Oil, gas and Iran economic analyst
While suffering from severe gas shortages, Iran wastes a staggering volume of natural gas during production and transmission—equal to Spain’s annual consumption or about half of what Turkey or Italy use each year.
In regional markets, the wasted gas would be worth over $10 billion per year. It amounts to 40% of the gas used annually by Iranian households.
This massive loss stems from underinvestment in gas recovery infrastructure at oil fields and an aging transmission network.
Most recent data from the International Energy Agency (IEA) shows methane leaks from Iran’s oil and gas facilities exceeded 8 billion cubic meters in 2023.
Iran also flares over 20 billion cubic meters annually due to the lack of gas-capturing systems at oil production sites, according to the World Bank estimates.
Leaks and flaring
Iran ranks fourth globally in methane emissions from fossil fuel operations. Despite this, Iran has made little progress in cutting emissions.
IEA data shows most methane leaks originate from production facilities, with the rest linked to transmission infrastructure.
When it comes to gas flaring, Iran ranks second worldwide. For two decades, the government has done virtually nothing to capture associated gas—the byproduct of oil extraction—opting instead to burn it off at the wellhead.
This alone releases 38 million tons of greenhouse gases annually, nearly matching the total yearly emissions of Sweden or Norway.
Iran’s Oil Ministry estimates it would cost $5 billion to capture the flared gas. Yet investment in oil and gas fields has fallen sixfold in two decades and now stands at just $3 billion, according to the parliament’s Research Center.
As a result, flaring continues unabated, and gas production growth has slowed to a third of its pace a decade ago. Iran now faces gas shortages in all seasons.
Authorities often blame consumers for excessive use, overlooking the fact that losses during production and transmission account for 40% of the gas consumed by households.
Turning to imports
With domestic solutions stalled, Iran has increasingly looked abroad to cover its shortfall. But solving the crisis will take more than money—it also requires advanced technology and cooperation with international energy firms.
Recent efforts have focused on non-binding memoranda of understanding with Russian companies, none of which have led to concrete outcomes. Ironically, Russia itself suffers from even greater gas losses and lacks the technological capability to fix the problem at home or in Iran.
Iran has also tried to import gas from Turkmenistan and Russia. Turkmenistan, however, halted exports years ago over debt dispute. Russia recently agreed to supply small volumes via Azerbaijan, but pipeline capacity on that route is a fraction of peak deficit in winter.
Despite these shortages, Iran continues to export gas to Turkey and Iraq, often at the expense of domestic industries and power plants.
The reason? Price disparities. Exporting just 7% of its gas earns more revenue than selling the remaining 93% at heavily subsidized domestic rates, offering critical budgetary relief.
In its current budget, Iran projects gas exports of 16 billion cubic meters worth $5 billion—a 14% increase over last year.
But the future is uncertain. The 25-year gas deal with Turkey expires in 2026, and Iraq has announced plans to phase out Iranian gas imports within three years.
Without urgent investment, technological cooperation, and sweeping infrastructure reforms, Iran’s energy sector risks permanent decline—trapped in a cycle of waste, environmental damage, and economic self-sabotage.
Among the additives is methyl tert-butyl ether (MTBE), a chemical known for its role in groundwater contamination and listed as a potential carcinogen.
Though banned or heavily restricted in numerous countries such as the US, MTBE is reportedly being used in substantial volumes—even in gasoline marketed under European emissions standards, such as Euro 4 and Euro 5.
Unacknowledged chemicals in ‘euro-standard’ fuel
The documents reviewed by IOD detail a system-wide reliance on off-site chemical additives to raise the octane rating of base gasoline. These include MTBE and aromatic octane boosters, which are not derived from conventional refining processes.
Iran’s Shazand refinery, the country’s largest producer of Euro-grade gasoline, blends approximately 350,000 liters of MTBE daily, while the Esfahan refinery adds 325,000 liters per day, according to the data. Both refineries label their fuel as Euro 4 or Euro 5 compliant.
The use of restricted additives contradicts environmental standards associated with the Euro classification, which are designed to reduce emissions and limit pollutants.
Production gap and fuel demand
Iran produced an average of 101 million liters of base gasoline per day in 2024, rising to 121 million liters per day after incorporating roughly 20 million liters of off-site additives. However, daily domestic demand stands at 123.5 million liters, leaving a shortfall of 2.5 million liters.
The shortfall, coupled with economic constraints and sanctions limiting imports and refinery upgrades, has prompted a quiet return to petrochemical-derived gasoline—first adopted during international sanctions in 2010.
Refining limitations and aging infrastructure
In spite of owning the world's second largest natural gas reserves, Iran’s refining infrastructure remains massively underdeveloped resulting from both sanctions and macroeconomic policies in Iran. No new refinery has been commissioned since 2017, and six of the ten major facilities predate the 1979 Islamic Revolution.
The Persian Gulf Star refinery, Iran’s largest by volume, produces 39 million liters/day, but none of its output qualifies for Euro-grade certification.
According to IOD, one-third of Iran’s gasoline is officially labeled Euro 4 or Euro 5, but internal documents indicate that even these fuels often contain high-risk chemical additives.
Health and environmental risks
MTBE is widely banned in Europe, the US, and other countries due to its high solubility in water and persistence in the environment. Even trace contamination of groundwater can lead to environmental damage and health risks for the population, making its use in consumer fuels controversial.
In 2014, a Tehran city health official warned that non-standard fuels could increase airborne benzene levels up to 35 times the safe limit.
A 2023 environmental review by Iranian authorities said that just 38% of gasoline met domestic quality standards. The IOD report suggests the problem has since worsened.
Iran maintains one of the world’s lowest gasoline prices—second only to Libya—due to heavy state subsidies, currency depreciation, and the impact of international sanctions.
Officials frequently cite low fuel prices as a driver of excessive consumption and cross-border smuggling, but attempts to increase prices have been shelved amid fears of social unrest.
The government has not publicly addressed the use of MTBE or other additives, and internal reports avoid naming specific chemicals, instead using general terms such as “aromatic octane boosters” or “off-site petrochemical inputs.”
Iran Open Data warns that Iran’s increasing dependence on petrochemical additives, without parallel investment in refining capacity, poses significant long-term risks to public health, environmental safety, and economic sustainability.
“The growing reliance on high-risk additives has become a cornerstone of fuel supply, in the absence of refinery upgrades,” the report said. “This strategy could carry severe health, environmental, and economic consequences.”
Officials from Iran’s Ministry of Petroleum and the Department of Environment did not immediately respond to requests for comment.