Iran is where the next solar boom will happen

You might not be surprised to discover that Asian countries jeopardised by the war in Iran are rushing to install solar power as fast as they can. Iran itself seems a less likely candidate. That may be set to change, however.

Fuelled by subsidised petrol that costs as little as 10 US cents a gallon, the world’s sixth-biggest emitter has never shown much interest in clean energy and global warming. It’s one of just three countries, alongside Libya and Yemen, that never ratified the Paris Agreement.

And yet, it may soon become one of the biggest growth markets for photovoltaic energy. That ambition isn’t in conflict with its determination to pump more crude in a post-war world. Indeed, the future of its oil industry may depend on a willingness to embark on a breakneck solar build-out.

To see why, you need to look at why Iran’s oilfields are different. On paper, its reserves are the world’s fourth biggest. But they’re old and fractured by a heavily faulted, mountainous geology, so they’re far harder to manage than the giant fields in neighbouring countries. Driving out the last droplets involves advanced techniques – in particular, forcing natural gas back underground to increase pressure and force crude to the surface.

The requirements are immense. Just maintaining production from existing fields needs roughly 110 billion cubic metres (bcm) of gas every year, equivalent to the annual consumption of India and Pakistan put together. In recent years, Iran has achieved only about 10 per cent of that target.

If that doesn’t change soon, the oilfields are at risk of permanent damage. That would turn the country from a Saudi Arabia-style producer – blessed with cheap, massive oilfields – into something more like Britain or Mexico, forced to spend heavily to eke barrels out of deposits in terminal decline.

By replacing the gas that’s being used in power generation and freeing it up for oil recovery, solar can make a real difference. At present, the country is using about 79 bcm of gas each year to produce electricity. Even that volume isn’t sufficient. Since 2024, Iran has faced a rolling power crisis, marked by chronic blackouts, industrial shutdowns, and schools and offices switching to remote work to save electricity.

To fix this, renewable capacity has already quadrupled over the past two years to hit 5 gigawatts (GW). It’s intended to rise further to 30GW by 2028. In that, Iran is following the paths of its near neighbours Pakistan and Saudi Arabia. Pakistan has added almost 50GW since 2021 as users sought an alternative to the creaking grid. Saudi Arabia is targeting 130GW by 2030 to ensure as much crude as possible is being exported, rather than burned at home.

If Iran switches to clean energy, it can fix its ramshackle grid while releasing immense amounts of gas to keep its oilfields going. A Saudi-sized solar fleet could provide nearly three-quarters of electricity demand. The more renewable power Iran connects, the more it will be able to switch its gas to higher-value uses, such as oil recovery, fertiliser production and industry.

That will be a challenge to longstanding prejudices about the superiority of fossil fuels. But petroleum exporters in 2026 need to face up to the reality that the market for their core product is declining. Keeping long-term production expenses low is imperative, since the higher-cost producers will be the first to shut down over the coming decades.

Iran is blessed with some of the world’s best deposits of crude and natural gas, but it needs to invest now if it doesn’t want to lose that status.

It’s anyone’s guess to what extent negotiations over an end to the conflict will really give Iran full sanctions relief, or how easy it will be to tap the US$300 billion (S$388 billion) reconstruction fund proposed in the memorandum of understanding. Almost every path, however, suggests that solar represents one of the best ways to revive a crumbling economy.

If sanctions are removed, a solar-gas-reinjection policy is the quickest, cheapest way to rebuild an oil sector that’s badly in need of repair. If US financial restrictions remain tight, the advantages are even greater: Chinese panels can be bartered for Iranian oil without anyone handling dollars, and can be installed without the specialised international expertise needed to upgrade the creaking petroleum infrastructure.

Tehran’s leaders might be feeling confident from the way they’ve bested the US in this war, but the country still faces a looming triple threat of decline: demographic, from an ageing population; geological, as its oil deposits pump less with each year; and economic, as demand for oil turns permanently downward.

There is no time to lose. Iran needs to join the renewable revolution it has ignored for too long. BLOOMBERG