Editor’s Note: Umud Shokri is a veteran energy strategist, a senior visiting fellow at George Mason University and a Title VIII Black Sea Research Fellow at the Middle East Institute. He specializes in global energy dynamics, climate change, and clean energy technologies and is the author of “U.S. Energy Diplomacy in the Caspian Sea Basin.”
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives Project
Turkey and Azerbaijan are helping to meet growing industrial demands for energy and minerals in Iran.
Contending with seven percent annual growth in electricity consumption, aging infrastructure, frequent power outages and U.S. sanctions, Iran has recently permitted large industrial facilities to import electricity from neighbors Turkey and Azerbaijan, according to the deputy CEO of the state-owned Tavanir company, Mohammad Allahdad. The decision in May marked a significant break from Iran’s long-standing energy self-sufficiency philosophy. Though billed as a short-term solution to stabilize grid operations, it reflects deeper structural problems and a growing openness to regional energy integration.
The situation was made even worse after Israel began a massive military campaign against Iran in June. Israeli bombings not only targeted nuclear and military facilities but also energy infrastructure, including the South Pars offshore gas field, oil storage sites, refineries and power stations. Shortages are so acute that the government declared July 23 a holiday to try to conserve energy and water during a heat wave.
A combination of aging infrastructure, rising demand, and persistent underinvestment in renewable energy sources had already resulted in a historic 25,000 megawatt (MW) shortage in Iran’s electrical system. Extreme weather, prolonged droughts that drastically decreased hydroelectric output, and subsidized pricing also contributed to the fact that power demand has increased at a rate twice as fast as energy generation since 2018.
The efficiency of thermal power plants, which provide more than 90 percent of Iran’s electricity, is less than 40 percent. Rolling blackouts, including abrupt outages in Tehran Province and in vital industries such as steel and cement, have been caused by these systemic problems.
The Interior Ministry in May ordered heavy industrial companies to cut their electricity use by a drastic 90 percent, which had a significant negative impact on production schedules and financial results. Record-breaking temperatures that increased household air conditioner use put additional strain on the grid. In response, Iran’s energy authorities issued permits that enable industrial customers to import electricity. Major customers can now receive power through existing transmission lines from Turkey, which has a 500 MW transmission capacity, and Azerbaijan, which is anticipated to contribute 140 MW this summer.
Turkey exports excess solar and wind energy to Iran via a high-voltage direct current (HVDC) cable as part of its quickly growing renewable energy portfolio. At the same time, Azerbaijan has become a crucial energy partner. Iranian industrial customers benefit from the imports’ favorable, government-backed exchange rates, which are about 10 percent lower than market prices. Iran hopes to reduce strain on its own system while maintaining hydrocarbon export earnings. According to Tavanir, during peak hours, this approach might free up 3,000–4,000 MW of domestic capacity for residential usage. The measure isn’t a complete answer, however. The estimated 850 MW of potential combined imports from Turkey and Azerbaijan represents less than 4 percent of the projected 25,000 MW summer shortage. Despite their strategic and symbolic importance, these imports are a band-aid rather than a long-term solution.
Imported power is still far more expensive than heavily subsidized domestic prices, even with the use of subsidized government exchange rates. Due to this pricing disparity, industrial consumers may have to pass on higher prices to end users, which would worsen inflation, which is currently above 40 percent.
Iran’s antiquated transmission systems, which experience up to 13 percent in energy losses, exacerbate the problem. Regional cooperation is also complicated by geopolitics, including territorial disputes between Armenia, an Iranian ally, and Azerbaijan and Baku’s growing ties with Israel. Conflicting interests in Syria as well as complications from U.S. sanctions impede energy cooperation with Turkey.
Nevertheless, energy cooperation is enabling Iran to stabilize its industrial operations, while Turkey and Azerbaijan gain greater regional influence and revenue diversification.
Still, Iran’s electricity import program seems more reactive than transformative. Without a significant push toward renewable energy and substantial renovation of domestic infrastructure, Iran’s growing power deficit is unsustainable. The amount of electricity generated domestically has stalled, increasing by only 2 percent a year. Plans to expedite the import of solar panels—made possible in part by oil-for-equipment barter agreements with China—have repeatedly been delayed.
Despite its inability to meet domestic demand, Iran nonetheless exports power to its neighbors. Iran exported 5.2 terawatt-hours (TWh) of electricity in 2024, which is 1.5 times more than it imported. A large portion goes to Iraq and Afghanistan in return for hard currency earnings.
The import scheme adds a semi-market mechanism to Iran’s generally inflexible energy system, which may pave the way for more extensive market liberalization and energy pricing reforms.
However, Iran’s energy system will continue to be susceptible to crises until it makes structural changes, such as cutting subsidies, putting more money into renewable energy, and updating its electrical grid.
