Dear Colleague,

This week we have published an important article by our CEO Esfandyar Batmanghelidj and Policy Fellow Josefine Petrick analyzing how Trump’s new sanctions targeting Iran’s aviation sector threaten to disrupt the country’s medical supply chains.

With more than 60% of Iran’s pharmaceutical imports arriving in the country by air, passenger flights operated by Iranian airlines have become increasingly important for delivering medical products. Esfandyar and Josefine argue that the Trump administrations’ aviation sanctions threaten these air-freight dependent imports and may leave many Iranians without reliable or affordable access to key medicines.

We have also published the second article in our series on Iran’s electricity sector. In his latest entry, energy systems expert Arya Kia looks at the consequences of perennial electricity underpricing in Iran. While cheap energy costs can protect household purchasing power and lower production costs in the short term, a pricing system which discourages efficient consumption has ultimately contributed to the deterioration of electricity reliability in Iran.

Best regards,

Layla Saghafian

Engagement Coordinator

Our Publications

How Underpricing Deepens Iran’s Electricity Crisis

By Arya Kia - 22 September

Trump’s New Aviation Sanctions Threaten Iran’s Medical Supply Chains

By Esfandyar Batmanghelidj and Josefine Petrick - 17 September

Announcements

Inaugural Rihla Summit to Convene in Abu Dhabi

The inaugural Rihla Summit will take place in just one week, on 29 September 2026, at the Anwar Gargash Diplomatic Academy in Abu Dhabi. The Summit is part of the Bourse & Bazaar Foundation’s flagship project, the Rihla Initiative for Green Economic Growth.

It will convene Rihla Council Members from six regions across the Global South to identify common priorities, examine investment barriers, and determine how to turn regional dialogue into mutually beneficial partnerships.

Follow the Rihla LinkedIn Page for updates and insights from the Summit.

Media Engagements

Amwaj Media highlighted Esfandyar and Josefine’s analysis on the threat to Iranian medical supply chains in their report on the Trump administration’s push to “shut down” Iranian airlines.

Esfandyar was quoted in a report by Susannah George of The Washington Post on how Iran’s leadership is enduring the impacts of Trump’s economic pressure campaign.

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By Arya Kia

Iran’s electricity shortage is often presented as a problem of insufficient generation: demand rises faster than the amount of electricity the system can reliably supply, so the apparent solution is to build more power plants. However, as explained in the first article of this series, Iran’s frequent blackouts are owed to a paradox, whereby the theoretical energy generation capacity is constrained in practice by fuel and water shortages, aging equipment, transmission bottlenecks, and extreme temperatures. Add to that a pricing system that encourages consumption without facilitating investment in maintenance, grid modernization, and new capacity.

While cheap electricity helps protect household purchasing power and lowers production costs in the short term, long-term underpricing has contributed to deteriorating reliability and a widening gap between peak demand and available supply. The costs ultimately fall on households through recurring blackouts and on firms through mandatory curtailment and lost production. These obvious negative externalities raise a broader distributional question: who benefits from cheap electricity, and who bears the cost when the system cannot reliably serve everyone?

Cheap Power

For decades, Iran has kept electricity and other forms of energy inexpensive through extensive subsidies. The policy has important social objectives. Cheap electricity protects household purchasing power and lowers industrial production costs, particularly during periods of high inflation and economic pressure.

But prolonged underpricing changes the behavior of the entire electricity system. With inexpensive electricity, consumers are less incentivized to purchase efficient appliances, improve building insulation, replace inefficient cooling systems or alter the timing of consumption. Energy-intensive economic activity also becomes comparatively attractive, resulting in accelerating demand growth.

Research on Iran’s electricity sector has repeatedly identified this mechanism. A 2021 Utilities Policy study found that continuation of prevailing pricing policies eventually causes electricity demand to exceed supply. The study links low prices to excessive demand, insufficient resources for expanding generation and weakening system reliability.

The problem also extends to the supply side, with below-cost electricity weakening the financial position of the sector supplying it. Revenues available for maintenance, modernization and capacity expansion are constrained; private investment becomes more difficult to attract when the ability to recover costs is uncertain.

The scale of this distortion is visible in historical subsidy estimates. The 2018 subsidy assessment of the International Energy Agency identified Iran as one of the countries experiencing the largest increases in subsidies for oil products and natural gas, alongside a significant increase in subsidies to fossil-fuel-based electricity. Total electricity subsidies have hovered around $10-15 billion per year over the last two decades.

