With Diverse Tactics, Women's Rights Activists Shaped Iran's Elections

Although there are no official statistics on the number of women who participated in the fourteenth presidential election in Iran, evidence suggests that participation was limited. Mardomak, a research firm, reviewed a random sample of over 8,000 Iranian twitter users one week before the election. Of this sample, just 18 percent were women who supported Pezeshkian. Double that proportion supported one of the two hardline candidates, Saeed Jalili and Mohammad Bagher Ghalibaf, while 39 percent intended to abstain from the election.

But even if most women voters did not participate in the election, they still had a significant impact on its outcome. In a recent interview with the reformist newspaper Etemad, Shirin Ahmadnia, a sociology professor at Allameh Tabataba’i University, underscored the ways in which women have transformed the political arena through new forms of activism, including election boycotts.

For years, the Iranian women’s movement had adopted a “pressure from below, bargaining from above” approach to activism, aiming to bring about reform through a combination of tactics. But political elites were unswayed by the social pressure and unwilling to engage in good-faith negotiations—the situation of women remained largely the same, whether a moderate or fundamentalist was president. The Women, Life, Freedom movement, which emerged after the death of Mahsa (Jina) Amini, brought a new urgency to the fight for gender equality. Iranian women were no longer mobilizing to with the goal of reform. They wanted fundamental political change.

The death of Ebrahim Raisi in a helicopter accident led to new elections. Surprisingly, the Guardian Council, a vetting body, approved Pezeshkian to run. Faced with an unexpected election and a surprising candidate, some women activists did choose to vote, casting their ballots for Pezeshkian, who was backed by reformists and moderates. My conversations with nine women’s rights activists in Iran revealed complex feelings about the election and the best tactics to improve the status of women in Iranian society. Their names have been changed for their own safety.

Leila, an activist and writer, did not vote in either round of the election, but she deliberated voting in the second round. “I have not participated in elections since 2021. I asked myself: Should women participate in the elections when the presidential candidates promise nothing about women’s rights? As a woman, why should I participate in the elections of a state that does not show flexibility for women’s rights?”

Leila understood why some women may have opted to vote when Pezeshkian made it to the second round. “I think some of those who had not voted in the first round participated in the second round because [Jalili] represented religious fundamentalism, which worried me too. But in the end, I decided not to vote because I believed Pezeshkian’s chances of winning were high.”

Historically, women’s rights activists have been considered part of the reformist’s base. But a perceived neglect of women’s demands has led the reformists to lose much of this support. Maryam, a journalist who focuses on women’s issues has volunteered for reformist campaigns in the past. But she did not vote for Pezeshkian. She referred to a feeling of disappointment as candidates failed to make good on their promises. “I did not vote because I have no hope. My friends and I feel disillusioned with the reformists, with politics, and with elections. The president does not play a pivotal role in this dictatorial system.”

Many women experience double discrimination due to their ethnicity. Sahar, an activist from the Iranian province of Kurdistan, viewed abstention as a form of civil resistance. “I did not vote because civil laws, family rights, and political rights discriminate against me due to my gender,” she explained. “Legal reform has stalled for years. Moreover, my ethnicity, language, and identity still lack representation in political discussions.”

Sahar criticized Pezeshkian’s stance on women, adding “According to Pezeshkian, women’s social presence and gender justice are intertwined with their role within the family. He believes a woman’s identity should be defined solely within the family institution. In essence, women are denied individual freedoms and citizenship rights beyond household duties. His traditional thinking fails to recognize each woman’s independent identity.”

While many Iranian women grew disillusioned in the aftermath of the Women, Life, Freedom protests, for others, the turning point came earlier. For Haleh, who was jailed for her activism against the compulsory hijab law, this moment came after the downing of Ukraine International Airlines Flight PS752, which was hit by Iranian anti-aircraft missiles in January 2020. Explaining her decision to boycott the election, Haleh pointed to the failure of the government to create accountability.

“The main reason for me, even before the candidates were announced and before knowing whether we would have a reformist candidate or not, was that after the plane incident, I became disillusioned with the reforms,” Haleh explained. I was convinced that the path we had followed all these years would no longer work. In the past, I had hope and believed that voting for the reformists would lead us down the right path. But now, I ask myself, what difference does it make whether Jalili or Pezeshkian is president?”

While few women’s rights activists believe that Pezeshkian’s victory will lead to fundamental change, particularly on women’s issues, some believe that having a reform-minded president will make a difference. Many women’s rights activists saw voting for Pezeshkian as a chance to address economic hardships, revitalize social movements, and create greater space for women to voice their demands. Many women’s rights activists are struggling to make a living, which makes it difficult for them to sustain their activism.

According to Soudabeh, an activist and social worker, Pezeshkian’s promise to put technocrats back in charge of policy earned him the vote of some women. “They believed that Pezeshkian could address the deterioration of Iran’s economy by appointing people who are more knowledgeable and moderate to key positions. Iran’s situation is like a person with an incurable disease, and the Pezeshkian’s presidency might help slow or reverse the country’s deterioration.”

Some women’s rights activists working in governmental organizations or managing NGOs expressed a similar hope for the Pezeshkian administration. Shahla, an employee of a governmental organization, contrasted the Rouhani and Raisi governments. “During the Rouhani administration, despite its weaknesses, some women activists held management positions. With the fundamentalist representatives now in parliament, we cannot expect fundamental changes, but we are optimistic about social openings for women under Pezeshkian. Positive changes have already begun in our organization, indicating that while the president may not be able change the structure of the system, he can still influence social policies. I believe the state has acknowledged public dissatisfaction and is considering implementing changes, however small.’’

Despite Iran’s structural discrimination against women, some women’s rights activists still believe that they must not abandon the political arena. They seek improvements, however small, such as creating spaces to express their demands. Shadi, who runs an NGO for women, described the risks when fundamentalists gain power. “Most of us with NGOs working on women’s rights encouraged others to vote despite facing punishment for our activism. We endured the suffocating atmosphere of the Raisi era. Now, a small hope has emerged. Since Pezeshkian has been elected, some people in the governmental organizations we deal with have retreated from their fundamentalist stances.”

Shadi challenged the notion that activists should welcome the further deterioration of conditions in Iran. “Some have criticized me for founding an NGO, believing that increasing social problems could lead to the [Islamic Republic’s] downfall. In these years, so many women have been killed, yet nothing has happened to the state. These expectations are abstract. We must protect women and create spaces where diverse voices are heard,” she insisted. “We must not allow fundamentalists to take power in all three branches of government.”

Reyhaneh, an activist and law student, voted for Pezeshkian in the first round of the election. “I voted in the first round because I believe that the social movements need revitalization, and Pezeshkian’s presidency offers a greater likelihood of this compared to Jalili. Additionally, my decision was grounded in a pragmatic view of potential changes in the country.” Reyhaneh hoped for “less fear on the streets, less suppression of university students, and fewer professors dismissed.”

But she abstained in the second round. “In the second round, I paid closer attention to the debates, and the inconsistency of Pezeshkian’s statements about the economy dissuaded me from voting. For instance, he once emphasized that we should not allow people to experience poverty; yet in another context, he advocated for minimal government intervention.’’

Reyhaneh has low expectations as Pezeshkian prepares for his inauguration.  “I don’t anticipate a reversal in policies regarding hijab, which concerns many of us. There may be some changes in the distribution of positions held by women, and more educated women may enter the government roles, but the glass ceiling will likely remain intact.’’

Saba, a sociologist who supported Pezeshkian, understands why many of her fellow activists refused to vote. She says Iranian women are engaging in “intentional neglect.” These women are no longer abstaining from voting to express anger towards Iran’s political elite. Instead, they are indifferent. “Women are signaling to the state, ‘We want nothing to do with you. We are forging our own paths, building our own businesses to maintain independence, crafting our own narratives, and creating separate media spaces on social platforms. Every day, we distance ourselves further from you,’” Saba explained.

In a campaign statement addressing “the main demands of today’s women,” Pezeshkian acknowledged that “today’s women do not want someone other than themselves to decide their marriage, education, career, clothing, and lifestyle.” Pezeshkian was the only candidate to issue such a statement, which declared that “the expansion and realization of gender justice will not only improve the condition of women but also to the revival of life in Iran.’’ He promised to “respect [women’s] choices” and to “provide a platform” for Iranian women “to become the best versions of themselves.”

Pezeshkian will begin his term without a mandate from Iranian women, but it is still in his interest to fulfill his promises to them. Should he fail to do so, Iranian women will boldly challenge him, as they have challenged his predecessors.

Photo: IRNA

Iran's Presidential Election Combines Low Turnout with High Stakes

The second round of Iran’s snap presidential election marks a critical moment for the country. On July 5, voters will decide between former deputy head of parliament Masoud Pezeshkian and ex-nuclear negotiator Saeed Jalili. While both candidates will struggle to restore power and prestige to the office of the president, the outcome of the election will be highly consequential for Iran, especially as the succession of Supreme Leader Ali Khamenei looms. Pezeshkian and Jalili have presented two diverging visions for the future of the Islamic Republic at a time when most Iranians have come to question the fundamental tenets of their political system.

The political divisions in Iran now extend beyond the long-running rivalry between “Principalists” and “Reformists.” Cleavages exist within progressive and conservative groups and between those who believe in the continuation of the Islamic Republic and those seeking fundamental political change. The record-low turnout in the election’s first round—just 40 percent of eligible voters cast ballots—reflects how a focus on ideological policies has alienated the electorate. In 2021, 18 million people voted for Ebrahim Raisi, whose shock death in a helicopter accident triggered new elections. On June 28, the combined vote for Jalili and third-place contender Mohammad Bagher Ghalibaf, the leading conservative candidates, totaled less than 13 million.

Reformists have likewise struggled to mobilize voters. Progressive Iranians want action on a wide ranging of issues, including women’s rights, internet censorship, political freedoms, minority rights, foreign relations, jobs and wages, healthcare, climate change, and education. While Pezeshkian, who received 10.4 million votes in the first round, has acknowledged these demands, most progressive voters do not believe he can foster change, and have so far stayed away from the polls.

Moreover, many Iranians opted not to vote because of a widespread belief that the election is illegitimate, owing to perceived election engineering and vote tampering. Many influential political figures have boycotted the snap elections, labelling the process an “election circus.” The sham election that brought Raisi to power in 2021 underscored the regime’s commitment to its own dogma, sacrificing decades of legitimacy earned through elections that were not free, but were competitive.

Raisi was a weak president, presiding over a system in which the executive’s powers are curtailed. Unelected bodies and interests groups enjoy significant influence over government policy in Iran and the Supreme Leader sets the red lines. Voters are under no illusions about the limits of the Iranian president’s power. But within the bounds of Iran’s political system, the divergence in the domestic and foreign policies of different presidents are often stark.

During the debates earlier this week, Pezeshkian and Jalili showcased their contrasting visions. Jalili comes from a self-proclaimed shadow government. He has led from the shadows for eleven years since securing just 4.17 million votes in the 2013 presidential election, which was won by Hassan Rouhani. Jalili champions a future where Iran is detached from Western influence. He vehemently opposes any engagement with the United States and, to a lesser extent, European countries. As a member of the Supreme National Security Council, Jalili used his political power to stymie revival of the Iran nuclear deal. Many fear that, if elected, Jalili might withdraw from the Non-Proliferation Treaty, thrusting Iran back into a nuclear crisis.

On the domestic front, Jalili’s camp includes ultra-conservatives vying for strict Islamic governance, more censorship, and tighter hijab laws and social restrictions. Even though Jalili has positioned himself as a kind of status-quo candidate, poised to maintain the policies of the Raisi administration, he is a divisive figure even within conservative circles. Some Raisi and Ghalibaf allies have indicated that they will support Pezeshkian over Jalili.

That Pezeshkian appeals to some conservatives points to the challenge he faces in mobilizing disaffected voters. His background distinguishes him from recent presidential candidates. He is an accomplished cardiac surgeon with certificates from the United States and Switzerland and served as Mohammad Khatami’s health minister. Some voters have connected with his personal story. Pezeshkian lost his wife and son in a car crash in 1993. He has not remarried.

Pezeshkian has said his foreign policy will be based on “engagement with the world,” which includes “negotiations for lifting sanctions.” Pezeshkian may be permitted to revive talks over the Iran nuclear deal—there is growing awareness among policymakers across Iran’s political specturm that sanctions relief is necessary for getting the economy back on track. However, he will face significant challenges in advancing his domestic policies. The parliament is dominated by hardliners, who will make it difficult for Pezeskhian to confirm his preferred ministers, which may include his outspoken campaign surrogates, former foreign minister Mohammad Javad Zarif and former communications minister Mohammad-Javad Azari Jahromi. Without an intervention from the Supreme Leader to encourage post-election unity, the political paralysis in Iran could prove even worse than in the final years of the Rouhani administration.

The specter of further political paralysis has no doubt deterred voters from believing in the viability of a Pezeshkian presidency. Boycotting the first round allowed the Iranian electorate to send a strong political signal that they will not allow their votes to legitimize a political system that is failing them.

But the stakes seem different now. A Pezeshkian victory appears a real possibility. If 10.4 million had not voted for Pezeshkian in the first round, it would have been reasonable for disaffected voters to completely boycott the election. But on the eve of the final round, voters may be thinking more tactically about the stakes of this election. A Pezeshkian presidency is a chance to hit the brakes at a time when Iran is accelerating towards a deeper political, economic, and social crisis. Whether Pezeshkian can turn the car around remains to be seen. But preventing Jalili from driving the country off a cliff might be reason enough to vote.

Photo: IRNA

Accelerating the Gulf's Energy Transition in the Wake of Russia's War

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The 2022 Russian war against Ukraine has been both a gift and a curse for oil producers in the Persian Gulf. In the short term, the war has created restraint for the development of renewables, contributed to the high oil demand, and in doing so demonstrated the need for more international investment in oil exploration and drilling. High oil prices and the resulting profits enabled the member states of the Gulf Cooperation Council (GCC) to partially offset financial losses from previous years—and also benefitted the economies of these member states. However, the transition to a new model of global energy consumption has not been cancelled—it has only been delayed.

This conflict clearly demonstrated the economic risk of excessive dependence on hydrocarbon-based resources, and as a result the leading GCC countries began to develop clear action plans for speeding up the energy transition. For the Gulf’s traditional oil producers, this is a huge challenge: after the short hiatus forced by the war, the race to switch to renewable energy will restart and force the Gulf states to once again work against time to prepare the oil sector for the “post-oil” era.

In general, most GCC states base their current strategy on an understanding of two contradictory but coexisting trends in the global energy market—trends created by the war in Ukraine. The first relates to national security issues: individual countries may find it necessary to extend their hydrocarbon use. The second and conflicting trend is that some players may accelerate their transition to renewables for the same security considerations and to reduce their dependence on fluctuating hydrocarbon prices.

Economic Development and Political Considerations

If the GCC countries are to reduce their current economic dependence on hydrocarbon exports, they need to diversify on a large scale into renewable energies. Alongside this, there is a need to maximise income from oil exports—something which can be achieved by simultaneously reducing domestic consumption and increasing oil output. However, GCC members will need to avoid increasing the volume of CO2 emissions, as these damage the health of the population and cause environmental damage.

But the political considerations are tied to the rentier social contract model of the states in the GCC. This model is now becoming too costly; budgets are uncertain against a backdrop of fluctuating oil prices. The fourth energy transition—and related processes, such as decarbonisation, digitalisation, and the development of renewable and alternative energy sources—will enable Gulf states to generate additional sources of income to finance government subsidies and social programmes. The development of the renewables sector will additionally contribute to preserving the social contract, provided that  its growth will also lead to the provision of new and high-paying jobs for the citizens in the public sector.