Iran Turns to Turkey and Azerbaijan Amid Energy Shortages
By Umud Shokri
Middle East & North Africa
Editor’s Note: Umud Shokri is a veteran energy strategist, a senior visiting fellow at George Mason University and a Title VIII Black Sea Research Fellow at the Middle East Institute. He specializes in global energy dynamics, climate change, and clean energy technologies and is the author of “U.S. Energy Diplomacy in the Caspian Sea Basin.”
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives Project
Turkey and Azerbaijan are helping to meet growing industrial demands for energy and minerals in Iran.
Contending with seven percent annual growth in electricity consumption, aging infrastructure, frequent power outages and U.S. sanctions, Iran has recently permitted large industrial facilities to import electricity from neighbors Turkey and Azerbaijan, according to the deputy CEO of the state-owned Tavanir company, Mohammad Allahdad. The decision in May marked a significant break from Iran’s long-standing energy self-sufficiency philosophy. Though billed as a short-term solution to stabilize grid operations, it reflects deeper structural problems and a growing openness to regional energy integration.
The situation was made even worse after Israel began a massive military campaign against Iran in June. Israeli bombings not only targeted nuclear and military facilities but also energy infrastructure, including the South Pars offshore gas field, oil storage sites, refineries and power stations. Shortages are so acute that the government declared July 23 a holiday to try to conserve energy and water during a heat wave.
A combination of aging infrastructure, rising demand, and persistent underinvestment in renewable energy sources had already resulted in a historic 25,000 megawatt (MW) shortage in Iran’s electrical system. Extreme weather, prolonged droughts that drastically decreased hydroelectric output, and subsidized pricing also contributed to the fact that power demand has increased at a rate twice as fast as energy generation since 2018.
The efficiency of thermal power plants, which provide more than 90 percent of Iran’s electricity, is less than 40 percent. Rolling blackouts, including abrupt outages in Tehran Province and in vital industries such as steel and cement, have been caused by these systemic problems.
The Interior Ministry in May ordered heavy industrial companies to cut their electricity use by a drastic 90 percent, which had a significant negative impact on production schedules and financial results. Record-breaking temperatures that increased household air conditioner use put additional strain on the grid. In response, Iran’s energy authorities issued permits that enable industrial customers to import electricity. Major customers can now receive power through existing transmission lines from Turkey, which has a 500 MW transmission capacity, and Azerbaijan, which is anticipated to contribute 140 MW this summer.
Turkey exports excess solar and wind energy to Iran via a high-voltage direct current (HVDC) cable as part of its quickly growing renewable energy portfolio. At the same time, Azerbaijan has become a crucial energy partner. Iranian industrial customers benefit from the imports’ favorable, government-backed exchange rates, which are about 10 percent lower than market prices. Iran hopes to reduce strain on its own system while maintaining hydrocarbon export earnings. According to Tavanir, during peak hours, this approach might free up 3,000–4,000 MW of domestic capacity for residential usage. The measure isn’t a complete answer, however. The estimated 850 MW of potential combined imports from Turkey and Azerbaijan represents less than 4 percent of the projected 25,000 MW summer shortage. Despite their strategic and symbolic importance, these imports are a band-aid rather than a long-term solution.
Imported power is still far more expensive than heavily subsidized domestic prices, even with the use of subsidized government exchange rates. Due to this pricing disparity, industrial consumers may have to pass on higher prices to end users, which would worsen inflation, which is currently above 40 percent.
Iran’s antiquated transmission systems, which experience up to 13 percent in energy losses, exacerbate the problem. Regional cooperation is also complicated by geopolitics, including territorial disputes between Armenia, an Iranian ally, and Azerbaijan and Baku’s growing ties with Israel. Conflicting interests in Syria as well as complications from U.S. sanctions impede energy cooperation with Turkey.
Nevertheless, energy cooperation is enabling Iran to stabilize its industrial operations, while Turkey and Azerbaijan gain greater regional influence and revenue diversification.
Still, Iran’s electricity import program seems more reactive than transformative. Without a significant push toward renewable energy and substantial renovation of domestic infrastructure, Iran’s growing power deficit is unsustainable. The amount of electricity generated domestically has stalled, increasing by only 2 percent a year. Plans to expedite the import of solar panels—made possible in part by oil-for-equipment barter agreements with China—have repeatedly been delayed.
Despite its inability to meet domestic demand, Iran nonetheless exports power to its neighbors. Iran exported 5.2 terawatt-hours (TWh) of electricity in 2024, which is 1.5 times more than it imported. A large portion goes to Iraq and Afghanistan in return for hard currency earnings.
The import scheme adds a semi-market mechanism to Iran’s generally inflexible energy system, which may pave the way for more extensive market liberalization and energy pricing reforms.
However, Iran’s energy system will continue to be susceptible to crises until it makes structural changes, such as cutting subsidies, putting more money into renewable energy, and updating its electrical grid.
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