Iran being an energy-producing country, subsidies would be more aptly described as payments “foregone” rather than “paid.” Nonetheless, they still represent an implicit transfer of resources that could otherwise support investment, public expenditure or more targeted social protection.

But making electricity affordable by keeping it cheap has, over time, continued to make reliable electricity expensive to provide. A 2022 Energy Policy study of electricity subsidy reform in Iran found that reform could substantially lower future electricity demand, concluding that earlier, gradual adjustment performs better than postponing reform and attempting a more abrupt transition later. A 2025 retrospective study covering Iranian data from 1985 to 2023 found that prolonged subsidies had helped entrench electricity consumption patterns and reduced the effectiveness of later price adjustments. The authors advocate phased reform accompanied by targeted protection for vulnerable consumers.

The scale of Iran’s energy consumption becomes even more striking when placed in a global context. According data compiled in the Statistical Review of World Energy, Iran accounted for approximately 2.1% of global primary energy consumption in 2023, while representing only around 1.1% of the world’s population, and less than 0.5% of global nominal GDP.

This juxtaposition does not, by itself, reveal waste. Iran has a large energy-intensive industrial base, substantial oil and gas production, significant heating and cooling requirements, and an economic structure different from that of many service-oriented economies. The broader efficiency problem is also visible in Iran’s historical energy intensity, with data showing that Iran remains a highly energy-intensive economy.

The policy problem is therefore not simply that Iran consumes “too much” energy, but whether it can generate greater economic and social value from each unit of electricity and fuel. More efficient energy use delivers the same services with less input, reducing the need for additional generation, fuel supply and network infrastructure.

As reliability deteriorates, reform can become even harder. Consumers who already experience blackouts are understandably reluctant to pay more for electricity that has become less reliable. The resulting political pressure encourages temporary responses—rationing, emergency investment and conservation campaigns—rather than structural adjustment. Iran therefore cannot resolve the electricity crisis through generation expansion alone while leaving the financial and demand sides of the system unchanged.

Hits to Industry

Iran has frequently protected residential electricity supply by shifting a disproportionate share of shortages onto industry. From an operational and political perspective, curtailing a relatively small number of large industrial consumers can remove substantial amounts of load from the system while limiting the need for widespread interruptions to residential customers.

But the electricity shortage does not disappear. Electricity denied to an industrial facility translates into lost production. Repeated interruptions can lower capacity utilisation, disrupt supply chains, damage equipment, delay orders and weaken incentives for future investment. A peer-reviewed study published in Applied Energy, examining Iran’s steel, cement, and paper industries, identifies electricity shortages as an important constraint on industrial productivity and production chains.

Reducing avoidable household consumption, improving air-conditioning efficiency or shifting discretionary demand away from peak hours can relieve pressure on the grid while maintaining, or even improving, household welfare. Halting an industrial facility also reduces measured electricity demand, but does so by reducing economic output. The two forms of demand reduction should therefore not be treated as equivalent.

The consequences of industrial curtailment can also extend beyond the immediate production loss; those restrictions may weaken industrial output, profitability and broader economic activity, reducing resources available for future investment in electricity infrastructure. Lower investment, in turn, makes future shortages more difficult to resolve.

Costly Shortages

Although artificially cheap electricity seems attractive at first, someone still covers the true costs—although through different mechanisms. Industries may pay through lost production, while households may pay through outages, inconvenience, and damaged appliances. Businesses may face the cost of backup generation, disrupted operations or lost sales. The government also carries part of the burden through subsidies, emergency spending, and the broader economic effects of unreliable electricity supply.

These costs are not distributed evenly. Wealthier households and larger businesses can reduce their exposure to an unreliable grid by purchasing generators, batteries, rooftop solar or other backup systems. Lower-income households have far fewer options. A blackout may therefore be nominally universal, but its consequences are not. The same is true geographically. Regions with stronger networks, more local generation or greater economic importance may experience electricity scarcity differently from areas where infrastructure is weaker.

These divergences raise an important energy-justice question: even if all consumers receive subsidized electricity prices, do they experience the benefits and costs of the electricity system equally? Maintaining electricity extremely cheap may appear equitable while still contributing to an inequitable outcome. If persistent underpricing encourages excessive consumption, weakens investment and contributes to deteriorating reliability, the resulting shortages can impose disproportionate costs on those least able to protect themselves.