 External Influences

Other countries are placing increasing pressure on GCC states to accelerate their energy transition—and to make the oil they export more environmentally friendly (a marketing requirement formulated by the global push for energy transition). To maintain the competitiveness of their oil in the global market, Gulf producers are forced to take steps to reduce the environmental harm that can be caused by the production and transportation of hydrocarbons. The active spread beyond the United States and the European Union (including in Asian countries, who have been the traditional sales market for the GCC countries) of what some term the “green agenda” further increases the importance of presenting hydrocarbon products as green and minimising the negative impact on the environment.

Moreover, GCC countries will inevitably be pressured by the international community to implement international climate agreements. In 2022, the Arab states took an active part in the COP 27 climate summit in Egypt, and again in 2023, when they held the COP 28 summit in the UAE. The latter was a major milestone: its final document not only summed up what the international community had done within the framework of the Paris Agreement, but also recognised the need to phase out energy derived from fossil fuels. In light of these developments, by early 2024, almost all GCC states had put forward their own net-zero emissions targets.

Circular Carbon Economy

It is important to note that the final COP 28 document calls for a gradual phase-out of the use of oil in energy systems but emphasises that this process should be carried out without prejudice to hydrocarbon producers. This duality fully meets the needs of the Persian Gulf countries. They are ready to provide consumers with hydrocarbons for as long as they are needed—for example, the European Union, which seeks greater independence from Russian supplies—and cooperate with the international community in preparing for a “post-oil” world. Under these circumstances,  most GCC states now speak not only about the need to increase the proportion of energy generated by renewables, but also about the goal of creating a special form of the Gulf’s circular economy that could still be built on the base of the region’s hydrocarbon riches.

Thus, the so-called circular carbon economy concept promoted by Saudi Arabia does not reject the further development of oil and petrochemical industries of the Kingdom but implies the introduction of obligatory compensation measures for emissions through the active use of carbon capture technologies (CCUS). It also argues about the increased role of renewable energy sources in the production and transportation of hydrocarbons. Alongside these plans, the Gulf countries are also developing a strategy to become world-leading hydrogen producers.

Options for Cooperation

In Iran, deteriorating climatic conditions and attendant ecological problems are creating extra incentives for the government to increase its efforts to make the energy transition and restructure its economy. In a sense, the country started investigating ways to develop its own renewable sector long before the idea became popular among its neighbours. Possessing substantial hydro, wind, and solar energy-producing potential, Iran achieved substantial progress in developing these in 2000–2010. Unfortunately, any further progress was substantially slowed and in some areas even prevented by the sanctions placed on the country from 2010 onwards, although by 2022 Iran was still among the top five countries in the Middle East in terms of how much electricity is generated by renewables. Its experience in the renewables development field can still be of interest to other Gulf countries, and Tehran itself can learn a lot from the GCC member states about the use of CCUS technologies and renewables in the production and transportation of hydrocarbons.

The current situation might intensify levels of cooperation among the Gulf countries, and also between these countries and international partners. There is a good incentive to cooperate—between both the Gulf players within OPEC and those on the bilateral track—as the GCC economies and oil sectors will have a lot of challenges in common that they need to prepare for. Meanwhile, the Gulf states need to ensure a stable and long-term demand for Gulf hydrocarbons, which means regional players must invest more in Asian economies and attract Asian investments. Moreover, an important element of the Gulf countries’ economic strategies is now to attract and allocate in-house and international investments in both the traditional and renewable energy sectors.

Alongside other developments, the war in Ukraine has led to a clear intensification of European diplomacy in the Gulf and a revision of some past practices. Traditionally, European concerns about Gulf domestic policies limited the interaction between EU countries and GCC states in the energy field, but many of these concerns have been pushed aside. Instead, the European Union has demonstrated its readiness to help the GCC countries in their own transition to renewable energy sources, making it clear that it expects the Gulf to help the EU move away from its dependence on Russia’s oil and gas and ease the influence of geopolitical factors on oil prices.

 Road Ahead

It is worth noting that the GCC countries do not intend to entirely replace the hydrocarbon sector with renewable energy production or to phase out oil usage or the development of petrochemicals. Instead, the Gulf states see the sustainable energy sector (as well as those industries accompanying the fourth energy transition) as a complement and addition to their hydrocarbon-based economies. The wealth they have accrued through hydrocarbons will allow them to accelerate diversification and make the “old” oil industry look eco-friendly. None of the Gulf states has abandoned plans to develop petrochemical production, seeing in it an opportunity to conveniently and easily diversify GCC economies and as a response to the question of what to do when oil is not in demand as feedstock for fuel production. As oil market analyst Tsvetana Paraskova puts it: “Renewable energy could replace more and more fossil fuels in power generation and transportation, but these are not the only industries using oil and gas. From medicines to cosmetics, clothing, and technology, the world will still need oil.” This is well understood in the Persian Gulf, and the various crises have shown that fluctuations in demand for hydrocarbons have not always depended on the demand for fuel.

In the medium and long term, adaptation to a new energy order would require Persian Gulf oil producers to restructure their economies and revise their social contracts to withstand a decline in demand and a reduction in prices for oil resources. They would need to rebuild their energy systems for a lower-carbon future while simultaneously ensuring the survival of their oil industries. Moreover, the Gulf states clearly understand the need to adapt to the growth of competition in traditional markets, particularly in Asia, and will need to consider multilateral cooperation to offset some challenges.

Looking into the future, the hydrocarbon production and petrochemical sectors will remain the backbone of the Gulf countries’ economic structure. The main motivations that shape the development plans in the region are twofold: to increase sources of income through diversification, including the development of hydrogen exports; and to ensure the profitability of the traditional oil sector for as long as possible. The likely success factors in this quest will be the reduction of the cost of producing both hydrocarbon-based and sustainable energy, the reduction of harmful emissions from traditional industries, and the maintenance of the necessary level of investment in both the oil sector and the new energy sources. As UAE Minister of Energy and Industry Suhail Mohammed Almazroui succinctly put it, “drop the cost, drop the carbon, maintain the investment.”

Photo: Dubai Protocol Department

Fostering a New Energy System for the Gulf, the Red Sea, and the Mediterranean

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Through investments in solar and wind power, grid connections, and hydrogen, energy transition in the Middle East is well under way. This transition is urgent for large countries such as Saudi Arabia and Egypt, since their rapidly growing economies and populations have vastly increased their consumption of domestic energy. Continuing to burn oil and gas for domestic energy could lead to Saudi Arabia struggling to export oil by as early as 2030, and therefore the Saudi transition to renewables alongside cutting fossil fuel subsidies has been a significant milestone in the economic development of the Arab region as a whole. The story is similar in Egypt; alongside its transition away from fossil fuel subsidies, the country has cut its energy import bill by investing in renewables.

The neighbouring regions of the Gulf and Europe have shown a strong interest in cooperating with North Africa on energy transition. Both regions see economic opportunities here, as well as the potential to advance their own transition from fossil fuels to renewables. With renewables now more economically feasible, this type of energy is no longer simply about electricity and is penetrating other sectors, for example desalination, agriculture and hydrogen production. Interregional cooperation on renewable energy is complex and embedded within visions for the wider economic development of the Middle East. However, cooperation is in its early stages and faces challenges.

Cooperation between Egypt and the Gulf states will also benefit Europe, which is promoting increased grid connections with Africa and the development of green hydrogen in Egypt. Looking at the parallel pushes for energy transition in the Gulf and Mediterranean regions, one can envision cooperation between the Gulf, the Red Sea, and the Mediterranean in the field of renewable energy.

The North African countries have announced ambitious renewable energy targets. By 2030, Morocco, Tunisia and Algeria aim, respectively, for 52% (of power capacity), 35% (of power generation), and 27% (of electricity) to come from renewable sources, while Egypt is aiming for 42% (of electricity) by 2035. The Gulf countries have similar ambitions, and Saudi Arabia’s target of 50% of electricity by 2030 seems significant considering its status as both the largest economy and heaviest energy user in the region.

Motivations for energy transition in the two regions are similar—lowering emissions and meeting increasing domestic demand. However, in carbon-rich countries such as the Gulf states or Algeria, energy transition is also seen as a vehicle for economic diversification. Many of these countries still depend on carbon revenues and the public sector. Renewable energy can free up resources in North Africa by importing less fossil fuels and in the Gulf by decreasing domestic consumption and expanding exports. These resources can be invested in modernising industries or giving financial incentives to encourage innovation.

For concurrent energy transitions to work, cooperation among neighbouring states is necessary. For example, grid connections are essential in improving energy efficiency and grid stability once renewables are deployed. The $1.8 billion grid connection project between Egypt and Saudi Arabia will start trial operations in 2024, linking the two major economies in the region and two different continents. Another key project is the ongoing Euro-Africa interconnector, joining Egypt to Cyprus and Greece. Alongside the existing connections between Morocco and Spain, this project creates further connections between North Africa and Europe.

Regional partners are also involved in the Middle East’s transition to renewable energy, and European interests are particularly important as the continent explores clean hydrogen importers and energy suppliers in the wake of the war on Ukraine. However, there are also valid concerns that allowing big European corporations (such as Italy’s Eni, Germany’s Siemens, Denmark’s Maersk, Norway’s Equinor, or Netherland’s Vitol) to invest in green hydrogen projects in North Africa may lead to resource grabs and exploitation of the region. The Gulf states are also investing in blue and green hydrogen for export to Europe and Asia. Asian companies—for example, Japan—have long industrial legacies in the Gulf Cooperation Council, whether in building desalination plants or in energy projects such as the Saudi–Egypt grid connection mentioned above, which is being built by Hitachi Energy.

The relationship between Egypt and the Gulf states is nowadays embedded within a broader vision for redefining the regional economy of the Middle East through new cities, and improving the water energy infrastructure. While Egypt is building its New Administrative Capital (a city with a population of 6.5 million) eastwards of Cairo, Saudi Arabia is investing $500 billion in constructing the world’s largest urban megaproject, NEOM, on the Red Sea, which will eventually accommodate 10 million people. NEOM uses the most advanced sustainability technologies and already involves companies from all over the world, including European countries such as Germany. The region from NEOM to Egypt’s New Administrative Capital, and perhaps northwards to Jordan and Israel, will constitute a new regional economic centre—alongside the region of Riyadh and the surrounding Gulf cities—which requires major new desalination, renewable energy, and hydrogen projects.

Cooperation between Egypt and the Gulf on clean energy is set to increase. Saudi Arabia is investing in renewable energies that will provide for NEOM’s entire energy and desalination needs. At the same time, it is building the world’s largest green hydrogen plant in NEOM, at a cost of $8.4 billion. Saudi companies have also committed billions of dollars to investments in Egypt in the areas of desalination, renewable energy, and, increasingly, green hydrogen. Similarly, the UAE is using its strong experience in desalination and renewables to profit from the highly attractive Egyptian market. One example of this is the Masdar-led consortium which is set to build a $10 billion wind project in Sohag, Egypt. During COP27 in 2022, Egypt’s Suez Canal Economic Zone signed $83 billion in green energy deals with investors from Saudi Arabia, UAE, Norway, and the UK.

The Red Sea, particularly the Ain Sokhna port area, is touted to host many of Egypt’s green hydrogen projects, adding to this region’s importance. However, as the country’s economy has been unstable in recent years, Gulf investors have been reluctant to invest in Egypt before a deal is reached with the International Monetary Fund. However, since this deal has been formalized in in early 2024, this could be an opportunity to to realise the projects that have already been announced. It is worth noting, though, that as of January 2024, European-Gulf consortia, India, and China have all expressed interest in investing in renewable energy projects in Egypt. The country has set an ambitious goal of becoming a regional energy hub, and plans to achieve this by investing in clean energy and gas, improving transport, and refining its infrastructure. One of its key infrastructure projects is the $23 billion high-speed train connecting the Ain Sokhna port to the Mediterranean, which is being delivered in collaboration with Germany’s Siemens and has been dubbed a “Suez Canal on rails.”

Due to differing interests and expectations, it is difficult to predict the outcomes of cooperation between the Gulf, North Africa, and Europe on sustainable development issues. While the Gulf is seeking economic diversification via investments, Europe is mainly driven by its energy and climatic goals. Some North African countries suffer from weakened institutions and political instability. Therefore, for some countries, a cautious green hydrogen approach might be necessary. Such an approach should aim to create local value, prioritise domestic energy transition, and address social, human, and sustainability requirements. North African countries might have weaker negotiating positions compared to Europe or the Gulf due to inequities in finance, capacity for negotiation, or geopolitical power. The competition between the Gulf and Europe for renewable energy projects can mobilise funds and offer more choice for North Africa, but it is important to also consider ownership of clean energy projects in the destination country.

Interregional cooperation between the Gulf, the Red Sea, and the Mediterranean is complex, and it is reasonable to assume that legacies and outcomes of joint investment in clean energy will be mixed. In the case of Egypt, cooperation on renewables has some distinctive characteristics. Egypt’s renewables projects are embedded within an economic vision by Saudi Arabia and Egypt to create a new regional center in the north of the Red Sea connecting the Gulf to Europe. In addition, relative political stability is likely to further the energy transition of the Arab region’s largest country which can serve as gateway for investors into the Arab region. While this transition will solicit both local and foreign investments, the domestic will to decarbonise and create job opportunities is essential if energy cooperation is to succeed.

Photo: Stuart Rankin

The Case for Cooperation on the Energy Transition in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Regional security and economic development among the Gulf states—Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—can improve if cooperation is fostered in the energy, minerals, and water industries, by encouraging joint exploitation of resources, establishing neutral regional zones, and creating energy sources that are interconnected. The positive diplomatic environment of 2023, particularly after the rapprochement between Iran and Saudi Arabia after seven years, holds the key to unlocking a new era of cooperation in the region across the resource mix.

Fostering Renewable Energy Cooperation

The region’s geographic location means it receives some of the highest annual amounts of solar energy in the world—more than 2,100 kilowatt-hours (kWh)—and a wind speed that can reach about 10 meters per second (m/s). These natural clean energy resources could be exploited regionally and also exported beyond the region, benefitting the economy both directly and indirectly and encompassing many sectors of industry, including energy, manufacturing, and information technology.

The Gulf Cooperation Council Interconnection Authority (GCCIA) envisions establishing a robust interconnected power grid. This would leverage the region’s abundant solar and wind resources and further position the are to become a hub for producing and exporting clean energy. As of early 2024, part of the region is already interconnected through this grid—from Oman in the south through the UAE, Saudi Arabia, Qatar, and Bahrain, and then to Kuwait in the north. In addition, Iraq recently signed an agreement with the GCCIA to join the grid. GCCIA has an ambitious plan to extend to Eurasia and East Africa. Iran is also part of this planned grid, as is Turkey. Such interconnection would give domestic power grids more reliability and stability in the face of increasing challenges, such as unexpected electric load rise, as well as blackouts due to natural disasters or equipment failures.

Envisioning a Gas Network

Expanding the gas sector across the Gulf is a potential solution to some of these problems. Doing so would pave the way for a joint gas pipeline network that could facilitate hydrogen transmission—which is key to achieving net zero carbon emissions. Several Gulf countries have either not fully developed their gas production sectors or have insufficient resources. Iraq, Kuwait, and the UAE are net gas importers, and in 2022 imported 50%, 40%, and 20% of their gas demand respectively (see chart below). For example, Iraq imports most of its gas from Iran, and the UAE sources much of its gas from Qatar through the Dolphin pipeline.

Kuwait is the only Gulf country to source a large percentage of its imported gas (46%) from non-Gulf regions, such as Africa, Europe, and North and South America. This sourcing of around 4 billion cubic meters of natural gas annually from faraway countries is deemed to be a lost economic opportunity for Gulf countries, including Iran and Qatar.

Expansion of the gas sector in the Gulf would play a key role in the region’s energy transition. Having a joint pipeline network capable of carrying hydrogen products could also pave the way for the region to become a world hub in the production and export of carbon-neutral (blue and green) hydrogen.

