Iran’s Unprecedented Water and Electricity Crisis following War with Israel

Iran is grappling with a serious crisis in both water and electricity sectors, coming on the heels of a devastating war with Israel that plunged the country into pause. The country’s reservoirs are severely depleted after a phase of intense heat, while daily blackouts present an ongoing challenge. Experts suggest that long periods of inadequate planning and widespread corruption have dangerously weakened the country’s resilience in these areas. The conflict, which lasted for 12 days and resulted in approximately 1,000 casualties, brought the economy to a halt and now the Iranian populace is struggling with power outages, water scarcity, and climbing costs of living.

The effects of the crisis are widespread, with low water pressure in many cities, and some dams have recorded the lowest water levels seen in a century. The capital, Tehran, continues to experience power outages regularly. Authorities have cautioned that the city’s water resources could deplete in the imminent weeks. High temperatures, sometimes surpassing 50C, in the midsummer period have expedited the dwindling of water reserves and burdened the already strained infrastructure.

As power cuts lead to the stalling of businesses, the public’s trust in an economy already in a vulnerable state has been negatively impacted. Experts attribute the root of the problem to unsuccessful governance and deep-rooted corruption. They argue that while engagement in battles with climate change is required, the core issue lies within the mismanagement of water resources. Steve Hanke, a scholar from Johns Hopkins University, points out a salient loss of water even before it reaches the consumer due to leaks and insufficient investment.

Iran’s water utility has the challenging task of satisfying the demands of a population exceeding 90 million, a task made more difficult due to certain government policies. Criticisms have been leveled at the regime for setting a demographic objective of 150 million citizens while also aiming for self-reliance in agriculture. However, the drying up of surface water bodies and groundwater sources coupled with poor management make these goals unsuitable to be pursued simultaneously, according to Saeed Ghasseminejad.

Critics, including Ghasseminejad, also accuse the government of prioritizing defense and intelligence expenditure at the cost of rudimentary infrastructure. He argues that diverting funds towards military ambitions, nuclear projects, and intelligence operations has resulted in less backing to address critical issues like water and electricity. Furthermore, it is alleged that large scale public projects are usually assigned to enterprises closely linked with the governing authority, often those associated with the Revolutionary Guards.

A large portion of the national investment budget, at the expense of quick completion of key projects, is suspected to be misappropriated. Consequently, projects that should wrap up within a two-year span are extending for a decade or even longer. The economic instability spanning multiple decades has forced many Iranians to exchange their savings for more stable currencies like dollars or euros, further debilitating the Iranian rial and stoking inflation.

As of July, inflation soared to 57.7 percent in Iran. Struggling with financial insecurity, Iranians find it challenging to forecast if their earnings will meet their burgeoning expenses. Djavad Salehi-Isfahani, a professor of economics at Virginia Tech, reveals that while the cost of living rises every month, income adjustments only occur annually.

After experiencing a steep drop from 2013 to 2020, Iran’s GDP has seen a moderate improvement in the past five years. As of 2024, it stands at an estimated $436.9 billion, markedly lower than its zenith of $644 billion in the fiscal year 2012-2013. Although the nation boasts established industries such as automotive, agriculture, and manufacturing, its economy remains significantly reliant on its sales of discounted oil and gas to China.

New sanctions imposed by the US and persistent mismanagement has restricted economic growth to around 3 percent in 2024, insufficient to alleviate the country’s deep-seated issues. The Iranian rial continues its decline, with a depreciation of 38.7 percent against the euro based on unregulated platforms. The lack of clarity over the currency’s actual value is causing adverse ramifications for businesses.

As a result, they are forced to rely on informal services to set prices based on actual exchange rates. The heat wave compounding the production halt has further deteriorated the employment situation. Numerous businesses are shutting down and laying off staff, and those maintaining operations are either delaying salary payments or failing to pay their employees entirely.

The ongoing crisis has been exacerbated by heightened tensions with Israel. Within the last fortnight, there has been a series of fires and explosions at Iranian oil facilities, residential areas, and factories. According to Hanke, Israel, in union with the United States, has employed long-term economic stressors against Iran, which is unsurprising and falls in line with their longstanding strategy.

The recent violent conflict with Israel claimed the lives of nearly 935 individuals on Iranian soil. The war also led to significant damage to oil facilities and other pivotal infrastructure systems. The lucrative digital services sector, which provides employment to nearly 10 million people, also sustained substantial losses.