The policy distinction should therefore be between cheap electricity and affordable electricity. They are not necessarily the same. A tariff can remain low while the quality and reliability of service deteriorate. Conversely, electricity prices can gradually move toward more economically sustainable levels while essential consumption is protected for lower-income households through targeted transfers, lifeline tariffs, or other forms of support.

Pricing reform without adequate social protection would impose substantial burdens on vulnerable households. But maintaining universal underpricing indefinitely can also distribute benefits poorly, because high-consumption households receive larger absolute subsidies than households that consume less while the financial consequences of underpricing affect the entire electricity system.

The challenge is therefore not simply whether tariffs should rise. It is how electricity pricing can be restructured while protecting access to essential energy services by improving the financial sustainability of the power sector and reducing the unequal consequences of shortages. Seen this way, Iran’s electricity crisis manifests as a kind of “polycrisis,” encompassing a reliability problem, an investment problem, and a distribution problem.

Arya Kia is an energy systems researcher focusing on renewable energy, energy and water systems, energy policy, and system dynamics. He is a doctoral candidate in Energy Systems Engineering at Sharif University of Technology and is based in Vancouver, Canada.

Section: (vision-iran-initiative) Photo: IRNA

By Esfandyar Batmanghelidj and Josefine Petrick

On September 8, 2026, the Trump administration issued new sanctions targeting Iran’s aviation industry. In its announcement of the new sanctions, the Treasury Department claimed the action would target Iran’s commercial airlines which have “long supported the Iranian regime’s destabilizing activities, with the IRGC using ostensibly private airlines… for the procurement and transport of weapons.”

But the measures will impact all Iranian passenger air travel, making it more difficult for Iranians around the world to remain connected. Perhaps more concerningly, any further reduction in civilian flights to Iran would impact certain forms of trade, including Iranian imports of pharmaceuticals and medical products. Just over 60% of Iran’s medical imports arrive in Iran via air, according to customs data. Notably, air freight accounts for 8.4% of all Iranian imports, meaning that medical goods are roughly seven times more dependent on aviation linkages than Iranian imports generally.

The new measures, therefore, represent the latest instance in which the tightening of sanctions risks significant harm for ordinary Iranians, in this case because of the impact on the availability and affordability of critically important medical goods.

The Treasury Department’s Office of Foreign Assets Control (OFAC) suspended General License J-1 that allowed foreign airlines to operate connections to Iran, even when their planes contained more than 10% U.S.-origin components. This move was coupled with the suspension of three regulatory provisions that authorized payments for overflights of Iranian airspace, bunkering and emergency repairs, and safety protocols. Although OFAC issued General License DD to allow for a 15-day transition period, these measures effectively bar non-U.S. airlines from operating connections to Iran. OFAC also sanctioned 27 Iranian airlines and eight third-country companies, aiming to force foreign airports and aviation services companies to cease serving Iranian carriers.

These actions have been taken as part of “Operation Economic Outcast.” On August 24, 2026, President Trump updated Executive Order 13902 to target five additional sectors, including aviation. OFAC justified the measures by pointing to Mahan Air, an airline it had previously linked to weapons of mass destruction proliferation, arguing that the newly sanctioned entities had continued to support its operations.

Long-Running Pressures

Iran meets most of its demand for pharmaceutical and medical products domestically. The country boasts world-class state and privately owned drug manufacturers that produce everything from ibuprofen to cancer medication to GLP-1 inhibitors. Some of these drug makers were directly targeted in the early stages of U.S. and Israeli airstrikes—incidents that may constitute war crimes. But no country can be self-sufficient and even the domestic production of pharmaceutical and medical products requires Iran to import a wide range of production inputs and machinery.

While trade in these goods is technically exempt from sanctions, financial restrictions have negatively impacted Iran’s healthcare system. Iranian importers struggle to source products from major pharmaceutical manufacturers. Even when there is a willing seller and the transaction is covered by a U.S. general license, international banks frequently refuse to receive payments from Iranian banks.

Likewise, Iranian importers face challenges in arranging transportation, often paying a premium for delivery of their cargoes. These frictions have pushed the prices of many imported medicines higher. Most drugs and medical products are still available in Iran, but affordability remains a concern for many health professionals and patients, especially as the country’s general economic situation worsens.

Advanced therapies are especially vulnerable to sanctions barriers. Produced by a few specialist manufacturers and used by small numbers of patients, advanced therapies rarely get prioritized, and access is quickly lost when individual suppliers change their policies. In 2019, families of children with a painful skin condition called EB, were left in a dire situation when Mölnlycke, a Swedish firm, ceased sales of the only viable treatment to Iran.