Gulf Minerals Powering the Future

The Gulf region’s mineral wealth, essential for energy transition, has come to the forefront. Recent discoveries of lithium, cobalt, nickel, copper, and other minerals mark a turning point in the global race to secure mineral supply chains. These minerals are essential components of renewable energy technologies and energy storage systems.

Recently, Iran announced the discovery of a huge lithium deposit—an estimated 8.5 million metric tonnes—on its territory. This makes the country the fifth lithium reserve resource holder after Bolivia, Argentina, Chile, and the United States. Moreover, Iran also revealed the discovery of additional vital minerals, among them manganese, nickel, and cobalt.

Saudi Arabia also recently announced the discovery of mineral reserves with an estimated market value of US $64 billion. Among the discovered minerals related to energy transition are copper, iron, and nickel. Oman, too, has announced an ongoing project to update its national geographical and geological minerals database with more discoveries of copper and iron reserves.

The envisioned regional collaboration would include joint investments in developing the infrastructure needed in the region for extraction, preliminary mineral processing, and export logistics. Joint efforts to invest in the management of mineral resources could position the Gulf as a key influencer in the global transition to clean energy. This could be pursued by establishing joint venture companies where investors include the Gulf states’ public and private sectors.

Working together, the Gulf states could pool resources, share costs, and achieve economies of scale. By doing so, the region would be able to collectively manage and mitigate risks associated with volatile commodity prices, environmental challenges, and geopolitical uncertainties. As a result, such collaborative ventures would contribute to political stability in the region. The Gulf countries would have broader access to markets and assert their role as key players in the energy transition agenda.

It is worth noting that Iran’s current economic sanctions may discourage other states from establishing joint ventures. However, these restrictions do not prevent discussion of joint strategies for making the most of the Gulf’s mineral reserves and developing regional value chains.

Developing Shared Fields

The collective strength of Gulf countries lies in their vast natural resources, accounting for approximately 48% and 40%, respectively, of the world’s proven oil and natural gas reserves. Shared oil and gas fields, as illustrated in the table below, are poised for active development, offering potential solutions to regional energy challenges. 

In early 2022, Kuwait signed a memorandum of understanding with Saudi Arabia to develop the joint offshore Arash/Durra gas field in the partitioned neutral zone. However, Iran has objected to the agreement and demanded its share. Most likely the Arash/Durra field will not be exploited in the short term until an agreement is reached on the demarcation of maritime borders between Iran, Kuwait, and Saudi Arabia. However, joint exploitation of Arash/Durra could be achieved without compromising the territorial sovereignty of the three countries; Iran is already jointly exploiting oil and gas fields with neighboring Gulf states, including the South Pars/North Dome gas field with Qatar and the Esfandyar/Lulu oil field with Saudi Arabia. These joint models can provide lessons and open the door for pragmatic and logical negotiations to enable cooperation in exploiting other joint fields, including Arash/Durra.

Establishing a Regional Water Network

A region is labelled as water-scarce when the availability of natural renewable water (waterfalls, rivers, freshwater lakes, and aquifers) is below 1,000 cubic meters per person per year. This definition implies that all Gulf countries except Iran are under the natural water poverty line. Consequently, these countries depend on energy-intensive seawater desalination to meet their potable water demand. The power stations in these countries are mostly cogeneration systems that produce electricity and heat.

Addressing water scarcity is paramount for Gulf countries, especially those heavily reliant on desalination. Despite challenges including geopolitical tensions, a strategic imperative is to establish a regional water interconnection network. With this in mind, GCC leaders decided to carry out a water interconnection study in the year 2000. The proposed network would supply fresh water to all GCC states from desalination plants that would be built on the shores of certain states. Three desalination plants were proposed—to be built in Sohar, Oman; Al-Sila in the UAE; and Al-Khafji in Saudi Arabia. Unfortunately, there has been no tangible action on the project since 2013.

There is an urgent need for increased cooperation in the areas of seawater desalination, water treatment, water resource management, and water transmission across the Gulf region if its future is to be more sustainable. The latter of these in particular is a key survival strategy, and such a water network would make the region resilient to natural and changing environmental conditions challenges. The feasibility of a regional water grid should not therefore purely be based on financial profits—it also needs to consider the grave water scarcity challenges the region is poised to face in the years ahead.

Moving Towards Sustainable Horizons

While it may take time to achieve regional cooperation in energy, water, and environmental sustainability, diplomatic rapprochement between Iran and Saudi Arabia could pave the way for positive outcomes. Policies should focus on establishing interconnected regional infrastructures, including gas and water networks, and implementing a joint financing system to support balanced development across the Gulf region. It is essential to overcome political differences and address challenges through dialogue for these policies to succeed.

As we chart the course toward sustainable horizons in the Gulf, the call for cooperation echoes loudly. Embracing shared objectives, drawing on collective strengths, and navigating challenges with a collaborative spirit will propel the region towards a future defined by sustainability, resilience, and mutual prosperity.

Photo: Shams Power

Rising Electricity Demand Requires New Thinking on Gulf Grids

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The demand for power is rising in the Middle East and North Africa (MENA) region; the 2023 Electricity Market Report by the International Energy Agency (IEA) estimates that this demand will grow at an annual rate of 2 percent in the 2023–25 period. Most of this growth is driven by Iraq, Iran and Gulf Cooperation Council (GCC) countries, notably Saudi Arabia, Oman, and the United Arab Emirates (UAE). For these countries, the same report expects electricity consumption to increase, on average, by 2–3 percent between 2022 and 2025. The main drivers of this are population growth, and specific uses such as cooling and water desalination.

The effects of climate change, such as a higher number days when maximum temperatures exceed 35 degrees Celsius, are driving demand upwards in the region. But measures to boost energy efficiency are also on the rise. A recent IEA study based on temperature projection models shows how these trends are particularly affecting the region. For example, Saudi Arabia has accelerated the roll-out of smart meters in the country while partially reviewing its electricity tariffs to support more rational consumption patterns. If these measures were maintained and widened throughout the region, the growth of demand for electricity would potentially be mitigated. The Emirate of Dubai currently has over two million smart meters installed. Oman also has a national smart meter programme overseen by the Authority of Public Services Regulation, which aims at installing 1.2 million smart meters by 2025, covering all of the country’s electricity consumers.

At the same time, oil and gas remain dominant in the MENA region, with natural gas playing a prominent role. During 2023–25, the IEA expects gas-fired power to generate the most electrical capacity. For instance, in 2024, the same IEA report predicts that two thirds of the 60 gigawatt (GW) capacity being added to the whole Middle East region are expected to come from natural gas, with the rest being split between nuclear and renewables. At the same time, these countries are seeing the effects of renewable energy sources being increasingly deployed, in particular solar photovoltaics (PV).

Between 2023 and 2028, the IEA predicts that the Gulf region is expected to increase its renewable power generation capacity by over 40 GW. This represents almost half of Saudi Arabia’s current power generation and is more than the total power generated by the UAE today. This growth is dominated by utility-scale solar PV. In addition, the report cited that hydrogen also represents around 13 percent of extra renewable power capacity, mainly enabled by government-backed incentives to stimulate hydrogen trade. Other factors supporting the growth of renewables for hydrogen include high levels of solar irradiation, land availability, and port infrastructure.

While this growth remains impressive, it could increase faster. Possible strategies to further accelerate growth might include encouraging more competition between utility providers, introducing domestic tariffs that reflect individual users’ costs, addressing contractual issues with existing fossil fuel providers, and better supporting power storage systems to be flexible.

Cross-border electricity trading can also improve the deployment of renewables. However, international connections in the Gulf today only represent a small proportion of each country’s electricity consumption. The six-member GCC Interconnection Authority, which has the remit to do this, was established in 2001, but as of 2024 has only been able to support 1.2 GW of capacity. The recent linking of Iraq to the network through Kuwait, and ongoing discussions about a Saudi–Iraqi connection, would strengthen the region’s interconnectedness in terms of power generation.

Of course, regional particularities need to be considered, for example consumption patterns related to climatic conditions. Innovative economic models are needed to address the need for system flexibility as a result of changes in peak demand between seasons, and between day and night. While leaders in the GCC are looking into the diversification of power supplies without compromising grid stability—whether through renewables or nuclear—leaders in Iran and Iraq face a growing mismatch between supply and demand.

For instance, in 2021, Iran had to face a 12 GW gap between peak summer demand and supply. Severe droughts limited hydropower in a country that generates 4.6 percent of its electricity from that source. Although there were also other factors at play, both domestic and external, the effects of climate change and limited diversification in the power generation sector cannot be discounted as factors limiting the overall resilience of the current system. Neighbouring Iraq also faced similar challenges, despite the domestic context being different. Nevertheless, both countries are investigating whether renewable power capacity can be developed faster. For example, Iran has set a 2025 target for 10 GW of renewables, while Iraq is looking into linking oil and gas investments with large-scale renewables projects. However, it is worth pointing out that reforms in the electricity market remain a key prerequisite to address the power sector crisis.

There can be no large-scale transformations in electricity markets without adequate reforms. In the Gulf, there remain vast opportunities related to tariffs and subsidies. While investments in renewables in the region have been enabled by the active involvement of governments (where land availability and permissions enable large-scale projects, such as in Oman and the UAE), tariff and subsidy reforms should remain a priority. Otherwise, current and future renewables projects will not be financially viable. Reforms such as these would also allow utility companies in the region to recoup their costs and allow for investments in the grid infrastructure. These investments would pave the way for further renewables to be developed and deployed, such as decentralised solar PV.

The dynamics surrounding power markets in the MENA region require addressing a series of priorities that sometimes come into conflict with each other. Governments are expected to provide secure, reliable, and affordable electricity to all. In a geographical area significantly affected by the effects of climate change, the need to mitigate these impacts is probably more pressing than in any other region. Climate change not only creates new patterns in demand, with a heightened need for cooling and desalination, but it also affects the resilience of the power system itself. Higher temperatures, droughts, higher sea levels, or flash floods can all significantly affect operations on the supply side and reduce output. This is not limited to conventional power generation (oil and gas); nuclear and solar PV units can also be affected.

In this challenging regional context, where priorities are continuously shifting, it remains important that the climate crisis increasingly plays a central role in how regional leaders think about their future energy systems. Climate change has significantly increased the complexity of power markets. It is essential to pay more attention to how systems are planned and designed, and how they must operate in the face of new demands.

Photo: Emirates Nuclear Energy Corporation

Iran's Instagram Crackdown is Jeopardising Women's Livelihoods

Iranian women have been striving to enhance their socioeconomic status, both online and offline. Statistics show that this is not an easy task: in 2023, the World Economic Forum ranked Iran 143rd out of 146 countries in its annual gender gap report. Iran also sits at 144th for economic participation and opportunity. Consequently, many women resort to informal employment in areas such as sales, homeworking, catering, and domestic work. Due to the informal nature of this kind of work, it is difficult to collect data on the number of women in such roles.

Although it has become increasingly difficult for Iranians—particularly women—to make a living, many micro-entrepreneurs have used Instagram to start businesses. Due to its relatively low entry barriers and easy access to potential customers, the platform had been ideal for this purpose. However, Iranian women are now encountering serious obstacles. A move by authorities to block Instagram and throttle internet speeds, as well as steep increases in internet package prices and arrests of prominent influencers, have all made it more difficult for women to seek economic opportunities online.

World Bank figures from 2021 show that approximately 79 percent of Iran’s population uses the internet. In February 2024, the Iranian Students’ News Agency (ISNA) reported that after Telegram, WhatsApp was the most popular platform, with about 47.7 million users. Instagram ranked third, with 47 million users. Of Iranian Instagram users, 46 percent are female—more than 21 million women.

For the last five years, Abolfazl Hajizadegan, a sociologist at the University of Tehran, has published an annual report on Iran's social media sphere. Hajizadegan’s most recent report clearly shows that, despite the shutdown of Instagram by the Islamic Republic (which occurred at the beginning of the Woman, Life, Freedom movement in Iran), women persist in their online presence.

In this piece, I have chosen to focus specifically on accounts from which influencers generate income. The accounts I discuss do not necessarily belong to the most famous people but to ones who have amassed a large number of followers and are engaged in online business.

The table above is drawn from Hajizadegan’s reports and shows that the share of women has increased among Iranian social media influencers. Among lifestyle-oriented accounts on Instagram, the proportion of women has risen from 58 percent in 2019 to 89 percent in 2023. One of the women who has experienced the highest growth in followers in recent years is Yegane Rezaee, a lifestyle blogger. With one million followers, she chronicles her daily life and earns an income through sponsored posts.

Women are strongly represented among fashion and beauty accounts and one of the influencers in this area is Farzaneh Mezon, who has 153,000 followers. Mezon advertises her products by showcasing various outfits in the photos she uploads. Perhaps because of her popularity, her online store was blocked in July 2023. She soon posted the following statement on Instagram: “Our website has been blocked by a court order. We have been asked to delete all photos that go against Islamic values and the proper hijab framework.” Farzaneh was able to continue her work after appealing to her followers, who wrote comments of solidarity under the post and vowed to support her in making the necessary changes to her website.

Iranian women also account for a growing share of Instagram accounts focused on educational content. The share of women-led accounts has risen from 14 percent in 2019 to 45 percent in 2023. Havin Hosseiny manages a page that focuses on empowering women by improving their life skills. Her bio states, “Our goal is to improve women’s mental health and help them increase their income.’’ With 739,000 followers, she explains gender equality to the audience on her page by publishing short animated videos with attractive content and simple language. She also founded the Havin School, which offers online courses for women that focus on issues such as personal relationships, career advancement, self-confidence, stress reduction, and financial awareness. In addition to providing free educational content, she earns money from other educational workshops.

In the comedy and entertainment field, the gap between women and men remains significant despite women’s share increasing from 6 percent in 2019 to 29 percent in 2023. Zeinab Musavi, known as Emperor Kuzco, creates short comic videos. With 645,000 followers, she is one of the most famous Iranian comedians online. To earn an income, she asks her followers to donate any amount they wish: “These videos I create and publish on this page are my job. And if you enjoy them, you can contribute through two links I have provided in my bio.’’

Men dominate the sports pages. However, pages such as the one run by Elnaz Rekabi, a competition climber with 653,000 followers, are among the most popular on Instagram. It is worth bearing in mind that the low number of women participating in this field likely reflects restrictions placed on female athletes. For instance, the Instagram page of Sogol Rahbar, a bodybuilder with 290,000 followers, was temporarily shut by the Law Enforcement Command of the Islamic Republic of Iran, known by its Persian acroynym, FARAJA. A post on Rahbar’s account carried this message: “Due to the publication of criminal content against public morals and decency, Faraja has blocked this page.’’ However, after deleting posts deemed to depict “improper hijab,’’ Sogol resumed her activities. She earns money through advertising, providing exercise and nutrition programmes, and conducting online classes.

According to Hajizadegan’s research, women do not run any popular religious pages. However, conservative values are represented in other spheres. For example, there are business pages run by conservative women, one of whom is Khadije Faghih, who teaches mat weaving and has 37,800 followers. In addition to publishing free educational content, she earns money by holding classes.

Because Iranian women are excluded from the formal economy, many have sought opportunities in the informal economy. The widespread use of social media platforms has allowed many creative and enterprising women to engage in online business. Instagram is one of the most widely used platforms in Iran, but the crackdowns following the Women, Life, Freedom movement, have created new obstacles for women seeking opportunities on the platform. Moves by authorities to pressure women to observe the “proper hijab’’ have economic consequences. Moreover, President Ebrahim Raisi has yet to fulfill an election promise to provide free internet to all people on low incomes. Instead, internet prices remain high, and the government filtering of platforms like Instagram means that people are forced to buy virtual private networks (VPNs). This has dramatically reduced internet access for economically disadvantaged women.

