How the Energy Transition is Poised to Eliminate Iran From the World Energy Scene
The reluctance of Iranian leaders to the global energy transition, which has seen other fossil fuel-rich nations invest heavily in renewable energy infrastructure, leaves the country exposed to major economic shocks.
The so-called Energy Transition is especially prevalent in OECD countries, which include most of Europe, North America, Korea, Australia, Japan and North America. Aside from slowing the effects of climate change, the transition is also intended to increase the countries’ energy security.
Iran’s oil and gas reserves have been key to the survival of the Islamic Republic at the height of sanctions (See IOD’s article on the rising illicit Iranian oil sales to China). In terms of hydrocarbon reserves, Iran has the largest combined oil and gas reserves in the world.
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As shown in Figure 1, Iran leads the “pack of four” countries that dominate the current world energy as we know it. In fact, these four countries together hold almost half the world’s oil and gas reserves (See Figure 2).
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We now take a closer look at each one:
1. Iran: As the largest oil & gas reserves holder in the world, the Islamic republic is a player Western leaders would like to eliminate from the mainstream energy market. (There is a long list of reasons for this, such as Iran’s dire human rights records, its controversial nuclear program and its support of rogue regional states and factions.)
2. Venezuela: Although its oil production rate has dropped in recent years because of mismanagement and lack on foreign investment, Venezuela maintains a high profile in the global energy sector as it holds the largest oil reserves in the world. It was, until recently, also an object of U.S. sanctions. During that period, Venezuela’s struggles to export its oil and update its outdated oil & gas infrastructure were similar to Iran’s.
3. Saudi Arabia: The country has the best relations with the West among the “Pack of Four”. However, relations between Saudi Arabia and the United States have been strained in recent years. As the United States reduces its reliance on imported oil, Saudi Arabia is switching its focus eastward, especially towards China.
4. Russia: This country was Europe’s energy supplier of choice until its invasion of Ukraine last February compelled European Union leaders to recalibrate their energy policies towards other players.
These four countries have one more thing in common: their increasing political and economic ties to China. Only five years ago, it would have been unimaginable for China to be the peace broker between Iran and Saudi Arabia, side-stepping the West. China is increasingly offering itself as a viable alternative to the West, which is music to the ears of the autocratic leaders of the “Pack of Four” countries and, at the same time, an alarm bell for the White House.
China never apprehended Saudi Arabia over its human rights abuses and the 2008 murder of dissident Jamal Khashoggi. The Chinese Premier Shi Jinping visited Russia this month, a massive show of support for Putin. China is the biggest buyer of Iranian crude oil, LPG and petrochemical products and acts as the main destination for Venezuelan crude oil.
Therefore, it is no surprise that OECD countries are investing heavily in the Energy Transition. For them, continuing to rely on four countries that hold around half the world's oil and gas reserves goes against their long-term energy security goals. That is why they are developing the capability to use ethanol in their gasoline fuels, make biojet fuel from used cooking oil, and biodiesel fuel from palm oil. They are also switching their ships from fuel oil to LNG, with the hope of ridding themselves of the dependence on oil & gas supplies from autocratic countries like Iran and Russia. In this massive shift away from reliance on countries like Iran, does the regime in Iran have the abilities and tools to steer Iran in the stormy waters that lie ahead?