Supply Chain Fragility

Most Iranian pharmaceutical imports arrive in the country by air. Many pharmaceutical and medical products tend to be small and light, making transport by air freight commercially viable. In the last Iranian calendar year, total imports of pharmaceuticals, medical devices, and medical equipment were valued at just over $3 billion. The volume of these imports totaled around 30,000 tonnes.

Historically, the majority of such imports arrived via cargo flights, but over the last decade, as the world’s major air cargo companies withdrew from the Iranian market, an increasing proportion of the freight has been delivered in the holds of passenger flights operated by international and Iranian airlines.

Flights operated by Lufthansa and Emirates were particularly important given the significant volume of imports from Germany, France, Switzerland, and the UAE. But in the wake of sanctions and war, many international airlines suspended flights to Iran. Air France and British Airways suspended their direct connections to Tehran in September 2018. Lufthansa suspended Munich and Frankfurt routes to Tehran in June 2025. Emirates ceased flights to Iran in February 2026, shortly after the start of the U.S. and Israeli war.

The impact of the new aviation sanctions on Iran’s medical supply chains will likely be significant and ordinary Iranians will likely face unwarranted harm. A simple review of the composition of the airborne imports makes the stakes clear.

As international airlines withdrew from the market, Iranian carriers came to play a more important role in international trade, including imports of pharmaceutical products. But now, the Trump administration aims to decisively interrupt the operation of Iranian airlines through broader designations and an aggressive enforcement posture, isolating Iran to an unprecedented degree. Fewer flights will mean less overall air freight capacity, which will in turn increase freight rates, especially to source cargo from key jurisdictions, such as Europe.

Concerningly, imports of pharmaceutical products are declining more quickly than Iran’s overall imports. Since the start of Trump’s maximum pressure sanctions in the Spring 2018, total pharmaceutical imports have fallen around 35%. In the same period, overall imports actually grew around 15%. Given that medicines constitute essential goods where demand should be most robust, this is the opposite of the expected trend.

Some of the decline may reflect efforts by Iranian medical firms to boost domestic production of key products, thereby reducing import dependence. But more likely, the accelerating decline in medical goods imports reflects the cumulative impact of tightening sanctions on underlying supply chains. Since 2018, U.S. maximum pressure sanctions have become so stringent that even exempt humanitarian trade is being significantly disrupted.

Healthcare Impacts

The impact of the new aviation sanctions on Iran’s medical supply chains will likely be significant and ordinary Iranians will likely face unwarranted harm. A simple review of the composition of the airborne imports makes the stakes clear. Looking at the most recent customs data, which covers the 10 months until February 2026, over 30% of medical imports that pass through IKA are classified as “medicaments containing hormones,” a category which includes insulin for treatment of diabetes and certain cancer treatments. Just over 10% of the imports are vaccines, both for human and veterinarian use. Another 6% includes blood products used to treat infections or support clotting.

Given the importance of these medications for Iran’s health system, Iranian importers will seek to adapt to further disruptions in passenger flights. More trade could be routed through third countries which may not adhere to U.S. sanctions regulations as strictly. Importers may also shift to overland trade, taking advantage of the compactness and lightness of many of these imports to maintain imports. But these adaptations will introduce further costs and fragility into key supply chains. There are also some hard limits to consider. Certain medications and therapies are produced in just a few countries. Others need to be transported with strict temperature controls. In certain instances, when a supplier relationship is terminated, patients are left without any alternative treatments.

By creating more fragility in medical supply chains, the new sanctions will also leave Iran especially vulnerable during future public health emergencies or natural disasters, when the country’s healthcare system may need to rapidly increase imports of particular drugs, medical products, medical devices, or personal protective equipment. Sanctions inhibited Iran’s response to the COVID-19 pandemic, including by limiting Iran’s access to the global COVAX vaccine program. While the Biden administration issued additional guidance to reaffirm the exempt status of medical trade, Iran was left last in the line for critical supplies given the inherent financial and logistical difficulties.

Although the Trump administration claims that the new sanctions targeting Iran’s aviation sector are intended to “sever the economic lifelines that sustain the Iranian regime and the Islamic Revolutionary Guard Corps,” the effects will, once again, harm the most vulnerable people in Iran. More patients who need reliable and affordable access to pharmaceutical and medical products will see their health put at risk due to the sanctions. Some will face life-threatening consequences.

Esfandyar Batmanghelidj is Founder and CEO of the Bourse & Bazaar Foundation.