According to the Tehran-based Beta Research Center, more than two million Iranian businesses market products and services on Instagram, and less than one-fifth of these enterprises also sells their products offline. Importantly, 64 percent of these businesses are owned by women, who have been disproportionately impacted by the internet crackdowns. Rural women who relied on online businesses for their livelihoods have been especially affected—many have been forced to peddle their products on city streets.

In February, Iran’s National Center for Cyberspace officially prohibited the use of VPNs. At present, despite campaigns to repeal the new prohibition, the future of the Iranian internet is uncertain. In recent years, Iranian women have accounted for a growing share of major accounts on Instagram, seizing economic opportunities that are unavailable in Iran’s offline economy. Today, their livelihoods are in jeopardy.

Photo: Farzaneh Mezon

Climate Policy and Cross-Border Hydrocarbon Development in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The Gulf countries are leading global producers and exporters of oil and gas. They have long reserves lives at current production levels, well beyond 2050, and substantial potential to increase reserves through field development, enhanced recovery, and exploration. They are intrinsically low-carbon producers measured by upstream emissions per barrel, although this is obscured in Iran and Iraq by high levels of flaring of unused associated gas (a by-product of oil production) and leakage of methane. They have strong involvement of state oil companies in oil and gas production, though this varies from an effective monopoly (Kuwait) to a leading role for international operators (Iraq and Oman).

With the exception of Iraq, they have large domestic petrochemical industries. Saudi Arabia and, increasingly, the UAE, have extensive international investments in refining and petrochemicals across the US, Europe, and Asia. While this is mainly on their own account, Kuwait does have a stake in the important new Duqm refinery in Oman. The region’s oil exporters also make use of the extensive oil storage and bunkering facilities in the UAE and Oman. On the other hand, Qatar is the world’s biggest LNG exporter and has a major expansion programme to be completed during 2026-27, Oman and the UAE are smaller LNG exporters (the UAE also expanding), while Iran is an important supplier of gas by pipeline to Turkey and Iraq.

The role of the Gulf states as oil exporters has limited the potential for cooperation between them. The dominance of the state in the upstream industry means that cross-border hydrocarbon investment is very limited. Mubadala Energy, the energy arm of the Abu Dhabi government strategic development company, has some upstream assets in Qatar and Oman, and utility Taqa has oil operations in the Kurdistan region of Iraq. QatarEnergy recently entered a project in southern Iraq led by TotalEnergies for development of oil, gas, water injection and solar power. Sanctions and political disputes have prevented any GCC investment in Iran’s hydrocarbon sector. There has been some interest, for example, and various plans since the early 2000s for gas and electricity connections, and most recently, discussions between Saudi Arabia, the UAE, and Iran in July 2023 concerning investment and the development of shared fields.

Gas is more promising for cooperation, given that some of the Gulf states are relatively gas-short. The most notable project, Dolphin, exports gas from Qatar by pipeline to the UAE, with small volumes continuing to Oman. Dolphin faced opposition from Saudi Arabia, which argued that the pipeline crossed its own maritime territory. A similar plan to supply Qatari gas to Kuwait was entirely blocked by Saudi Arabia, which did not want the smaller GCC states to be linked beyond its influence. Although LNG exports from Qatar to the UAE stopped during the boycott of Doha between June 2017-January 2021, Dolphin continued operating as normal, a sign of its importance to both countries, and of the promise of energy projects to constrain conflict.

Some oil and gas fields in the Gulf lie across borders. In general, countries have developed them competitively, extracting as much as possible without an agreement with the neighbouring state. The most notable field affected by a boundary dispute is the large gas-field Dorra, known in Iran as Arash, which lies partly in Kuwaiti waters, partly in the Kuwaiti section of the Partitioned Neutral Zone with Saudi Arabia, and partly, in Tehran’s view, in Iranian waters. Kuwait’s shortage of gas leads to heavy domestic use of polluting and expensive oil. An agreement on Dorra, perhaps via a joint development zone without concession of sovereignty, could be a way forward. Such agreements have enabled Saudi Arabia to supply half of the oil from the Abu Safa field to Bahrain as part of a boundary settlement and Qatar and the UAE to divide the resources of the offshore Bunduq oil-field.

The most important cross-boundary field, not just in the Gulf but in the world, is called the North Field in Qatar and South Pars in Iran. It is world’s biggest gas field. The field, which also contains shallower cross-boundary oil resources, has been developed by each side without formal agreement, but there are tacit understandings to avoid one side moving too far ahead of the other on extraction levels. Qatar imposed a moratorium on further development of the North Field in 2005, and lifted it in 2017. Ostensibly this was for technical reasons, more plausibly for gas market management purposes, but it also gave Iran time to catch up to and even exceed relative Qatari production levels. As Iran’s own output from South Pars increased, so eventually Qatar was able to decide to raise production further, without risking tensions with Iran over unfair levels of extraction.

More intra-regional gas trade would enable reducing the use of oil in the power sector. Qatar, Iran (if its gas resources were properly developed), and the Kurdistan Region of Iraq, would be natural gas suppliers by pipeline to neighbours. This would require more regional trust, and transparency to put gas supplies on a reliable commercial basis. Cross-border investment in gas-using sectors such as petrochemicals, multi-country gas networks, and robust arbitration procedures, could create structures that would be more resistant to politically- or commercially-motivated cut-offs. Iran is, for example, a 10 percent shareholder in Azerbaijan’s important Shah Deniz gas field and in the South Caucasus Gas Pipeline from Azerbaijan to Turkey via Georgia, along with BP, Russia’s Lukoil and Turkish and Azeri state entities. But the recent history of Russian gas supplies to Europe, and the interruption of federal Iraqi and Kurdistan region oil exports through Turkey, reveals how even long-standing pipeline deals with strong mutual profitability can be derailed.

As COP28 in Dubai signalled, climate policy will exert ever-greater influence on the oil and gas industry: first through requirements to zero-out its own emissions, second through a longer-term reduction in demand, at least for oil. The Gulf countries present a wide spread of economic and environmental vulnerability, and sophistication of climate policy ranges from the very limited (Iraq) to the relatively advanced (UAE). The Oil and Gas Decarbonisation Charter (OGDC) concluded at COP28 was signed by the national oil companies of Abu Dhabi, Sharjah, Bahrain, Oman, and Saudi Arabia, among others, but not by Iran, Iraq, Kuwait, or Qatar.

With the exception of Qatar, all of the Gulf countries are members either of OPEC or the OPEC+ alliance. OPEC and the OGDC, as well as other structures such as the Oil and Gas Climate Initiative, offer potential to foster cooperation on decarbonisation paths within the petroleum industry, which include ending flaring and methane leakage, improving energy efficiency, electrifying operations, and incorporating renewable and nuclear power, implementing carbon capture and storage, piloting carbon dioxide removal technologies, producing sustainable aviation and maritime fuels, and developing hydrogen and its derivatives.

Specific cooperation would include aligning standards and regulations; sharing technological learnings and best practices; conducting joint studies on regional carbon dioxide storage capacity or satellite monitoring of methane leakage; and possibly some shared infrastructure, though this is more challenging and probably not essential. Joint investments, either within the Gulf countries or in third countries, could include the production of low-carbon hydrogen and sustainable fuels.

This collaboration can also include policy-related and diplomatic endeavours, on areas such as carbon caps, prices or taxes, international carbon trading under the Paris Agreement’s Article 6.4, dealing with the growing use of carbon border tariffs, and appropriate certification and regulation for low-carbon hydrogen.

The global energy market has been evolving rapidly, notably with the rise of Asia as the world’s key importer and consumer of energy and emitter of greenhouse gases, and the evolution of the natural gas business into a truly internationalised market via LNG trade. Most recently, the Russian invasion of Ukraine, the elimination of most of its pipeline gas exports to the EU, and a near-total ban on imports of Russian oil by the EU and other Western countries, have reshaped the global energy market and the patterns of trade in Gulf energy. The increasing US-China tensions, and the moves towards more diversity and robustness in supply chains and greater domestic self-sufficiency in key energy-related materials and technologies, is another emerging and evolving theme.

Greater Gulf cooperation on hydrocarbons, as a part of balanced strategies incorporating climate protection, could manage some of these threats and promote longer-term cooperation solutions to problems facing the region’s critical economic sector.

Photo: Aramco

Pipelines and the Challenges of Energy Integration in the Middle East

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Energy cooperation in the Middle East has long been pursued through the establishment of petroleum pipelines, built with the goals of connecting to energy markets in the broader Eurasian context, diversifying oil export routes, and reducing vulnerability. After several years of renewed regional diplomacy in the Gulf and an increase in the level of regional trade and investment, energy integration is once again on the agenda in bilateral and multilateral forums.

However, in a region characterised by both internal instability and external threats, most intra-regional energy trade agreements have been short-lived. The legacies of the Middle East’s major oil and gas pipelines offer important lessons for regional leaders hoping to integrate energy markets and infrastructure.

The region’s seven major pipelines have existed for a cumulative 445 years. But they have only been active for 168 of those years. In other words, the seven pipelines have been operational for just one-third of their lifetimes. Every international oil pipeline in the region has also shut down at least once, and the majority remain closed today.

Political conflicts within producing and transit countries, as well as interstate disputes, remain the primary reasons for pipeline shutdowns. While the mutual dependency stabilising factor ensures continued oil supply from the region, short-term interruptions persist due to geopolitical tensions. Historical events like the Arab oil embargoes and international sanctions against Iraq and Iran underscore the region's susceptibility to temporary disruptions. The military attacks during the eight-year war between Iran and Iraq (1980-88) prompted a reconsideration in pipeline strategies in the region as the conflict both underscored the vulnerability of the infrastructure to military attacks, but also their potential in assisting countries at times of isolation.

For example, Iraq, whose meagre Gulf coastline was blocked during the war and its export outlets through the Mediterranean (Syria and Lebanon) were shut down, sought to diversify its export channels through pipelines with Turkey and Saudi Arabia. Iran, on the other hand, facing security concerns due to sporadic Iraqi air strikes on its territories, also explored pipeline options to bypass vulnerable terminals. But the 1986 Iraqi strikes on Iran’s Larak and Sirri terminals raised doubts about the security and usefulness of such infrastructure, resulting in the postponement or cancelation of many pipeline projects.

In the 1980s, to reduce  dependence on the Strait of Hormuz and vulnerability to Iranian threats, Saudi Arabia built its main export pipeline “Petroline” from the oil-producing Eastern Province to Yanbu on the Red Sea. Yet, liftings at the Red Sea must transit through the Suez Canal which is controlled by Egypt or through the Strait of Bab Al-Mandeb which is controlled by Yemen. Oil could also be piped through the Sumed pipeline which links, within Egypt, the Gulf of Suez to the Mediterranean, or through the Eilat-Ashkelon pipeline in Israel. But these avenues pose their own challenges.

The Eilat–Ashkelon pipeline has recently gained attention, with press reports of the UAE considering it for transporting crude from the Red Sea to the Mediterranean. Interestingly, this pipeline was built in 1968 as a joint-venture between Israel and Iran to transport Iranian crude oil to Europe. However, Iran ceased using the pipeline following the 1979 Revolution and the subsequent nationalisation of the pipeline by Israel. Today, with the ongoing war in Gaza and the fate of Arab-Israeli normalisation agreements mean the future of this pipeline is uncertain.

Limited Success in Gas Cooperation

In the realm of gas pipelines, the Middle East has seen some limited success, but only few interstate gas pipelines have been built. The first interstate gas line in the region was built in 1986 linking Iraqi fields to Kuwait. This short-lived pipeline closed after the Iraqi invasion of Kuwait and switched to supplying water for Iraqi troops. Around the same time, a small gas link was constructed between Oman and the UAE’s emirate of Ras Al-Khaimah. That link later expanded and became the much larger Dolphin pipeline which came on stream in 2007, supplying Qatari gas to the UAE and Oman.

In the Eastern Mediterranean, a gas pipeline linking Egypt and Israel was initially built to channel Egyptian gas to Israel, before reversing its flow to supply Israeli gas to Egypt. On a more regional scale, the Arab Gas Pipeline (AGP), built in 2003, has been linking Egypt, Jordan, Syria, and Lebanon, and has plans to connect to the European network in Turkey. However, the AGP has faced serious challenges since its inauguration, including the acute shortage of gas feedstock from Egypt.

The development of liquified natural gas (LNG) has also dealt a blow to the prospects of increasing gas pipelines around the Middle East. In fact, Bahrain, the UAE, Kuwait, and Jordan are already operating LNG import terminals, while Oman, Saudi Arabia, and Lebanon are pursuing the same strategy as well. The LNG option has been favoured over gas pipelines as a result of many factors, including the security related factors as well as the competitive costs and prices for building the different parts of its chain, i.e. the liquefaction plants, transport vessels, and regasification units.

Revitalising Pipelines

Despite persistent challenges, international pipelines are needed in the region and they can be an efficient and secure way of energy trade, if operated properly. To turn a new page, addressing various issues is crucial. First and foremost, the issue of transit fees must be clearly resolved, especially if a third country is involved in the transit. Those fees, returned in cash or commodities, could well affect the entire economic feasibility of a pipeline network project.

Adherence to World Trade Organization (WTO) agreements is also a significant challenge. In fact, each member of the WTO has to give the owner or operator of any pipeline passing through its territories full and free access to its own domestic market. That right for market access has not always been admitted by all Middle Eastern countries.

There is also the question of “energy independency” which needs to be addressed. In the Gulf and the broader region, governments are hesitant to depend on neighbouring countries for their fuel supplies. At the same time, the psychological desire among oil-producing countries for self-sufficiency also promotes a greater willingness to burn more liquid fuels than import gas, despite their higher relative and opportunity costs and the damage they induce on the environment.

Trust building measures and gradual expansion of bilateral and multilateral engagements could contribute to increasing energy cooperation, in addition to increasing the interdependency between the countries along the routes of pipelines through transit fees and large reliance on the pumped supplies.

Gas pricing is a challenge which is further compounded by the fluctuations in demand throughout the year. Demand for electricity, and consequently for natural gas, peaks in the summer for the majority of countries in the region, and consequently gas sales fall in the winter. To offset these challenges, regional countries could either create storage facilities at the upstream producing end or at the downstream consuming side. This requires much closer regional cooperation on gas.

While the challenges are evident, the pursuit of energy cooperation through pipelines in the Middle East remains a complex yet vital endeavour, requiring continuous adaptation to geopolitical realities and global market dynamics. Despite the current favouring of LNG over gas pipelines, policymakers must keep the idea of building a regional gas network on the agenda.

Regional players need to learn from past failures and match infrastructure with institutions to provide platforms for dispute resolutions and enhanced cooperation. Such a way forward could bolster regional economic development, enhance intra-regional trade, and contribute to long-term political cooperation and economic integration in the broader region.

Photo: Aramco

The Shadow of Sanctions in Istanbul's Housing Market

Istanbul residents are experiencing a cost of living crisis. Prices of food, clothing, and other essentials have spiked. Property prices have also surged and Istanbulites are spending a growing share of their income on housing. The high prices are primarily due to President Erdoğan’s heterodox belief that lowering interest rates can lower inflation, a so-called “low interest rate, low inflation theory.”

But many in Istanbul blame the higher prices on foreign property investors, who they believe are crowding out locals in the housing market. This resentment played an important role in the Turkish presidential election earlier this year. The leading opposition candidate, Kemal Kılıçdaroğlu, campaigned on banning the sale of homes to foreigners for at least five years. While the public anger is real, the actual impact of foreign investment on housing prices is not as concrete.

In recent years, the Turkish government has courted foreign investors, seeking an influx of foreign currency to replenish reserves dangerously depleted during the Turkish central bank’s defense of the lira. To help shore up its own economy, the government has enacted policies to make Türkiye a more attractive destination for foreign investment and residence. The outreach to foreign investors has been timely—Russian and Iranian investors have been eager to protect their assets from waves of Western sanctions.

