Iran faces a new energy imbalance, but its options are limited

Iran’s government weighs limited energy control options in a strained economy, with the war impacting production.A woman fills up her car's tank at a petrol station, after fuel price increased in Tehran, Iran November 15, 2019 [Nazanin Tabatabaee/WANA via REUTERS]Published On 3 Jun 2026Tehran, Iran – Iran is facing more energy constraints as its summer season begins, with the widespread use of air conditioning and other needs during hotter months contributing to an imbalance between supply and consumption.For decades, successive Iranian governments have kept utility bills well below supply costs for households and offices through a mix of implicit oil-and-gas subsidies, administered tariffs, state-controlled pricing, and sometimes direct financial support.The negative impacts of the war with Israel and the United States on the economy mean the government has fewer tools at its disposal to deal with an energy crisis this summer.Despite having the world’s third-largest proven crude oil reserves, Iran will have to import fuel again as demand outpaces refinery output.President Masoud Pezeshkian has repeatedly urged households and offices to take practical steps to limit energy consumption. Last week, he removed his jacket during a government meeting to demonstrate how Iranians can avoid turning down their air conditioning thermostats in their offices.Even though energy costs for households are much lower than in other parts of the world, corruption, mismanagement, sanctions, chronic inflation and currency devaluation have eroded the benefits Iranians usually feel from subsidised energy prices.In November 2019, the government announced a tiered gasoline price scheme that would see huge increases for some consumers. This sparked nationwide protests, and since then, the government has been wary about similar price hikes.While inflation has galloped on, continued subsidies have kept fuel artificially low.The administration’s attempts to tackle the subsidies burden due to a mounting budget crunch have resulted in only limited increases in petrol through a complex three-tiered pricing system.This is applied via a government-issued fuel card, giving most users of Iranian-made vehicles access to 60 litres (15.85 US gallons) per month of subsidised petrol at 15,000 rials (0.8 cents) and another 100 litres (26.42 gallons) at 1.6 cents.Any use over tier 1 and tier 2 is priced at 50,000 rials (around 1.4 cents) and Iranians are allowed a maximum of 30 litres of fuel per day under any of these prices schemes.An “emergency card” issued at petrol stations, permitting them to an additional 30 litres (7.9 gallons) of fuel a day at 50,000 rials (about 2.9 cents) per litre.After a new cap was imposed during the war to limit fuel consumption, each card allows only 30 litres of fuel a day. Petrol stations are issued their own “emergency card” for uses beyond this limit.Due to supply constraints, staff at petrol stations have now reportedly been instructed to limit the use of these cards to 10 to 15 litres (up to 4 gallons) or asked not to issue any new cards at all to customers.The Iranian government is running similar schemes for natural gas, electricity and urban water, with fears of social unrest making them averse to any sudden price hikes.There appears to be little the government can do to bridge the divide between lower energy production and growing demand for subsidised fuel, illustrated by the perpetual queues at petrol stations since the start of the war.“Reforming and increasing the price of energy is currently not feasible and logical due to the current economic conditions and social concerns,” Esmail Saghab Esfahani, a vice president of the state-linked Organization for Energy Optimization and Strategic Management, said earlier this week.There have been some changes to pricing structures, but this is impacting small businesses that are already struggling with the dire economic conditions in Iran.One 35-year-old owner of a welding workshop near Tehran, who asked to remain anonymous, told Al Jazeera that a surge in his monthly energy bill from 40 million rials ($23) per month in the previous Persian calendar year to three times that today.“I went to the electricity company, and they only kept saying the tariffs have gone up,” he said.“I had a similar message from a friend who is paying much more now for roughly the same usage as before, so it looks like we’re to pay for the cost of war.”Authorities say that any complaints about escalating bills will be reviewed. They also offer discounts to households that consume less energy, but excessive users can be billed as much as 45 times the standard prices.Despite having the second-largest proven natural gas reserves in the world, Iran still suffers from perpetual supply shortages during its winter and summer, when consumption is at its highest.The situation has worsened during the war, with strikes on Iranian energy facilities seeing Iran’s gasoline production capacity drop marginally from 115 million litres (30.37 million gallons) per day to 110 million litres (29.06 million gallons). Meanwhile, consumption has jumped from 10 million litres (2.64 million litres) in 2025 to 140 million litres this year (36.98 million litres).US President Donald Trump’s threats of more strikes on power plants have heightened fears of further blackouts and gas shortages this summer, meaning the energy crisis is likely to continue in the coming months.