Josefine Petrick is a Policy Fellow at the Bourse & Bazaar Foundation, where she researches the intersection of sanctions policies and global public health.

^{Section: (integrated-futures-initiative) Photo: Nabil Molinari}

Dear Colleague,

This week we are pleased to share a new article in The Sanctions Age, our platform for analysis of global sanctions issues.

Rachel Ziemba, an Adjunct Senior Fellow at the Center for a New American Security (CNAS), has written an “explainer” on the controversial U.S.-Venezuela oil deal. While the deal could bring benefits such as energy-sector investments and jobs for Venezuelan workers, Ziemba explains that sanctions allow the U.S. to retain leverage over the country’s economy. She also cautions that provisions of the agreement remain unclear, highlighting that there are no guarantees that the revenues will benefit ordinary Venezuelans.

We have also published a new article by our Executive Director of Research and Programs, Mehran Haghirian, who recently attended convenings in Abu Dhabi and Salalah. Mehran proposes a complementary track of regional diplomacy to run alongside the U.S-Iran talks, enabling the eight littoral states of the Persian Gulf to establish “shared principles and pooled interests” that can underpin new regional security arrangements.

Best regards,

Layla Saghafian

Engagement Coordinator

Our Publications

Explainer: The U.S. Government’s Oil Deal with Venezuela

By Rachel Ziemba - 14 September

The Gulf Region Needs Its Own MOU

By Mehran Haghirian - 11 September

Events

Policy Fellow Josefine Petrick spoke in a Middle East Council webinar on the Iran crisis, which discussed whether renewed U.S. sanctions can achieve what months of military force have not.

Mehran Haghirian, participated in a panel discussion in Salalah, Oman titled “What Shapes GCC - China Cooperation on Green Industries and Finance?” The discussion was co-organized by The Rihla Initiative for Green Economic Growth and the Shaheen Institute for Strategy and Development.

Media Engagements

In the past week, Mehran Haghirian was quoted in AFP on the resilience of economic ties between Iran and the UAE. The report was syndicated in France 24. It was also published in Persian by the Iranian state news agency, IRNA. He was also quoted in The National on Iran’s ability to wage an economic war against the U.S.

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By Mehran Haghirian

Diplomatic activity around the war on Iran intensified in late August after a period of stagnation, with Pakistani, Qatari, and Omani officials traveling to Tehran. But the U.S. attack on military installations on Larak Island on August 30 was followed by a wider resumption of fighting. The United States and Iran have since carried out their largest declared exchange of attacks on shipping since the war began, while Houthi attacks on Saudi Arabia have opened another front in the escalation. The possibility of a return to full war has increased even as diplomatic efforts continue.

Pakistani officials reported progress on ending the conflict and reopening the Strait of Hormuz following their visit to Tehran in late August. Subsequently, Qatar’s prime minister visited Tehran as well, with the intention of creating the conditions for renewed negotiations between Iran and the United States. Oman’s foreign minister also visited his counterpart in Iran and released a joint statement on plans for a temporary corridor through the Strait and short-term talks on a permanent route.

On the diplomatic front, all efforts continue to point back to the Memorandum of Understanding concluded by Iran and the United States on June 18. Pakistan and Qatar mediated that agreement, while the Iran–Oman discussions are tied to its fifth point. It remains the only agreed text covering military operations, the U.S. naval blockade, the future of Hormuz, Iran’s nuclear program, and sanctions relief. Negotiations have not resumed, and President Donald Trump said on August 27 that Washington was not talking to Tehran. The United States has shown no clear willingness to return to the June terms, while Iran remains steadfast in its insistence that the United States lift the blockade and return to the terms of the MoU before negotiations can continue. If Iran–U.S. diplomacy restarts, the MoU therefore remains the most likely point of departure.

The Iran–U.S. MoU, however, needs a complementary regional agreement to address the remaining issues that require the participation of regional countries. Such a regional MoU would also help make the Iran–U.S. agreement implementable. Point 5, on the future administration and maritime services of the Strait of Hormuz, requires a dialogue between Iran, Oman, and the other six regional states. Point 6, on reconstruction and economic development, also requires regional participation and support. Any return to the Iran–U.S. track should therefore be accompanied by a separate process among the eight littoral states. This process should be able to advance even if the resumption of the Iran–U.S. MoU is delayed or the agreement ultimately falters.