Russian and Iranian investment in Türkiye rose markedly after the imposition of sanctions. When the US reimposed sanctions on Iran in 2018, the number of Iranians starting businesses in Türkiye jumped. Russian investment followed a similar pattern. When Russia annexed Crimea in 2014, the sanctions levied by the US and the EU coincided with a rise in the number of Russians registering Turkish companies. The largest spike—in the past two years—followed Russia’s invasion of Ukraine.

Property investments follow a straightforward pattern—when the US imposes sanctions, capital flees to Türkiye. In 2022, Russians purchased just under 15,000 Turkish residential properties, while Iranians purchased just over 9,000.

For Russians and Iranians, sanctions and growing fear of instability were push factors. Meanwhile, the Turkish government’s deliberate courting of the fleeing capital pulled investors to Istanbul, Antalya, and Ankara. The physical proximity of Türkiye to Russia and Iran make its cities attractive destinations. More importantly, the Turkish government is under no threat of being sanctioned and Turkish banks continue to be connected to SWIFT and other international banking systems.

While Russian and Iranian companies have established operations in Türkiye, the country is also a destination for individuals seeking to avoid economic isolation and instability in their home countries. Türkiye advertises citizenship to foreigners if they invest over four hundred thousand dollars in Turkish property. For wealthier Russians and Iranians, this offers a pathway to a new passport. The only condition for gaining Turkish citizenship is to maintain the requisite investment for at least three years and to confirm the investment with the land registry.

But acquiring Turkish citizenship does not appear to be the main goal of Russian and Iranian investors. The passport policy implemented five years ago has not led to a significant rise in foreign investors receiving Turkish citizenships. Of the tens of thousands that have bought Turkish property, less than five percent gained Turkish citizenship. While Iranians have made up a large percentage of those who receive investment-based passports, more Iranians bought property in August 2018 more than those who received a passport that year.

The fact that passports make such a small proportion of total foreign buyers—particularly those from sanctioned countries—raises additional questions. It is unclear whether those who have qualified for citizenship based on their investment of at least $400,000, fail to do so because of a lack of knowledge, indifference, or the bureaucratic slog. But clearly, Russian and Iranian buyers are more interested in acquiring an asset in a safe market than they are in becoming Turkish citizens.

Foreign purchases of residential properties have spiked in recent years, particularly in Istanbul, but also in other major cities of Türkiye, such as Antalya and Ankara. In Istanbul, Russians buyers have concentrated in Beylikdüzü, Kadıköy, Bağcılar, and Sarıyer districts. Iranians have focused on Esenyurt, Kağıthane, Sarıyer, Kartal, and Maltepe.

The market share of foreign buyers in Istanbul’s residential property market has nearly tripled in just five years, rising from 3.43 percent in 2017 to 9.61 percent in 2022. But these purchases remain a small share of Türkiye’s overall residential market. In October, purchases of Istanbul property accounted for less than 15 percent of all residential property sales in Türkiye, according to data from the Turkish Statistical Institute.

While foreign buyers are playing a bigger role in the Istanbul property market, there is no clear link between the rise in the proportion of foreign buyers and higher house prices. While yachts and luxury developments attest that there are rich Russians and Iranians in Istanbul, the volume of home purchases point towards a middle class involvement in the market. This could pit middle class Russian and Iranian buyers against members of the Turkish middle class, but foreigners and Turks have very different paths to purchasing homes in Istanbul.

The Turkish mortgage market is still developing and approval rates remain low. Buyers are expected to make a downpayment of nearly 80 percent, and the mortgage interest rate remains around 20 percent. Last year, only about half of all homes bought in Türkiye were purchased with a mortgage. Turkish lenders do not offer mortgages to foreigners, which means outside investors to make their property investments in cash.

Another difference is the commission that the brokerage receives for selling a given property. While the brokerage receives a commission from both foreign and domestic buyers, the currency of the commission depends on the buyer. Real estate brokers prefer to be paid their commission in stable euros or dollars, meaning that foreign buyers have a comparative advantage over Turkish buyers.

These advantages may explain why the rise in foreign property investment has not more clearly contributed to higher prices. Foreign buyers do not need to pay a premium on market prices in order to make property investments. By offering cash payments and attractive commissions, they may be able to secure a purchase agreement with a lower offer than a Turkish buyer would need to make. While sales to Russian and Iranian buyers have boomed in key neighbourhoods, there is no clear link between these purchases and price increases at the district level, according to data from Endeksa, a Turkish real estate analytics company.

Even if Russian and Iranian investment is not a major contributor to the cost of living crisis, it has cast a shadow on the housing market by shaping public perception. Young Turkish professionals who saved for years in the hopes of buying a home are now seeing their savings eaten away by inflation. Both for aspiring homeowners and renters, the doubling of housing costs has required cuts to other kinds of spending, adding to a perception of diminished standards of living. The response of the government has been to raise minimum wages and increase salaries for civil servants, but support for wages does not mitigate the underlying housing shortage. The Turkish government has also taken steps to lower housing demand, aiming these policies at poor refugees, mainly Syrians, by limiting their work visas and encouraging them to move onwards to Europe.

Most studies on sanctions impacts focus on the senders and the targets. The impacts of sanctions on political and economic circumstances in third countries are largely overlooked. In the case of Türkiye, capital flight from both wealthy and middle class Russians and Iranians has created new dynamics in the housing market. Understanding this capital flight is important for understanding the effectiveness of financial sanctions. Countries like Türkiye can modify their policies to accommodate this capital flight, potentially undermining the goals of those governments imposing sanctions. But these policies can have unintended consequences, like the shadow of sanctions cast on Istanbul’s housing market.

Photo: Canva 

How Female Vendors in Tehran's Metro are Forced Underground

“It is like working in a mine; you use subways for commuting, but we have to work underground for at least seven hours,” said Soudabeh, a young woman who works as a peddler in the Tehran Metro. To protect her anonymity, I have changed her name, along with those of all the women interviewed here.

The number of female vendors working in the subway is growing, but no official statistics record how many there are. They are an integral part of the daily life of Tehran Metro: circulating among passengers with bags containing cosmetics, socks, clothes, sandwiches, books, and more. Most female vendors work in the front and rear wagons of the trains, normally designated for women. Despite the efforts of municipal authorities and police to curb their activities, they persist in utilising the public transportation system as a workplace.

Women marginalised from Iran’s formal economy resort to making a living in the subway. Soudabeh is one of the thousands of female vendors. She is divorced and living with her mother. Peddling is only a secondary occupation for Soudabeh, who has been working since high school. She is a fitness trainer and works mornings in a gym, but her wages from that job are not sufficient to meet the household’s needs, so she must also work underground, in the metro.

Making ends meet requires Soudabeh to work even on holidays. She underscores the significance of financial independence for women: “A woman who has income can decide for herself. Women should have the capacity to tackle their challenges in society. If a woman who has a job gets divorced, she will not tell herself I burned all the bridges behind me and do not have a way to survive.”

In the past, children often took their parents’ place in a family business. Today, however, when all they may inherit is poverty, they follow their mothers into the metro to earn money.

Ala has not gone to university because she thinks it is futile for her future. Her mother’s twelve years of work in the subway became Ala’s path, too. Still, she considers working in the subway to be better than having an employer: “Working for yourself is better than working for other people. An employer might not provide me with a steady income. My friend’s employer did not pay her because his store did not sell for a month. Here, in the subway, you have your daily earnings.”

Flexible working hours and being your own boss are motives that many female vendors emphasise when asked why they do the job. Faced with patriarchal norms in society that expects women to do housework and take care of children, leading to a dearth of employment opportunities, they have little choice but to be self-employed. Mona sells bags and hats. She suffered from domestic violence and recently got divorced. Born in Mashhad, she has worked since she was twelve years old when she had to quit school because her family could not afford to keep her in education. She migrated to Tehran after her marriage. After several years working in a restaurant, Mona had to change her job and became a subway vendor: “I worked in a restaurant. I love socializing with people. When I worked there, my passion for the job was so intense that customers thought it was my restaurant. However, I had to quit my job due to my circumstances. Daily responsibilities such as picking up my daughter at school make flexible working hours in the subway a practical choice to me.”

Economic instability is one of their persistent concerns. Many have to go to the bazaar daily to acquire goods, and they face escalating prices influenced by the fluctuating value of the US dollar. Tara resides in Navab and has a bachelor’s degree in IT. She sells rhinestones and jewlery, purchasing some of her goods from the bazaar while others are hand-made. She expresses concern about escalating dollar prices: “I remember when the dollar suddenly surged to fifteen thousand tomans. I got so stressed that I failed all of the final exams. Why should I be worried about the dollar’s price?! If prices were stable, we would not endure this relentless pressure.”

Rising prices are a concern because vendors do not have much capital to stockpile goods. Indeed, the minimal initial outlay requirement is one of the reasons women choose this job. Tara, struggling to find an IT job in a company, took goods from her brother, also a vendor, to the subway to sell. “My mom works in people’s homes. I did not want to depend on her financially anymore. My mom is exhausted. I pondered how I would make money to assist her. So, I decided to work. Observing young women like myself work in the subway, I thought, ‘Why not me? Why do I not work?’ One day, I went to the metro but could not sell anything. I felt shy. But after four months, I could not bear the financial strain. I brought some of my brothers’ goods on the subway. A female vendor guided me. I told her, ‘I cannot advertise because I feel shy.’ She assured me she would teach me. We sold all the tops together, and its profits became my initial capital. After that, I brought chewing gum, and now I sell rhinestones.”

Sanctions contribute to an economic crisis that has exerted the greatest pressure on the lower classes. Forouzan resides with her family downstairs in her mother-in-law’s home in a disadvantaged district of Tehran. She sells scarves to make ends meet. The night before we spoke, she had learned she was pregnant. She was thinking about whether to keep her baby or have an abortion. Her husband works in a relative’s shop. His salary is insufficient, so both must work to cover their needs. Forouzan has a bachelor’s degree in economics and had worked in a bakery before vending on the subway. She observes the economic strain on the lower classes: “I think the elite become richer following shocks such as sanctions and surges in the dollar price. Their properties, homes, and cars become more valuable, but people like us become more and more vulnerable.”

One of the most formidable challenges female vendors face is daily confrontation with municipal agents and police officers. The officers try various tactics to expel the peddlers, such as confiscating vendors’ goods. Despite these challenges, the women continue their work, but they feel the pressure of such daily stresses. One female vendor wondered, “If they become successful in preventing us from working one day, what will happen to my family and me?”

To prevent the agents from confiscating their goods, women have developed ways to outwit them. In central stations like Khomeini, where there are greater numbers of officers, they do not get out of wagons. Some pretend they are passengers. Others employ strategies like concealing goods under a chador or in their bags.

Yalda and her husband both work in the subway. Yalda sells underwear. “I know which stations have more agents and avoid getting off there,” she explains.

The stories of these women show them grappling with patriarchal norms, state policies, and economic precarity. They also show the men in their lives worried about losing their bargaining power if their wives earn wages. Paradoxically, harsh financial circumstances often compel them to accept women’s economic role.

Yalda’s husband did not allow her to register at university. However, their financial problems meant she was able to convince him to allow her to work. Eventually, compelled to quit his job when they failed to pay his salary, he too stepped into the work Yalda had begun, and now they make a living together as peddlars.

The state expects women to perform traditional roles, to be good wives and mothers. Policies reinforce conventional gender roles, and the home is deemed the most appropriate sphere for women. Female vendors’ experiences in their daily confrontations with authorities make it clear that the Islamic Republic’s policies not only fail to create formal job opportunities for women, but they actively work to exclude women from their hard-won informal employment.

I conducted these interviews in Tehran’s metro in 2019 and 2020. I talked to 111 female vendors. I immersed myself in their world and observed them working, escaping, and trying to survive. I sat beside them when they were working on station platforms, accompanied them inside wagons, and witnessed their escape strategies from the police and how they navigated challenges to their survival. I have been honored to listen to their stories and document their resistance.

With both economic sanctions and government policies hurting their prospects, female vendors are fighting on both domestic and foreign fronts to sustain their livelihoods.

Photo: IRNA

Solar Power’s Water Problem in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Since the inauguration of the Mohammed Bin Rashid Al Maktoum Solar Park in Dubai in 2013, the Gulf Cooperation Council (GCC) has become home to an increasing number of solar power installations. Emirati leaders have so far invested the most in large utility-scale solar in the region, but their peers in Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain have also begun to set up new solar parks in recent years.

The Arabian Peninsula’s desert landscapes might seem to be perfect for large solar power facilities like those being developed in the GCC states. Vast and largely uninhabited, the Arabian Desert gets plentiful sunshine: it receives around 3400 hours of sunshine per year, compared with averages of around 1600 hours in Germany or 2900 hours in Spain.

But solar power needs much more than desert sunshine to work. Arid landscapes present various infrastructure challenges, including high temperatures that can damage solar arrays and remoteness from established energy transmission lines. And where sunshine is most abundant, water is not.

Indeed, water scarcity is the most important limit on the grand promises of GCC governments to overhaul and decarbonise the region’s energy system. The Arabian Desert is one of the most arid places on earth, typically receiving under 4 inches (100 mm) of rain per year, and already facing near total depletion of its groundwater.

Unfortunately, today’s solar technology requires substantial amounts of water. Celebratory discussions about solar power are often illustrated with photographs of sparkling PV arrays. These solar panels are always pristine, recently cleaned arrays. Unfortunately, such a scene is a rare encounter in the Arabian Desert, where dust and blowing sand is quick to cover the solar panels and mirrors of both PV (photovoltaic) systems and CSP (concentrated solar power) systems.

Aware of desert solar’s dust problem, companies like Arizona’s First Solar and Luxembourg’s SolarCleano have promoted waterless cleaning systems. Yet these technologies are still not advanced enough to employ on a large, industrial scale. Solar technology companies based in the Gulf are also aware of this problem and have tried to engineer their own solutions. For example, Saudi Arabia’s NOMADD has designed its namesake “NO Water ​Mechanical ​Automated Dusting Device” to address the challenge of cleaning of solar panels in the Arabian Peninsula.

While robotic PV-cleaning systems are deployed in some sites today, waterless cleaning technologies are expensive and have failed to scale up beyond small, pilot projects. As a result, the GCC’s small-scale solar installations and the large-scale solar parks continue to use water to clear dust and debris from their panels. Most of that water is desalinated sea water, which is produced with a huge energy cost and substantial CO2 emissions. In this case, then, solar energy produced in the Arabian Peninsula’s desert parks is far from green—it is actually incredibly wasteful.

Renewable energy’s water footprint

The water footprint of solar power extends beyond just cleaning. Water is also used in extracting diverse minerals needed to manufacture PV cells and batteries, such as lithium, cobalt, tellurium, and gallium, as well as in the manufacturing process itself. Mining for the renewable energy sector largely takes place outside of the Arabian Peninsula, but Saudi Arabia’s new investments in mining, described as advancing global efforts to “decarbonize,” will invariably expand this water footprint in the region.

Water is integral to all modern forms of electricity generation, including fossil fuels, and nuclear, alongside renewables. Required water inputs vary by the source, in large part because the infrastructures needed to generate, store, and transmit energy all have different geographies. The solar water footprint contrasts to the water demands for coal, for example, where water is first used to extract coal from the earth, and then in power plant cooling operations like all thermoelectric power systems (coal, natural gas, and nuclear).

Proponents suggest that the water demands of renewables are a significantly lower than those of traditional fossil fuels. This is probably true. But even so, estimates from the IEA (International Energy Agency) use absolute numbers that reflect a limited proportion of renewables in the overall global energy supply mix. These estimates also tend to neglect the physical geography of renewable energy installations siting—like whether a proposed solar park is located in a desert where it is liable to dust problems that increase its water needs.

