Iran has one of the biggest reserves of natural gas and crude oil in the world, holding the second-largest proven gas reserves and fourth-largest proven crude reserves.  

And yet the energy giant is facing a fuel crunch, with demand for natural gas outstripping production.

In recent days, forced to ration electricity, Iranian authorities have ordered schools and public offices shut across the country, as well as turned off lights illuminating major highways in the capital Tehran and other places.

President Masoud Pezeshkian urged citizens in a video message to lower the average temperature of their homes by 2 degrees Celsius (3.6 degrees Fahrenheit) in order to help his government manage the energy crisis.

The appeal highlights the gravity of Iran's energy shortfall, exacerbated by its heavy reliance on gas-fired power plants, which accounted for as much as 86% of the nation's total electricity output in 2023.

Gas shortages have forced authorities to burn mazut — a cheap and highly polluting heavy oil — to generate electricity, worsening air pollution in major cities.

What's behind the gas shortages?

Iranian officials blame Western sanctions for the gas shortages.

The sanctions, aimed at curbing Tehran's nuclear and ballistic missile programs, have targeted Iran's oil exports, banking and shipping, among other sectors. The measures effectively crippled the country's economy.

Tehran claims the sanctions have hindered investments in gas field development, power plant construction, and efficiency improvements. However, this explanation fails to address underlying systemic issues.

Data from the US Energy Information Administration indicates that Iran earned $144 billion (€138.5 billion) in oil revenues during the first three years of US President Joe Biden's administration.

Arezoo Karimi, a journalist focusing on Iran's economy for IranWire, argues that despite the significant revenue generated by oil exports, much of it has been diverted to fund Tehran's geopolitical priorities, including supporting its regional allies like the Bashar Assad regime in Syria.

"Through shell companies and undisclosed accounts, much of Iran's oil income escapes international oversight," she told DW. "Yet, available evidence indicates that billions have been funneled into regional priorities instead of domestic infrastructure."

Karimi said Iran has spent billions of dollars over decades to prop up the Assad regime, including by supplying it with millions of barrels of crude for free.

"Iran has reportedly spent over $25 billion on Syria, primarily through oil support," she added. "This pattern of prioritizing regional alliances over infrastructure investment has left Iran's energy sector in dire need of modernization."

Iranian officials acknowledge that the country needs billions of dollars in new investment to modernize its oil and gas sectors.

Omid Shokri, a Washington-based energy analyst at Gulf State Analytics (GSA), a consulting firm, said that foreign companies are unlikely to invest until Iran reaches a nuclear deal with the United States, sanctions are lifted, and the country complies with the Financial Action Task Force (FATF) standards, which aim to combat money laundering and terrorism financing.

"Even if Iran meets these conditions today, it will take three to five years for international companies to return," Shokri pointed out. "Meanwhile, Iran faces a daily natural gas deficit of 350 million cubic meters, a 20-gigawatt electricity shortfall, and soaring gasoline consumption of 15 million liters per day. This energy crisis is the most severe since the 1979 revolution."

A flawed strategy?

While neighboring countries like Turkey have tried to diversify their energy mix — balancing coal, natural gas, oil and renewables — Iran relies overwhelmingly on natural gas. Over 95% of Iranian households are connected to gas pipelines, an infrastructure focus that analysts consider misguided.

Hossein Mirafzali, an energy expert, highlights the consequences: "Iran has installed 430,000 kilometers of gas pipelines to deliver gas to even the most remote villages. However, prioritizing residential use over industrial supply has inflicted severe economic losses. Gas shortages have forced industrial shutdowns, causing significant damage to the economy."

Iran's dependence on gas-fired power plants has also worsened its environmental impact. The country ranks among the top contributors to global greenhouse gas emissions, with pollution levels disproportionate to its economic output.

From energy exporter to importer

With no immediate solutions, analysts predict that Iran will be forced to import natural gas to meet domestic demand. Turkmenistan — which previously supplied gas to Iran during the administration of Mahmoud Ahmadinejad, who served as president from 2005 to 2013 — remains the most viable option. Yet this development underscores a paradox: how can a nation endowed with immense natural gas reserves become an energy importer? 

Iran's energy crisis reflects decades of mismanagement, sanctions and geopolitical priorities that have diverted resources away from critical domestic investments. As the country grapples with severe shortages and mounting economic pressures, addressing these systemic challenges will require a fundamental shift in strategy and governance.

The consequences are already visible: factories shutting down, homes enduring hours of blackouts, and pollution levels reaching unprecedented heights. Without change, experts warn, Iran risks deeper economic stagnation, public discontent and a growing reliance on energy imports.

Edited by: Srinivas Mazumdaru