The U.S.-Israeli war on Iran, the Iranian attacks that followed across GCC states, the effects of the conflict in Iraq, and the renewed fighting between Saudi Arabia and the Houthis have involved all eight countries one way or another but in different ways. Each has followed its own path based on its geography, exposure to the conflict, external partnerships, domestic politics, and relations with the other seven. Oman is now a stakeholder rather than only a facilitator, and Qatar has been a key mediator along with Pakistan. Saudi Arabia has also been active diplomatically through the recent Makkah Joint Defense Agreement. Other GCC states have pursued different combinations of deterrence and diplomacy, while Iraq has faced its own pressures from military activity, economic constraints, armed groups, and foreign forces.

These differences will endure, but they do not prevent the eight countries from agreeing on some basic rules. The basis for a regional process is not new and has been considered on multiple occasions in the region’s history, particularly after conflicts. Paragraph 8 of UN Security Council Resolution 598, which ended the Iran–Iraq War in 1988, called for consultations among Iran, Iraq, and other states of the region on measures to enhance regional security and stability. Nearly four decades later, that part of the resolution remains unaddressed, reflecting the difficulty of structuring a process acceptable to all sides. Iran tried with the Hormuz Peace Endeavor, announced in 2019, while the GCC announced its Vision for Regional Security in 2024. Neither garnered meaningful support from the other side of the Gulf nor sufficient recognition and support from external actors.

There is a need for a multilateral arrangement that provides an institutional home for a process in which all eight countries, and perhaps also Yemen, have their own seat and say. Such an arrangement would complement existing blocs and partnerships, including the Makkah Agreement, and these arrangements can operate concentrically. All eight countries can agree on limited common rules while smaller groups adopt additional commitments where their interests align.

The starting point should be non-aggression and the avoidance of interference in one another’s affairs. All eight countries would commit to respecting one another’s sovereignty and territorial integrity; refraining from the threat or use of force; preventing their territory and facilities from being used to attack another participating state; refraining from supporting attacks by non-state armed groups; and protecting civilian populations and critical infrastructure.

The initial practical measure should be an eight-state deconfliction channel. During the war, governments used bilateral contacts to pass warnings, deny responsibility, and seek restraint. There was no common procedure for reacting to a missile or drone crossing several countries or to a maritime incident in the Gulf. Direct political, military, aviation, and maritime contacts could stop an incident from expanding before governments had established what had happened and react.

Economic cooperation should form the second layer, starting from the baseline already established before the recent conflicts. The immediate question is whether ports remain open, aircraft can fly, payments can be made, and food, medicine, and energy supplies can move during the current war or any future escalation. The regional MoU could identify the connections and critical infrastructure that should be protected.

The regional process should not wait for Iran and the United States to resolve every part of their dispute, or begin with a grand summit and a comprehensive security system.

The longer-term objective remains economic interdependence, while acknowledging that economic ties would develop gradually and concentrically, with some countries moving before others. If the Iran–U.S. MoU is restored, Washington will need to issue the licenses and waivers required for lawful regional trade and investment involving Iran. Regional states should identify those requirements based on the projects they want to pursue. If sanctions remain and the U.S. policy of treating Iran as an economic outcast intensifies, a regional MoU could give the eight states a framework for protecting their individual and collective interests, including food security, energy resilience, transport routes, and other areas threatened by the conflict.

The Strait of Hormuz is a place to test whether this approach can work. The August 25 Iran–Oman statement reiterates Point 5 of the Iran–U.S. MoU and calls for discussions with other regional states. Iran and Oman have legal and operational responsibilities in and around the Strait, but a permanent arrangement will also require the participation of the other six countries that depend on it.

Kuwait, Bahrain, and Qatar have no maritime route that bypasses Hormuz. Iraq’s principal commercial port access also passes through it. Saudi Arabia and the UAE have more alternatives, but their ports, exports, imports, and wider economies remain tied to safe passage in Hormuz.

A prolonged conflict would threaten the economic interests of all eight countries by reducing investor confidence across the Gulf and diminishing the importance of the Strait of Hormuz as a reliable commercial maritime route. This would affect Iran as much as, if not more than, the other seven countries.

In the longer term, these shared principles and pooled interests could be institutionalized through an eight-state body responsible for navigational information, incident notification, search and rescue, environmental monitoring, and oil-spill response. It could be a new organization or be established through an expanded mandate for the Regional Organization for the Protection of the Marine Environment (ROPME).

Such a body would also need funding. As Esfandyar Batmanghelidj and I have proposed, a small fee on large outbound oil tankers could pay for agreed maritime and environmental services. It would not be a toll or a charge for passage, and in this context the fee is secondary to the institution behind it. The purpose is to create a standing regional body through which the eight countries can manage services in a waterway on which they all depend, multilaterally and cooperatively.