Overpromising solar to hype hydrogen

Encouraged by partners in Europe and Asia, Gulf fossil fuel producers are increasingly keen to promote hydrogen energy and state-backed efforts to develop hydrogen are now found in the UAE, Saudi Arabia, and Oman. In many cases, these projects are framed as key to transforming the region into future “green” hydrogen hubs. Creating hydrogen energy requires vast amounts of energy and for it to be “green,” this energy must come from renewables.

To date, the amount of renewable energy produced in the Arabian Peninsula is so limited that none of the impressive green hydrogen targets in the Gulf are realistic. Local programs that position the Arabian Peninsula as a new green hydrogen hub overpromise their future solar energy capacity. They overpromise solar both in the present, because the production capacity simply is not there, and also in the future, because the region’s water supplies are insufficient to deliver on local renewable energy promises. Instead, the new Gulf hydrogen programs are on track to locally lock in natural-gas generated hydrogen. Meanwhile, the water limits of solar power’s expansion are a fundamental obstacle to any future for “green” hydrogen in the region.

Just like the solar power parks that they depend on, new hydrogen energy schemes can only represent an improvement on the CO2 footprint of traditional fossil fuel energy sources if the production site decisions take water into account. If any renewable energy project’s water footprint is not carefully evaluated, then the most likely outcome will be that it turns into a big “green wash,” a convoluted mess of energy infrastructure that is built in the name of being green, but does not actually result in any CO2 reductions. And perhaps the most tragic outcome of this green theater would be if it only exacerbates local water shortfalls that then exacerbate the climate crisis, as they are met with yet more carbon-emitting desalinated seawater.

Water and energy futures

Although water is one of the most forgotten elements in today’s discussions about energy systems, the water-energy nexus has come into sharper focus recently and has been integrated in the climate talks under the UAE COP28 presidency’s Water4Climate initiative. Yet, similar to how mainstream climate change discussions are defined globally, water is often just reduced to an issue of “water security” for vulnerable populations. This is, of course, an important issue. But it is almost entirely divorced from the problem of water use and planning in the implementation of high-tech energy infrastructure around the world.

Regardless of whether oil and gas is “phased out” or “phased down,” fossil fuels are on their way out. Yet high-tech energy infrastructure, including renewables, will continue to be prioritised by political and economic leaders in the Arabian Peninsula. The question is where those infrastructures will be located.

Since the Gulf’s energy leaders want to remain central to the post-oil energy system, they are already investing in renewable energy abroad. For example, the UAE’s Masdar has stakes in solar parks, wind farms, and geothermal energy operations all across the world, including in neighbouring Gulf states like Iraq. Likewise, UAE-based AMEA Power was set up several years ago with the express purpose of investing in foreign renewable energy projects – and is growing at breakneck speed. Renewables have also been major targets for foreign investment from Saudi Arabia’s ACWA Power, which has also been the most aggressive actor in setting up hydrogen partnerships with foreign partners in Eurasia and the MENA region, including in Morocco, Uzbekistan, Kazakhstan, China, and beyond.

These future energy partnerships are already fostering regional cooperation and they will continue to do so. However, it is essential that water be at the centre of all considerations about how renewable energy infrastructures are located. In particular, if solar parks are located in places that strain water resources in a partner country—such as with growing water problems from Morocco’s Noor solar plant—then they are likely to provoke local opposition and accusations of “water grabbing” and neocolonialism.

No map can answer the question of how renewable energy landscapes should be ideally configured, because all geography is political. But decision-makers in the GCC, in neighbouring countries like Iraq and Iran, and in countries spearheading climate action, must think critically about where to locate renewable energy infrastructures. To take serious, coordinated action toward scaling renewable energy in a way that actually reduces carbon emissions, water usage must be the primary consideration.

Photo: Canva

In Iran, ‘Ordinary Women’ Lead an Extraordinary Movement

One year has passed since the tragic death of Mahsa (Jina) Amini in police custody, the event that ignited the Woman, Life, Freedom movement. This movement has provided a platform for acknowledging the enduring struggles of ordinary women in Iran, a battle that had been ongoing long before September 16, 2022. By “ordinary women,” I refer to individuals outside the elite and activist spectrum, adapting from sociologist Asef Bayat’s definition of “ordinary people” in his book Revolutionary Life. The struggles of ordinary women in Iran were often ignored or sidelined until last year. While I respect the efforts of all women’s rights activists dedicated to improving women’s rights in Iran, I believe the “Mahsa movement” stands on the shoulders of ordinary women, many of whom may not belong to the middle class or possess feminist knowledge, but who are undeniably fighting for the freedom to lead ordinary lives.

The Woman, Life, Freedom movement has induced cultural transformations within society and families in Iran. Many parents who previously advised their daughters to accept the mandatory hijab as a “minor issue” have now thrown their support behind their daughters’ quest for freedom of choice. The presence of women with uncovered hair has become more widely accepted. Women feel safer going out without the hijab. As one woman told me, “before the Woman, Life, Freedom movement, when I went out without hijab, I felt I was breaking social norms and that I was doing something weird in the eyes of society. But now I feel safe and know if somebody scolds me about the hijab, other people in the streets will come to protect me.’’ These cultural changes in the Iranian society are not limited to the hijab issue. The status of women within families has largely changed, and more women are gaining autonomy.

One of the most intriguing aspects of the Mahsa movement is the newfound overt support from men. Women have historically borne the brunt of struggles against a patriarchal society and state, but the Mahsa movement marks a turning point where men have joined in supporting women’s causes. Whether this support will extend to other women’s issues, such as unequal inheritance and divorce laws, remains to be seen.

The Woman, Life, Freedom movement has also significantly transformed the subjectivity of ordinary women. It has united women with shared experiences and pain, reminding them that they are not alone. While there have always been small support networks among women, this movement has elevated this solidarity to a national (and international) scale. In one instance, I saw a police officer who wanted to confiscate a vendor’s goods in the Tehran subway. Women inside the wagon rushed to save the vendor, pulling her and her goods inside. The collective struggle to reclaim public spaces has emboldened women, many of whom now proclaim, “I have become braver.”

But the Mahsa movement has not been limited to women’s rights alone. The movement initially protested against mandatory hijab but, like an umbrella, it now encompasses a range of other issues in Iran, including the unbearable economic challenges and ethnic and religious discrimination. Protesters have also been calling for the overthrow of the Islamic Republic. Yet, the state’s brutal suppression of these protests underscores the complexity of achieving political goals such as regime change. According to Jack Goldstone, a scholar of social movements, the Mahsa movement continues to lack some of the key factors needed for a full-scale revolution, such as an organised programme and the involvement of older generations.

The conflict between Iranian authorities and Iranian women dates back to the establishment of the Islamic Republic in 1979, when women’s rights were among the first to be compromised. Women did come to the streets to protest against the enactment of the compulsory hijab law and abrogation of the family protection law in March 1979—but the state prevailed in curtailing women’s rights. Four decades later, despite various policies, ideological education, and unequal laws aimed at curbing their economic, social, and political opportunities, Iranian girls and women are trying to break free from traditional gender roles.

What is undeniable today is the Iranian women’s desire for both “freedom” and an “ordinary life.” These two desires resonate strongly in my conversations with many Iranian women from around the country. Iranian women have made strides in education despite numerous obstacles. They are rising against gender-based oppression and have exhibited remarkable resilience in their quest. However, their economic participation remains disproportionately low, forcing many into the informal economy. Women are also denied the right to run for president, and the majority are disqualified to run for public office.

The Iranian state has persistently attempted to exclude women from various spheres, yet they persist in resisting. They aspire to careers as diverse as football referees, aerospace engineers, mathematicians, musicians, and much more. The evolving lifestyle of ordinary women highlights the failure of the Islamic Republic’s discourse in imposing gender roles. Their fight for the freedom to choose how they dress is just one aspect of the broader rights they seek. According to political scientist Fatemeh Sadeghi, the actions of Iranian women are not rooted in anger. Rather, they represent the transformation of anger into a force for change. Accordingly, political change, in their view, will emerge from social empowerment. These women are, in essence, revolutionaries without a revolution. They do not want to achieve freedom through revolution. They aim to achieve revolution through freedom.

Photo: Rouzbeh Fouladi

As Iran Sells More Oil to China, the U.S. Gains Leverage

A new report from Bloomberg, citing data from Kpler, an analytics company, claims that Iranian oil exports to China will reach 1.5 million barrels per day this month, the highest level in a decade. The report has led to a flurry of criticism from hawks that President Biden is failing to enforce U.S. sanctions on Iran’s oil exports and thereby gifting Iran billions of dollars in oil revenue. But in reality, Iran appears unable to spend most of the money—a situation that is giving Biden leverage he can use in future negotations.

Iran’s resurgent oil exports are earning the country a lot of money. The crude oil price is currently hovering at around $80. Iran discounts its oil for Chinese customers, so the actual selling price is probably closer to $74 dollars per barrel. At this price, Iran’s 1.5 million barrels per day of exports are earning the country around $3.3 billion per month.

These back of the envelope calculations are necessary because China’s customs administration stopped reporting the value and volume of oil imported from Iran back in May 2019, when the Trump administration revoked a series of waivers permitting limited purchases of Iranian oil by select countries. When looking to the Chinese data alone, Iran’s export revenue appears much smaller than it is, hiding the true trade balance.

In the most recent three months for which we have customs data, Iran’s imports from China averaged $826 million. In the same period, Iran’s non-oil exports to China averaged $357 million. When not counting Iran’s oil exports, Iran appears to be running a trade deficit with China of around $469 million. But when adding the reasonable estimate of $3.3 billion of oil exports, the monthly trade balance swings dramatically in Iran’s favor. In recent months, Iran has likely run a trade surplus with China of around $2.8 billion per month.

In other words, Iran is earning billions of dollars it appears unable to spend. After all, Chinese goods, especially parts and machinery, are a lifeline for Iranian industry. If Iran was able to buy more Chinese goods, it would be doing so. Two other data points confirm this interpretation. Exports from the UAE to Iran remain depressed, so Chinese goods are not arriving in Iran indirectly. Purchasing managers’ index data for the manufacturing sector also indicates that Iranian firms continue to struggle with low inventories of raw materials and intermediate goods. Moreover, Iran is continuing to doggedly pursue the release of its frozen assets, including $6 billion that will be made available for humanitarian trade as part of the recent U.S.-Iran prisoner deal. Iran would not be so desperate to strike such deals were its oil revenues in China readily accessible. In short, Iran is selling its oil and earning money, but it is not getting the full economic benefit from the surge in oil exports.

Chinese exporters and their banks remain wary of trading with Iran, where entities and whole sectors remain subject to U.S. secondary sanctions. For most Chinese multinational companies, trading with Iran is not worth the risk. In the first six months of this year, Chinese exports to Iran averaged $898 million per month. Exports remain 35% lower than in the first six months of 2017, the most recent year during which Iran enjoyed sanctions relief.

It remains to be seen whether Iran can sustain this new, higher level of oil exports. Oil markets can be fickle, and China’s economic wobbles could depress demand. But for now, Iran’s significant trade surplus with China also means that its renminbi reserves must be growing. This is a novel situation. Historically Iran has run a small trade surplus with China. Between January 2012, when the Obama administration launched devastating financial and energy sanctions on Iran, and January 2016, when the implementation of the nuclear deal granted Iran significant sanctions relief, the average monthly trade surplus was just $511 million (China’s purchases of Iranian oil are reflected in customs data for this period). In other words, assuming its oil revenues are stuck in China, Iran’s reserves are now growing four times faster than in that period.

At first glance, this might look like a major failure for the Biden administration. Biden purposefully maintained the “maximum pressure” sanctions imposed by Trump in an effort to sustain leverage for negotiations and Iranian oil exports remain subject to U.S. secondary sanctions. But those who claim that Biden is failing to enforce his sanctions are failing to see the wisdom of the current U.S. enforcement posture.

First, Biden is loath to deepen already heightened tensions with China. Sanctioning Chinese refiners for their purchases of Iranian oil, thereby targeting China’s energy security, would be a dramatic escalation in the growing economic competition between Washington and Beijing. Second, such escalation would be entirely pointless given the circumstances around Iran’s oil exports—namely that Iran is not getting the normal economic benefits. Given that Iran is earning more money but cannot spend it, the U.S. is actually gaining leverage for future negotiations.

Unlike Trump, Biden has made a serious effort to engage in nuclear diplomacy with Iran and is likely to continue those efforts if there is a reasonable opportunity to achieve a new diplomatic agreement that contains Iran’s nuclear program. But U.S. negotiators have struggled to make a compelling offer to their Iranian counterparts. Many Iranian policymakers felt the promised economic uplift of sanctions relief would be too small. Iran’s opening gambit in the negotiations with Biden included the claim that sanctions had inflicted $1 trillion of damage to Iran’s economy and that Iran was owed compensation.

With its oil exports significantly depressed, Iran has been unable to significantly grow its foreign exchange reserves, which the IMF estimates at around $120 billion. If Iranian officials believe that they need to remediate $1 trillion of economic damage, the windfall represented by the unfreezing of foreign exchange reserves does not count for much.

The longer the sanctions remain in place, the more money will be needed to undo the cumulative effects of U.S. sanctions, which have now hobbled Iran’s economy for over a decade. It is politically impossible for Biden to promise any kind of compensation for Iran—the best that the U.S. can do is promise to once again unfreeze Iran’s own money as part of a new diplomatic agreement.

For this reason, it is a good thing if Iran’s reserves are growing. Iran’s oil exports to China are kind of like payments made as part of a deferred annuity insurance contract. One day, Iran will be able to cash out on that policy. But it can only cash out if it meets the conditions set by the U.S. In other words, every barrel of oil Iran is currently selling to China is increasing U.S. leverage for future talks. It would be wise to let the oil flow.

Photo: Canva

Iran Paid for Su-35 Jets, But Russia Won’t Deliver Them

Earlier this month, Brigadier General Hamid Vahedi, Iran’s air force commander, ended weeks of speculation about the imminent delivery Russian Sukhoi Su-35 fighter jets. “Regarding the purchase of Su-35 fighter jets [from Russia], we need them, but we do not know when they will be added to our squadron. This is related to the decision of [Iran’s] high-ranking officials,” he stated in an interview on state TV.

Vahedi's comments sparked speculation about dysfunction in the Russia-Iran partnership, including that Israel had successfully convinced Russia to postpone delivery of the advanced fighter jets to Iran.

While officials in Tehran continue to pursue a partnership with Russia, it is increasingly clear that Russian officials see their relationship with Iran as little more than a card that can be played according to their needs.

Russia’s potential sale of Su-35 jets to Iran has been connected to the deeper military cooperation between the two countries since the Russian invasion of Ukraine in February 2022. Iranian drones are being used by Russian forces to bomb Ukrainian cities. The first drones were transferred from Iran to Russia around one year ago.

But Iran has been waiting for far more than a year to receive the Su-35, which would prove a major upgrade in capabilities for Iran’s aging air force, largely comprised of American jets in service since before the 1979 revolution.

According to one current and one former diplomat with direct knowledge of the matter, Iran made “full payment” for 50 Su-35 fighter jets during the second term of President Hassan Rouhani. The officials requested anonymity given the sensitivity of Iran’s arms purchases. According to the former diplomat, at the time of purchase Russia had promised to deliver the Su-35s in 2023. Neither source expects that the deliveries will be made this year.

A third source, a security official, speaking on background, expressed disappointment that Vahedi’s “uncoordinated interview” had called attention to the fact that the deliveries were now in doubt. Iranian officials feel embarrassment over Russia’s failure to adhere to commitments.

