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

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(Bloomberg) — Iranian entrepreneur Amin Samieepour is familiar with power outages during his three-decade career, yet he can’t remember a worse time than the blackout that put his kitchen factory out of business.

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“It’s scary when the electricity goes out during work, you leave your workers without work,” said Samieepour, 42. “The current situation is at its worst, and it will get worse in the near future.”

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Since November, producers have been denied electricity for up to two days a week as the aging grid buckles under international sanctions and a lack of foreign investment. The regime faces a tough road ahead, with incoming US President Donald Trump promising more pressure and preparing a new package of sanctions against the oil industry.

The blackout is Iran’s worst in decades and has hit the economy hard, crippling key industries and throwing the energy-rich country into crisis. Producers are already suffering from a combination of sanctions, 30% inflation and a failing currency.

“I don’t feel optimistic about the future like this,” said Abdolkarim Masoumi, 36, who manages a supplier of Soren Chemical Co. “I have seriously considered downsizing, many times, even closing my business.”

At stake for the Islamic Republic is not only the survival of energy, steel and car manufacturers but also the theocracy that has supported the nation since the 1979 revolution.

The ruling clerics in recent years have faced an unprecedented level of unpopularity, and that vulnerability is compounded by the rapid decline of their regional influence amid Israel’s wars in Gaza and Lebanon, and regime change in Syria.

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Even after the cease-fire agreement between Israel and Hamas, direct conflict with Israel remains a possibility. If Iran receives a military strike on critical parts of its grid, nuclear facilities or other critical infrastructure, sanctions will hinder its recovery.

The blackout costs the economy about $250 million a day, the Iran Chamber of Commerce, Industries, Mines and Agriculture estimates.

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

“The situation is the worst I have seen in the last 25 years,” said Samieepour.

The Purchasing Managers’ Index fell for nine consecutive months, according to statistics published by the Iran chamber. It linked that reduction to a power outage.

In addition, the percentage growth of gross domestic product is predicted to slow from now to 2027, according to the World Bank. Export growth is also expected to slow.

“Iran’s energy crisis is part of a wider, domino-like economic collapse, where failure in one sector has negative consequences for all others,” said Danial Rahmat, an independent analyst based in Tehran.

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Electricity consumption has more than doubled since 2005, and some say large gas subsidies encourage wasteful practices such as running air conditioners and open windows.

At the same time, the capacity of the new generation has not kept pace because potential investors abroad want to avoid using US restrictions.

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

“The truth is that there is an imbalance of power,” Aliabadi told lawmakers Jan. 5, reports IRNA. “Diversity production is in our plans, but it takes time.”

The government has 14 short-term projects planned for the summer, including the work of oil refinery units, reducing network restrictions and increasing renewable energy, he said. The minister did not give a price tag.

Iran has the world’s second largest reserves of natural gas but is struggling to find it. It faces a gas shortage of at least 200 million cubic meters per day, said Reza Padidar, vice president of the Oil Industry Federation of Iran. That’s roughly equivalent to Germany’s average daily consumption.

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“The response to unprecedented international sanctions is not enough,” Padidar said. “Energy, which was once a promoter of economic growth, has become an obstacle.”

The main phase of the large South Pars field took 18 years to complete due to financial conflicts and several rounds of sanctions that remain tight.

France’s TotalEnergies SE made two attempts to help develop the site before withdrawing, leaving the local company to finish the job by taking the used platform to another part of the field.

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

A 1,000 megawatt nuclear power plant is operating on the Bushehr coast, and another under construction in Khuzestan province is expected to produce 300 megawatts per day.

The 2015 deal with the US aims to prevent Iran from enriching uranium to weapons grade. As a result, the sanctions were reduced.

But Trump reversed that in 2018, saying it wasn’t comprehensive enough, and reinstated sanctions on energy, transportation and banking.

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Since then, the rial has weakened significantly against the dollar, losing nearly 90% of its value in an unregulated, open market.

Strikes are reported in the industrial sector. Pensioners, health workers and traders in Tehran’s old Grand Bazaar have all held protests and walkouts in recent months.

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

Without some respite from sanctions, the lack of energy will likely be worse. The country needs to spend about $15 billion a year by 2029 to deal with the deficit, an oil ministry official said in November.

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

That may not last long after Trump’s inauguration on Monday. There is general consensus among key advisers to tighten sanctions on Iran’s major oil players, Bloomberg News reported on January 16. Those could come as early as next month.

Making a new deal with Trump is a priority for Transitional President Masoud Pezeshkian, who considers it essential for economic development.

The government this month held a third round of talks with the UK, France and Germany on the issue, with the deputy foreign minister describing the Geneva sessions as “serious, frank and constructive” to X.

That power gives Masoumi, a chemical supplier, something to hope for.

“With the new pragmatism shown by the ruling system, I think things can still progress,” he said, “unless bombs or missiles interfere with the way forward.”

—Courtesy of Julian Lee and Elena Mazneva.

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