The regional process should not wait for Iran and the United States to resolve every part of their dispute, nor should it begin with a summit and an attempt to create a comprehensive security system. The eight governments could appoint senior officials to a limited contact group, establish crisis channels, and open technical discussions on deconfliction, Hormuz, and essential economic connections. Türkiye, Pakistan, Egypt, China, India, European countries, and others could support the process, but the eight countries would negotiate the terms themselves.

The June MoU may still provide a way back to negotiations between Iran and the United States, but the wider regional conflict cannot be addressed through the Iran–U.S. track alone. A parallel regional agreement is needed and would serve a different, complementary purpose. Even if the eight countries are not ready to agree on a common regional order, they can agree on the conduct expected of all states, the mechanisms needed to prevent further escalation, and the connections that none of them can afford to lose.

Mehran Haghirian is the Executive Director of Research and Programs at the Bourse & Bazaar Foundation.

^{Section: (integrated-futures-initiative) Photo: Canva}

Dear Colleague,

This week we are pleased to share a new Foreign Affairs essay by our CEO, Esfandyar Batmanghelidj, analyzing Iran’s ability to withstand the coercive effects of the Trump administration’s “economic onslaught.” While Iran’s leaders have recognized the detrimental effects of sanctions on the country’s economy, they continue to shift economic pressure onto ordinary people in a process of “financial repression.” Willing to sacrifice general economic welfare, Iranian authorities believe a slowing economy will help them persevere during the war with the U.S.

We have also published a new piece by energy expert Arya Kia, the first in a series of articles he has written examining the state of electricity generation in Iran. In this first entry, Arya unpacks Iran’s persistent shortfalls in generation capacity and examines a “paradox” whereby theoretical capacity is constrained by fuel constraints, maintenance requirements, aging equipment, water availability, transmission bottlenecks, and extreme temperatures.

Finally, a last reminder about our new account on X, where we post daily coverage of our experts’ media appearances and publications — follow us at @BourseBazaarFdn!

Best regards,

Layla Saghafian, Engagement Coordinator

External Publications

Why America Can’t Strangle Iran

By Esfandyar Batmanghelidj - Foreign Affairs - 8 September

Our Publications

Behind Iran’s Persistent Electricity Shortages Lies a Capacity Paradox

By Arya Kia - 8 September

Events

Executive Director of Research and Programs Mehran Haghirian spoke in a “Middle East Energy” roundtable focused on the Strait of Hormuz. The event was part of a long-running series hosted by the Baker Institute at Rice University, bringing scholars together with members of the energy industry and diplomatic community.

Mehran also participated in an EMANES webinar panel analyzing the economic consequences of the Iran war across the MENA region and Africa.

Media Engagements

In the past week, Esfandyar Batmanghelidj was quoted in the Wall Street Journal on how some leaders in Tehran view the growing economic pressure the country is facing.

Thank you for engaging with our work. If you would like to share content from the Bourse & Bazaar Foundation with a friend or colleague, please click the button below:

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Tag: #noweb

By Arya Kia

Iran’s electricity crisis presents an unusual paradox. The country possesses some of the world’s largest natural gas reserves and has spent decades expanding its generating fleet. Yet electricity shortages have become a recurring feature of daily and economic life. Households face outages, factories are ordered to cut production, government offices are closed during periods of extreme demand, and each summer brings renewed warnings that available supply will fall several gigawatts short of what consumers require.

The scale of the problem became particularly visible in 2024. According to reporting on an assessment by Iran’s Parliamentary Research Center, peak demand approached 80 GW while the grid could simultaneously supply only around 62 GW after accounting for technical and operational constraints. The resulting shortfall was estimated at approximately 18 GW. A recent peer-reviewed Energy Policy study of Iran’s electricity imbalance similarly describes recent deficits approaching this scale.

That gap cannot be understood simply by counting how many power plants Iran has built. Installed capacity and dependable capacity are not the same thing. A generating unit can remain on the national inventory while being unavailable or producing below its nominal capacity because of maintenance, fuel shortages, aging equipment, extreme temperatures, insufficient water, transmission constraints or other operational limitations. The US Energy Information Administration reported that in 2023 Iran’s available generating capacity was less than 75% of installed capacity, while peak summer demand exceeded supply by approximately 12 GW.