The delay in the delivery could be traced to the strong relationship between Russia and Israel. In June, Axios reported that Israeli officials confronted Russian counterparts over Russia’s growing military cooperation with Iran and the possibility of Russia providing Iran advanced weapon systems. Israeli Prime Minister Benjamin Netanyahu disclosed the “open and frank” dialogue with Russian officials in a closed-door hearing with Israeli lawmakers on June 13.

In the view of the former diplomat, due to their arrogance, Iranian hardliners “fell into the trap” of believing that they were an equal partner to Russia, simply because “the Russians are queuing up to buy arms from them.”

The drone transfers have contributed to Iran’s political isolation, giving Western officials the impression of deepening cooperation between Russia and Iran, even as the Iranian Foreign Ministry continues to claim that Iran remains a neutral party in the Ukraine war. According to the security official, neutrality remains the consensus position of the Iran’s Supreme National Security Council, but he warned that country’s military brass may not all share that same view.

Notwithstanding the ambitions of Iranian generals, Russia continues to treat Iran far worse than an ally. Earlier this week, Russia issued a joint statement with the Gulf Cooperation Council (GCC), affirming the United Arab Emirate’s claims on three Iranian islands: the Greater Tunb, the Lesser Tunb, and Abu Musa. The statement enraged Iranian officials. Ali Akbar Velayati, a senior advisor to Iran’s Supreme Leader, called Russia’s assent to the statement “a move borne of naivety.” Iran’s foreign minister and its government spokesperson stressed in statements that Iran will not tolerate claims on the three islands from any party. The officials had made such statements before—a China-GCC joint statement from December 2022 caused a similar public outcry.

As Iranian officials are forced to defend their ties with Russia once again, a question remains. Why does Iran have so little leverage over Russia, even after the Russian invasion of Ukraine? The answer lies in the mindset of Iranian officials.

Back in May, Iran’s Supreme Leader, Ali Khamanei, declared that “Dignity in foreign policy means saying no to the diplomacy of begging.” The slogan “diplomacy of begging” has become popular among conservatives and the hardliners, who have used it to condemn the signing of the Joint Comprehensive Plan of Action (JCPOA) and to accuse former Iranian foreign minister Javad Zarif of begging the West for sanctions relief. But if begging the West for sanctions relief is wrong, why are hardliners eager to beg Russia for the Sukhoi jets?

Tehran’s ties with Moscow were never built on trust. They were built on mutual fears and mutual needs. Were the administration of President Ebrahim Raisi to realize that looking to the West does not preclude political and economic relations with Russia and China, Iran could strengthen its position in the Middle East and regain leverage in its relationship with Russia. Until then, the Russians will continue to look at their relationship with Iran as a nothing more than playing card.

Photo: Wikicommons

Sanctions, CBDCs, and the Role of ‘Decentral Banks’ in Bretton Woods III

In a recent conversation on the Odd Lots podcast, Zoltan Pozsar offered an interesting use case for central bank digital currencies (CBDCs), a potentially transformative technology that 86 percent of central banks are “actively researching” according to a BIS survey from 2021.

Pozsar, a former Credit Suisse strategist who is setting up his own research outfit, believes that a new global monetary order is emerging—he calls it “Bretton Woods III.” As part of this order, the adoption of CBDCs will enable central banks to play a more pivotal role in global trade through the formation of a “state-to-state” network that is intended to be independent of Western financial centres and the dollar. In this network, central banks will play a “dealer” role when it comes to providing liquidity for trade among developing economies. Commenting on China’s push to internationalise the renminbi, Pozsar set out his vision:

You need to imagine a world where five, ten years from now we are going to have a renminbi that’s far more internationally used than today, but the settlement of international renminbi transactions are going to happen on the balance sheets of central banks. So instead of having a network of correspondent banks, we should be thinking about a network of correspondent central banks and a world where you have a number of different countries and in which each of those different countries have their banking systems using the local currency but when country A wants to trade with country B… The [foreign exchange] needs of those two local banking systems are going to be met by dealings between two central banks.

In short, Pozsar believes that the adoption of CBDCs will enable the creation of a “new correspondent banking system” built around central banks. But even if central banks do begin to use CBDCs to settle trade, reducing dependence on dollar liquidity and legacy correspondent banking channels, the underlying problem motivating CBDC adoption will remain.

Moving away from the dollar-based financial system is foremost about geopolitics. Globalisation, as we have known it, reinforced a unipolar order. The United States was able to leverage its unique position in the global economy into unrivalled superpower status. In the last two decades, the weaponisation of the dollar further augmented U.S. power—Americans are uniquely able to wage war without expending military resources, which is another kind of exorbitant privilege. As Pozsar notes, the countries moving fastest towards CBDCs are those that are either currently under a major U.S. sanctions program (Russia, Iran, Venezuela etc.) or at risk of being targeted (China, Pakistan, South Africa etc.) These countries recognise “that it is pointless to internationalise your currency through a Western financial system… and through the balance sheets of Western financial institutions when you basically do not control that network of institutions that your currency is running through.” As Edoardo Saravalle has argued, the power of U.S. sanctions is actually underpinned by the central role of the Federal Reserve in the global economy.

Adopting CBDCs would enable countries to reduce the proportion of their foreign exchange reserves held in dollars while also reducing reliance on U.S. banks and co-opted institutions such as SWIFT to settle cross-border payments. However, even if countries reduce their exposure to the dollar-based financial system in this way, U.S. authorities will still be able to use secondary sanctions to block central banks from the U.S. financial system for any transaction with a sanctioned sector, entity, or individual. Any financial institution still transacting with a designated central bank could likewise find itself designated.

Moreover, even if Bretton Woods III emerges, leading to the formation of a robust parallel financial system that is not based on the dollar, central banks will continue to engage with the legacy dollar-based financial system. It is difficult to image a central bank correspondent banking network in which nodes are not shared between the dollar-based and non-dollar based financial networks. As such, the threat of secondary sanctions or being placed on the FATF blacklist—moves that would cut a central banks access to key dollar-based facilities—will remain a significant threat.

Even Iran, which is under the strictest financial sanctions in the world, including multiple designations of its central bank, continues to depend on dollar liquidity provided through a special financial channel in Iraq. A significant portion of Iran’s imports of agricultural commodities continue to be purchased in dollars. Iran earns Iraqi dinars for exports of natural gas and electricity to its neighbour. The Iraqi dinars accrue at an account held at the Trade Bank of Iraq. The dinar is not useful for international trade, and so Iran converts its dinar-denominated reserves into dollars to purchase agricultural commodities—a waiver issued by the U.S. Department of State permits these transactions. The dollar liquidity is provided by J.P. Morgan, which plays a key role in the Trade Bank of Iraq’s global operations, having led the creation of the bank after the 2003 invasion. 

The fact that the most sanctioned economy in the world depends on dollar liquidity for its most essential trade suggests that central banks will remain subject to U.S. economic coercion, owing to continued use of the dollar for at least some trade. But even in cases where Iran conducts trade without settling through the dollar, U.S. secondary sanctions loom large.  

For over a decade, China has continued to purchase large volumes of Iranian oil in violation of U.S. sanctions, paying for the imports in renminbi. Iran is happy to accrue renminbi reserves because of its demand for Chinese manufactures. But owing to sanctions on Iran’s financial sector, Iranian banks have struggled to maintain correspondent banking relationships with Chinese counterparts. When the bottlenecks first emerged more than a decade ago, China tapped a little-known institution called Bank of Kunlun to be the policy bank for China-Iran trade.

The bank was eventually designated by the US Treasury Department in 2012. Since then, Bank of Kunlun has had no financial dealings with the United States, but that has not eased the bank’s transactions with Iran. Bank of Kunlun is owned by Chinese energy giant CNPC, an organisation with significant reliance on U.S. capital markets. When the Trump administration reimposed secondary sanctions on Iran in 2018, Bank of Kunlun informed its Iranian correspondents that it would only process payment orders or letters of trade in “humanitarian and non-sanctioned goods and services,” a move that was intended to forestall further pressure on CNPC. Ultimately, Bank of Kunlun had far less exposure to the U.S. financial system that China’s own central bank ever will, a fact that points to the limits of a central bank correspondent banking network. For CBDCs to serve as a defence against the weaponised dollar, they would need to be deployed by institutions that maintain no nexus with the dollar-based financial system. It is necessary to think beyond central banks.

What Pozsar has failed to consider is that in a world with two parallel financial systems, a country would not necessarily have a single reserve bank. Alongside central banks, we can envision the rise of what I call decentral banks. If a central bank is a monetary authority that is dependent on the dollar-backed financial system and settles foreign exchange transactions through the dollar, a decentral bank is a parallel authority that steers clear of the dollar-backed financial system and settles foreign exchange transactions through CBDCs. The extent to which Bretton Woods III really represents the emergence of a new bifurcated global monetary order depends not only on the adoption of CBDCs, but also the degree to which the innovations inherent in CBDCs enable countries to operate two or more reserve banks whose assets and liabilities are included in a consolidated sovereign balance sheet.

Again, Iran offers an interesting case study for what this innovation might look like. The reimposition of U.S. secondary sanctions on Iran in 2018 crippled bilateral trade between Europe and Iran. Conducting cross-border financial transactions was incredibly difficult owing to limited foreign exchange liquidity and the dependence on just a handful of correspondent banking relationships. France, Germany, and the United Kingdom took the step to establish INSTEX. As a state-owned company, INSTEX would work with its Iranian counterpart, STFI, to establish a new clearing mechanism for humanitarian and sanctions-exempt trade between Europe and Iran. The image below is taken from a 2019 presentation used by the management of INSTEX to explain how trade could be facilitated without cross-border financial transactions.

The model is strikingly like Pozsar’s suggestion that CBDCs will enable central banks to settle trades using their balance sheets, rather than relying on the liquidity of banks and correspondent banking relationships. INSTEX and STFI were supposed to net payments made by Iranian importers to European exporters with payments made by European importers to Iranian exporters, using a “virtual currency unit” to book the trade. The likely imbalances would be covered by a cash injection into INSTEX (Europe was exporting far more than it was importing after ending purchases of Iranian oil). It was an elegant solution, which sought to scale-up the methods being used by treasury managers at multinational companies operating in Iran to purchase inputs and repatriate profits.

Earlier this year, INSTEX was dissolved. Its shareholders, which eventually counted ten European states, lacked the political fortitude to see the project through. Notwithstanding bold claims about preserving European economic sovereignty in the face of unilateral American sanctions, there was always a sense among European officials that Iran was undeserving of a special purpose vehicle. But as the world moves to a new financial order, more institutions like INSTEX will emerge. Pozsar’s vision is bold insofar as he believes central banks will establish new cross-border clearing mechanisms based on CBDCs. But if new digital currencies can emerge to displace the dollar in the global monetary order, so too can new institutions be established.

Pozsar’s vision for Bretton Woods III becomes more convincing if one considers that the emergence of institutions such as decentral banks could lead to the creation of correspondent banking networks that are truly divorced from the dollar-based financial order. However, there remain plenty of reasons to doubt that such a system will emerge. Pozsar appears to have given little consideration to the issue of state capacity. Most countries have poorly managed central banks as it is—in the Odd Lots interview he pointed to Iran and Zimbabwe as early movers on CBDCs. We should have low expectations for the ability of most governments to develop and implement new technologies such as CBDCs or to establish wholly new institutions such as decentral banks. Moreover, the ability of the U.S. to use carrots and sticks to interfere with those efforts should not be underestimated.

There may be compelling structural drivers for something like Bretton Woods III, namely the rise of China and the overall shift in the global distribution of output. But somewhere along the way those structural drivers need to be converted into institutional processes. Bretton Woods is shorthand for the idea that monetary rules are as important for the operation of the global economy as the macroeconomic fundamentals. Countries reluctant to break the rules will struggle to rewrite them.

Photo: Canva

When it Comes to Middle East Diplomacy, Chinese and European Interests Align

A version of this article was originally published in French in Le Monde.

In March, China managed to a broker a détente between Iran and Saudi Arabia, achieving a diplomatic breakthrough that had eluded European governments. But Europe and China have shared interests in the region and there is scope for the two powers to work together to foster further multilateral diplomacy.

Europe and China, which both depend on energy exports from the Persian Gulf, have long relied on the US-led security architecture in the region. But the 2019 attacks on oil tankers in the UAE and oil installations in Saudi Arabia, widely attributed to Iran, were a watershed moment. Shifting US interests and President Trump’s erratic reaction to those attacks forced the Chinese and Europeans to take more responsibility for regional security over the last four years.

In 2020, China presented its idea for regional security in the Persian Gulf, arguing that with a multilateral effort, the Persian Gulf region can become “an oasis of security.” In the time since, the agreement between Saudi Arabia and Iran, signed in March, can be considered an outcome of such efforts.

European governments have also sought to back multilateral diplomacy. France was intent on creating a platform for Tehran and Riyadh to engage in dialogue. President Macron helped launch the Baghdad Conference for Cooperation and Partnership that was held in August 2021. The conference was a unique opportunity to gather countries that had not sat around the same table for years. Officials from Iraq, Iran, Kuwait, Qatar, Saudi Arabia, and the UAE, in addition to Egypt, Jordan, Turkey, and France participated. Oman and Bahrain joined the second gathering which took place last December in Amman, Jordan.

The European Union also expressed its support for the Baghdad process. Joseph Borrell said during the Second meeting that “promoting peace and stability in the wider Gulf region…  are key priorities for the EU.” Adding that “we stand ready to engage with all actors in the region in a gradual and inclusive approach.”

The Joint Communication to the European Parliament and the Council on a strategic partnership with the Gulf reflects the EU’s keenness on expanding its engagements with the region, particularly on economic ties. The partnership is focused on the GCC, but it mentions that “involvement of other key Gulf countries in the partnership may also be considered as relations develop and mature”—a reference to Iran and Iraq.

Clearly, China and the European Union have multiple areas of mutual concern in the Persian Gulf region. Ensuring freedom of navigation, the undisrupted flow of oil and gas from the region, and non-proliferation of nuclear weapons are shared priorities. But while China is now a central player in the strategic calculations of all states in the region, the Europeans are being largely left out.

European diplomatic outreach has faltered in the face of new political pressures arising from Iran’s continued nuclear escalations, its involvement in Russia’s war against Ukraine, and its repression of ongoing protests for democratic change.   

The French president was coincidently in China when the Beijing Agreement was signed, and he welcomed the rapprochement between Saudi Arabia and Iran. Given shared interests, European officials must now find ways to engage with Chinese counterparts on fostering greater regional diplomacy in the Persian Gulf. 

There are reports that a regional summit will take place in Beijing later this year, involving all GCC states, Iran and Iraq. This is an important opportunity for multilateral dialogue and cooperation. European governments should consult with regional players and China to secure a seat at the meeting. The EU can help regional countries find ways to jointly tackle basic issues that have impeded economic growth which have resulted in spillover effects such as increased food insecurity and inability to mitigate the rising challenges of climate change.

In parallel, the Baghdad Conference could emerge as an EU-backed platform for economic cooperation in tandem to the now ongoing political and security dialogue process in China. The EU can draw in regional countries to help with reconstruction efforts in Iraq, a country that is in dire need of foreign investment. Given the shuttle diplomacy conducted by Iraqi officials between Iran and Saudi Arabia, and considering the role of France and the EU in the Baghdad conference, it would be apt to explore EU-supported joint economic projects in Iraq, especially those projects that create mutual economic interests between Iran and Saudi Arabia.

Whether in Baghdad, Amman, or Beijing, inclusive regional gatherings are needed to address common economic challenges facing all eight countries surrounding the Persian Gulf. Europe can make significant contributions towards regional dialogue on economic integration by helping to create multilateral platforms, transfer knowhow and technology, and provide financial support. These are areas where China has significantly increased its activities, but European countries enjoy far greater experience in establishing the institutions and infrastructure needed for regional economic development. European officials can leverage this experience to support regional diplomacy. Such efforts would also cement European regional influence at a time when US influence may be waning.

