steelmaking capacity is unused, natural gas supplies to at least a dozen petrochemical plants have been suspended, and gas flows to the cement sector have fallen by 80%, the state-run Islamic Republic News Agency reported.

“The situation is the worst I have seen in the past 25 years,” Sami Pour said.

The Purchasing Managers’ Index has fallen for nine consecutive months, according to figures published by the Iran Chamber. These declines were linked to power outages.

In addition, GDP growth is expected to halve between now and 2027, according to the World Bank. Export growth is also expected to decline.

“Iran’s energy crisis is part of a broader domino-like economic collapse, where failure in one sector leads to cascading effects on others,” said Daniel Rahmat, an independent analyst based in Tehran.

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Electricity consumption has doubled since 2005, and some say high gas subsidies encourage wasteful habits such as running air conditioners with the windows open.

Meanwhile, new generation capacity has not kept pace because potential foreign investors want to avoid running afoul of US restrictions.

Energy Minister Abbas Aliabadi warned this month that Iran’s electricity deficit would likely rise to 25,000 megawatts by mid-year from 20,000 megawatts last summer.

“The truth is that there are energy imbalances,” Aliabadi told lawmakers on January 5, IRNA reported. “Diversification of production is certainly within our plans, but it takes time.”

He added that the government has 14 short-term projects planned for the summer, including work on fuel oil units, easing grid constraints and increasing renewable energy capacity. The minister did not mention a price.

Iran has the second largest natural gas reserves in the world, but it faces difficulties in exploiting them. Reza Badidar, Vice President of the Iranian Petroleum Industry Federation, said that Iran faces a gas deficit of no less than 200 million cubic meters per day. This is approximately equivalent to the average daily consumption in Germany.

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“The response to the unprecedented international sanctions was not sufficient,” Badidar said. “Energy, which was an engine of economic growth, has become a constraint.”

The main phase of the massive South Pars field took 18 years to complete due to financial wrangling and multiple rounds of increasingly strong sanctions.

French company TotalEnergies made two attempts to help develop the site before withdrawing, leaving a local company to complete the job by taking a used platform from another area of ​​the field.

Renewable energy sources are almost non-existent. More than 92% of Iran’s energy supply comes from oil and gas, compared to 60% globally, the state-run Shana news agency reported on January 13.

A 1,000-megawatt nuclear plant is operating in the coastal city of Bushehr, and another plant being built in Khuzestan Province is expected to produce 300 megawatts per day.

The 2015 agreement with the United States aims to prevent Iran from enriching uranium to weapons-grade grade. In return, the penalties were reduced.

But Trump withdrew from that in 2018, saying it was not comprehensive enough, and reimposed sanctions on energy, shipping and banking.

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Since then, the riyal has fallen dramatically against the dollar, losing about 90% of its value on the unregulated open market.

Strikes are reported in the industrial sector. Retirees, healthcare workers and traders in Tehran’s centuries-old Grand Bazaar have staged protests and strikes in recent months.

Previous attempts by the government to raise gasoline prices sparked violent protests, most recently in November 2019.

Without some relief from sanctions, the energy deficit is likely to worsen. An Oil Ministry official said in November that the country needed to spend about $15 billion annually by 2029 to address the shortage.

The OPEC member’s oil exports have rebounded under President Joe Biden, rising 65% to an average of about 3.3 million barrels per day last year, according to a Bloomberg survey.

That may not last long after Trump’s inauguration on Monday. Bloomberg News reported on January 16 that there was a general consensus among key advisers to pressure Iran by imposing sanctions on major players in the oil industry. That could come as early as next month.

Reaching a new agreement with Trump is a priority for reformist President Masoud Pezeshkian, who considers it a key to economic survival.

This month, the government held a third round of talks with the UK, France and Germany on the issue, with the Deputy Foreign Secretary describing the Geneva sessions as “serious, frank and constructive” on X.

This potential gives Massoumi, the chemicals supplier, something hopeful to cling to.

“With the new pragmatism shown by the ruling regime, I believe things can still improve, unless of course bombs or missiles obstruct the path forward,” he said.

—With assistance from Julian Lee and Elena Mazneva.

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