Iran heavily relies on fossil energy sources for both domestic consumption and export revenue. In addition, unbalanced production and consumption and the use of outdated technologies in the energy sector have contributed to the high level of energy intensity in Iran. However, the country has a large potential for energy conservation, and recent research suggests that the implementation of currently adopted rules may reduce its final energy demand by more than 20 percent. As a developing economy with a growing population and increasing energy demand in various sectors such as agriculture, manufacturing, and transportation, using renewable energy sources could prevent an energy crisis in the country. However, renewable energy sources currently do not have a significant and adequate role in the energy supply of Iran.
It is imperative for Iran to proactively and significantly transform its energy landscape in the coming years, optimize energy consumption, and increase the contribution of renewable energy to the energy supply to make the energy mix secure and environmentally sustainable. This requires strong policy support. According to the review of energy policy in OECD countries, policymakers need to advocate for increased renewable electricity consumption to improve energy security, reduce energy dependence, and encourage economic growth. Another important aspect of the successful implementation of renewable energy policies is an effective investment strategy. A recent quantitative regressive modeling study supports a strong relationship between foreign direct investment (FDI), the stock market, and renewable energy consumption in Iran. However, due to a combination of government policy, international sanctions, and socioeconomic factors, Iran has not been an attractive target for foreign investment in the past decade.
Certain unique elements validate a new energy reality for Iran, considering a marked deviation from its traditional image as a hydrocarbon-exporting country. The stark realities facing Iran necessitate a recalibration of its energy security strategy. These realities include a persistent decline in oil production and export, domestic fuel challenges, sporadic domestic shortages of natural gas and the absence of a robust export infrastructure for natural gas, extremely limited scope of diversification and renewable energy sources, and a bleak prospect of nuclear energy gaining a significant market share in the near future.