The newly appointed EU Special Representative for Gulf Affairs, Luigi Di Maio, should directly oversee and coordinate initiatives in support of economic diplomacy and integration in the region, finding common ground with China to head off competition. Achieving security through stronger diplomacy and deeper economic ties represents a transformative goal that the region can rally around.

Photo: IRNA

SIPRI Has Revised Four Years of Data on Iran's Military Spending

SIPRI—the Stockholm International Peace Research Institute—has just published its “Yearbook” for 2022. The flagship annual publication offers civilian and military leaders around the world a way to compare military spending between countries and to gauge which countries are investing in greater military power.

Last year, I identified a major problem with the data about Iran’s military spending. The 2021 Yearbook estimated Iran’s military spending at $24.6 billion, a total that put it just above Israel in the rankings, as the 14th largest military spender in the world. This did not make sense.

Iran’s military, while posing a threat within the region, does so primarily because of inexpensive missile and drone systems and heavy reliance on proxy forces. Iran’s military lacks the kinds of advanced aircraft, armour, and other systems that are typically found in the arsenals of the world’s top military spenders.

A closer examination of the SIPRI data, and communication with SIPRI’s researchers, revealed that the Swedish think tank had been using the wrong exchange rate to convert Iran’s local currency military expenditures into dollar values. The researchers were using the “official” central bank exchange rate, which has for several years been a subsidised exchange rate used exclusively for the import of essential goods.

This common mistake has been rectified. SIPRI researchers note in the 2022 Yearbook dataset that they are using the NIMA exchange rate to convert to dollars, which results in a far better estimate of the Iranian state’s true purchasing power. The historical data has been corrected going back to 2018.

The impact of the correction is significant. The revised figures mean that instead of ranking as the 14th largest military spender in the world in 2021, Iran was actually ranked 39th. In 2022, spending totalled $6.8 billion. That is a mere fraction of the military spending of regional rival Saudi Arabia, which spends an estimated $75 billion. Iran even spends less on its military than regional minnow Kuwait.

SIPRI should be commended for making this correction. But in certain respects, the damage has been done. For several years their data was used to suggest that Iran posed a much greater threat to regional and global security than it truly did. A significant number of authoritative publications and news reports relied upon the SIPRI data to put Iran’s military spending in context and unfortunately used the inflated dollar totals published between 2018 and 2021. Those inflated figures conformed to a pervasive and convenient narrative—this may explain why the issue went unresolved for so long.

Photo: IRNA

Are Sanctions Boosting Corporate Profits in Iran?

Last year I wrote a major report examining how the inflation generated by sanctions hurts households in Iran. In the report, I note evidence of “the increased cost of inputs being passed on to consumers.” In other words, citing anecdotal evidence, I suggested that Iranian firms were raising prices to protect their margins and that this was contributing to inflation. But the report lacked a substantive review of how firms react to the pressures created by financial and sectoral sanctions. 

Firm behaviour under sanctions is understudied. The widespread assumption is that sanctions are bad for business. After all, they create significant dysfunction in the targeted economy. But the firm-level evidence is mixed. Sanctions do not tend to drive firms out of business, suggesting that companies find ways to adjust to the obvious cost pressures. Hadi Esfahani’s firm-level research has shown that “exits” (companies going out of business) played only a small role in changes in output, employment, and exports following the imposition of financial and sectoral sanctions in Iran in 2012. Saeed Ghasseminejad and Mohammad Jahan-Parvar’s study of Iranian companies listed on the Tehran Stock Exchange between 2011 and 2016 provides evidence that sanctions negatively impact profitability, but even sanctioned firms remained profitable in the period of their study. The profitability of firms that were subject to sectoral sanctions fell from an average of 16 percent to 11 percent—the margins remained healthy.

But what are the processes that are enabling Iranian firms to adjust to sanctions? A potential answer can be found in a new paper by Isabella Weber and Evan Wasner titled “Sellers’ Inflation, Profits and Conflict: Why Can Large Firms Hike Prices in an Emergency?” Using data on the profit margins of major US companies in the years following the COVID-19 pandemic, Weber and Wasner examine how firms “exercise pricing power to enhance or protect short-run profitability” in the face of acute cost pressures. 

While the new research by Weber and Wasner does not discuss sanctioned economies, they describe conditions that can also be observed in Iran. Sanctions represent first and foremost a change in the supply environment—an emergency characterised by surging input costs. Financial and sectoral sanctions force most foreign companies to cease supplying customers in the targeted economy. But even when inputs remain available, currency devaluation triggered by the impact of sanctions on foreign exchange revenue and the accessibility of reserves makes those inputs more expensive. As a result, firms in the targeted country face supply chain bottlenecks and significant cost pressures. Purchasing managers’ index data from Iran makes clear that high producer prices and difficulties maintaining raw material and machinery inventories are the most persistent challenge facing Iranian manufacturing firms.

Moreover, the processes that Weber and Wasner believe underpin the “sellers’ inflation” that occurred after the COVID-19 pandemic in the United States are also at play in Iran. First, “sector-wide cost increases” lead to an “implicit agreement” among firms to raise prices. This occurs because “all firms want to protect their profit margins and know that the other firms pursue the same goal.” While state firms do dominate some sectors of Iran’s economy, such as the automotive industry, the broader manufacturing sector is dominated by private sector firms and is generally unconsolidated. The price increases seen in Iran reflect such implicit agreements and not price leadership by a few dominant firms.

Second, Weber and Wasner argue that “bottlenecks can create temporary monopoly power which can even render it safe to hike prices not only to protect but to increase profits.” In Iran, bottlenecks arose due to the effects of sanctions on imports. Under sanctions, domestic manufacturers face less competition from imported goods and the same bottlenecks also make it difficult to ramp-up output. Given the production constraints, it is nearly impossible for firms to grab market share by undercutting the competition and boosting sales. Because firms will not substantially sacrifice sales by raising prices, they can be understood to enjoy a kind of monopoly power.

Third, much like how the ongoing pandemic disruptions legitimise “price hikes and create acceptance on the part of consumers to pay higher prices,” so too do sanctions help render demand less elastic. Iranian consumers have come to understand high rates of inflation as the outcome the American sanctions and their own government’s monetary policy. While there has been some scrutiny of predatory pricing by Iranian firms in recent years, the pervading view is that firms must raise prices to survive. There is little scrutiny of whether firms are doing more than just surviving when they raise prices.

Finally, firms can raise prices because they know that consumers will keep buying. Weber and Wasner explain that “selling goods that people depend on” grants many firms extraordinary pricing power. Helpfully, the chief financial officer of Procter & Gamble has publicly boasted about this fact, stating that the company is ideally “positioned for dealing with an inflationary environment… starting with the portfolio that is focused on daily-use categories, health, hygiene, and cleaning, that are essential to the consumer versus discretionary categories which in these environments are the first ones to lose focus from the consumer.” Importantly, a significant proportion of Iran’s manufacturing base is devoted to household essentials. Meanwhile, Weber and Wasner point to government interventions during inflationary episodes as another reason why consumers put up with higher prices. Just like the stimulus checks that helped shore consumer spending during the COVID-19 pandemic in the United States, so too have cash transfers played a role in supporting household expenditures in Iran in the face of sanctions pressures.

Given that the same basic conditions for sellers’ inflation appear to exist in the US and Iran, it would be worthwhile to replicate the Weber and Wasner methodology to study the pricing power and profitability of Iranian companies. But even without a full study, a cursory review of the net margins of Iranian firms raises significant concerns that sanctions are increasing their pricing power of these firms and possibly even boosting their profitability. Comparing the net margins of companies listed in Iran’s securities exchanges (excluding financial firms) with inflation rates over the last decade reveals that, in general, profit margins rise in periods where inflation is elevated. In the four years leading up to March 2018, while Iran benefited from sanctions relief, the average profit margin for listed companies was 17 percent, while the average annual inflation rate was 11 percent. Since March 2018 and after Trump imposed “maximum pressure” sanctions on Iran, the average profit margin has risen to 26 percent. In the same period, annual inflation has averaged 40 percent. In short, Iranian companies appear to be more profitable on average when the country is under US secondary sanctions.

The continued profitability of Iranian firms has two ramifications for Western policymakers. First, it is a clear indication that elites in sanctioned economies can continue to accrue wealth, even as sanctions succeed in creating macroeconomic pressure. Second, if firms are in fact generating sellers’ inflation as part of their response to sanctions pressure, the economic resilience of firms is connected to the economic pain of households. Notably, Weber and Wasner raise the prospect that sellers’ inflation inevitably leads to “distributional conflict.” In their view, given that “living standards decline as real wages fall with rising prices,” labour will eventually push back on the profit maximisation by companies and demand higher wages. This too is a consideration highly relevant to Iran, which has seen an intensification of distributional conflict over the last decade. Protests over economic grievances have become more common, particularly protests over stagnant, delayed, or unpaid wages. Four consecutive years where inflation has exceeded 30 percent has eroded the living standard of Iranian households. In this context, firms may not be able to sustain their profit margins forever—in the medium-term, ever-rising prices will lead to demand destruction. However, while Weber and Wasner suggest that American firms have engineered a “a temporary transfer of income from labour to capital,” the implications for Iran, where firms have enjoyed increasing pricing power for the better part of a decade, are more dire.

The fact that Iranian firms have proven resilient under sanctions does have its benefits. This resilience has helped keep Iran’s economy from sliding into a deeper crisis. The resilience of businesses is also critical if Iran is to take advantage of any sanctions relief offered in a future diplomatic agreement. But the processes that underpin this resilience have significant distributional consequences. The sustained profitability of Iranian companies under sanctions represents an extraordinary and ongoing transfer of economic welfare from households to firms. In effect, not only are sanctions failing to weaken Iranian companies and their elite owners, but they are also hurting Iranian households profoundly. This suggests that the enhanced pricing power of Iranian firms and inflated corporate dividends are under-examined contributors to rising economic inequality in Iran, where the top income decile now controls nearly one-third of the country’s wealth. Sanctions were meant to make Iranian companies pay, but it is the Iranian people who are footing the bill.

Photo: IRNA

Ageing Energy Infrastructure is Holding Central Asia Back

Blackouts and "rationalisation" of energy consumption (a euphemism for coordinated blackouts) are all too frequent in Central Asia. Energy shortages arising from limited generation, insufficient energy imports, or the poor state of the transmission network mean that blackouts recur. This winter, however, the situation grew significantly worse. Amid exceptional cold weather, many households, businesses, and schools remained without heating and electricity for days on end. Unusually, the blackouts not only afflicted communities in remote regions but also capital cities.

Most of the region’s inefficient power generation and transmission infrastructure dates to the Soviet era. Central Asia faces rising demand for energy, spurred by population growth and climate change. Steadily rising energy consumption has strained power grids. Demand from new types of consumers, such as cryptocurrencies miners, has also exacerbated recent crises.

At the same time that they face chronic energy shortages, Central Asian states must also significantly cut carbon emissions and accelerate the transition to clean energy—a challenging path, especially for Kazakhstan, Uzbekistan, and Turkmenistan, where domestic production of hydrocarbons secures the majority of domestic energy consumption.

Besides generation capacity, natural gas supplies and distribution present their own technical and political problems. Kazakhstan is the world’s ninth-largest exporter of coal and crude oil and twelfth largest exporter of natural gas; its total energy production covers more than twice its energy demand. Yet, it has not been able to reliably supply electricity within its own territory. In mid-January, Turkmenistan, despite sitting on one of the world's ten largest natural gas reserves, disrupted gas supplies to Uzbekistan for over a week due to technical problems. Last year, several regions of Uzbekistan, Kazakhstan, and Kyrgyzstan were hit by blackouts caused by a technical incident in the so-called “energy ring,” a Soviet-era grid connecting border regions of these three countries, including the Kyrgyz and Uzbek capitals and Kazakhstan’s largest city, Almaty.

Central Asian authorities and international stakeholders have acknowledged the urgent situation facing the energy sector. The existing infrastructure is being operated “well beyond its shelf-life,” and loses caused by inefficiency may reach around 20% in the electricity sector.

But addressing all these demand-side and supply-side challenges simultaneously is impossible; governments in the region will have to prioritize specific sub-areas of their energy sectors. In the meantime, they will need to grapple with new economic challenges arising in part from Russia’s invasion of Ukraine.

The recent blackouts sparked considerable public anger given the financial impact, health risks, and general discomfort. Protests took place in several cities across Kazakhstan, Kyrgyzstan, and Uzbekistan. While these recent protests were small, the “Bloody January” protests in Kazakhstan and the Karakalpakstan protests in Uzbekistan point to the possibility that social and economic grievances can give rise to more significant unrest. Furthermore, many families relied on stoves to keep their homes warm, adding to the already high levels of pollution in Central Asia cities, resulting in further complains.

These extensive blackouts are also of concern to potential international investors. Without stable supplies of such basic utilities, investors will be deterred from Central Asia, leading to further economic stagnation. The ongoing crisis is a big test for Kazakhstan and Uzbekistan, and to a lesser extent Kyrgyzstan, three countries whose presidents have linked their political legitimacy with improving the economic and social conditions inside their country. To create jobs for their growing populations, these countries must grow their economies. But to grow their economies, the countries must boost energy production and significantly improve the distribution network. Securing the necessary financial resources for the extensive renovation of energy infrastructure is they key step for solving the energy shortages in the region. But securing new financing has become even harder because of the Russian invasion of Ukraine, which has significantly added to the already significant risks of investing in Central Asia, resulting from power struggles and corruption within the ruling regimes.

This has not stopped Central Asian leaders from promising new injections of investment in energy generation and improvement of the existing grid. President Shavkat Mirziyoyev of Uzbekistan announced a package of $1 billion to be invested in energy generation in the Tashkent region. But Mirziyoyev’s promise of new investment was clearly a political ploy, an effort to respond to public anger. The details of the investment and the expected economic, social, and political impact remain unclear. Governments in the region are luring new investors in the renewable energy sectors by setting ambitious targets. Kazakhstan aims to introduce new projects totaling 6.5 GW by 2035 and Uzbekistan plans to launch 7 GW of new capacity by 2030. However, many of these projections include nuclear power projects involving Russia’s Rosatom, which are now very unlikely to break ground.

Successful renovation of the energy sector at the national level also requires stronger political partnerships between countries given knock-on effects in the broader region. Tajikistan and Uzbekistan deliver electricity to Afghanistan, but domestic power outages in Uzbekistan briefly halted the export last month. Such disruptions in the national or regional grids are bound to reoccur and will add to the hardships faced by Afghans.

ADB predicts that demand will rise 30 percent across the entire CAREC region (which includes Central Asia, the Caucasus, Mongolia, and Pakistan). This means that no country has significant excess capacity it can share with its neighbors. The bank’s estimates put the cost of energy infrastructure modernisation for the region at between $136 billion to $339 billion by 2030. Upgrading transmission and distribution infrastructure alone is estimated to cost between $25 billion to $49 billion.

There are also other hidden costs. For example, the state usually subsidises electricity, gas, and coal, and any price increase brings a high risk of public dissatisfaction. Furthermore, there is a vast discrepancy in consumption between the winter seasons and the summer, which both generation and transmission infrastructure needs to reflect. The revenue potential of energy exports is deeply intertwined with the global economic situation. Hence, current estimates and political promises are bound to be revised sooner or later.  

The recurring blackouts and subsequent deep freeze in Central Asia were caused by three decades of neglect, corruption, and poor planning. Any significant improvement in the situation would require years of persistent effort to overcome economic and political challenges. After the disruptions of the pandemic and the Russian invasion of Ukraine, valuable time has been lost to begin the urgently needed modernisations of power plants and grids. For ordinary people in Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan, the countdown to the next winter has already begun.

Photo: David Trilling