The distinction goes to the heart of Iran’s electricity problem. The country does not merely suffer from a shortage of power plants. It suffers from a widening mismatch between the electricity consumers want, the electricity the system can reliably deliver, and the financial and physical capacity to close that gap.

The crisis is therefore often misdiagnosed when it is attributed to a single culprit. Excessive consumption matters. So do natural gas shortages, drought, sanctions, energy subsidies, aging power plants, cryptocurrency mining, electricity exports and insufficient investment. But none provides a complete explanation on its own. Iran’s electricity shortage is better understood as a system in which these pressures interact and, in several cases, reinforce one another.

Capacity on Paper

For decades, Iran expanded its electricity system around an abundant domestic supply of hydrocarbons. Gas turbines, steam plants and combined-cycle facilities account for most generation, supported by hydropower, the Bushehr nuclear plant and a relatively small but rapidly growing renewable sector.

Nameplate capacity continued to increase even as reliability deteriorated. The problem is that installed capacity measures what generating assets are theoretically capable of producing under specified conditions. Electricity security depends instead on what they can actually produce when demand peaks.

This distinction is particularly important in Iran. Older thermal units can lose output because of maintenance requirements, aging equipment and declining efficiency. High summer temperatures can derate some thermal generators. Gas shortages can leave otherwise functional generating capacity without sufficient fuel. Hydropower capacity can remain installed even when reservoir conditions prevent it from operating at the required level. Transmission congestion and distribution losses can further reduce how much electricity reaches consumers. This means Iran can add thousands of megawatts of nominal capacity without gaining the same amount of dependable electricity.

The deterioration is visible in the changing supply-demand margin. EIA data indicate that Iran’s summer peak deficit had already reached around 12 GW in 2023. The Parliamentary Research Center subsequently estimated a substantially wider deficit during 2024. The recent Energy Policy system-dynamics analysis likewise identifies the growing gap between electricity demand and reliably available supply as a structural rather than temporary problem. As shown in Table 1, Iran’s installed generation capacity, maximum power supplied at peak, and peak electricity demand followed increasingly divergent trends between 2017 and 2024.

The divergence is visible in the data. Between 1396 and 1402, Iran’s installed generating capacity increased from 78.8 GW to 92.8 GW, an increase of nearly 18%. Yet maximum power supplied during peak conditions rose by less than 12%, from 54.6 GW to 61.0 GW. Over the same period, peak electricity demand increased from roughly 55.4 GW to 73.5 GW—about 32%. As a result, the gap between demand and power actually available at peak widened from less than 1 GW to more than 12 GW. In 1402, only about 66% of Iran’s nominal generating capacity was effectively supplying the system at peak.

Such a comparison makes visible what aggregate capacity statistics obscure: Iran has continued to build generating assets while its effective reserve margin has progressively disappeared. Capacity is an asset, while reliability is a system outcome. The difference helps explain why announcing another power plant does not necessarily mean the electricity crisis is closer to being solved.

It also changes how new capacity should be evaluated. One additional megawatt of generation is most valuable when it is available during the hours the system is most stressed. A nominal megawatt that lacks fuel, water, transmission access or operational availability contributes much less to electricity security than the capacity figure alone suggests.

Demand Without Margin

The supply problem has developed alongside rapidly growing electricity demand. Iran’s population, urbanization, appliance ownership and industrial development have all contributed to higher consumption. Subsidized electricity has also reduced incentives to conserve power or invest in efficiency. More recently, extreme summer temperatures have placed additional pressure on the system as demand for air conditioning rises.

The importance of cooling goes beyond annual electricity consumption. Power systems must be capable of serving the maximum simultaneous load, not simply producing enough electricity when averaged across an entire year. That makes a few extremely hot summer hours particularly important. Iranian grid operator Tavanir reported that peak electricity demand reached a record 78.1 GW in July 2024, compared with 73.5 GW at the previous year’s peak. Later assessments put the maximum requirement close to 80 GW.

Climate stress can also work against the system from both directions. A peer-reviewed study in Energy examining electricity supply and demand dynamics in Iran under climate-related stresses found that rising temperature increases electricity requirements while water scarcity creates additional constraints for power generation. Hot and dry summers can therefore create a particularly difficult combination: cooling pushes demand upward while water limitations and thermal derating weaken part of the available supply.

Iran has increasingly managed these peaks administratively. Factories are instructed to reduce electricity consumption. Government working hours are altered. Offices may close during extreme heat. Residential consumers receive conservation appeals and scheduled outages. These measures can protect the grid from instability. But they can also make the underlying imbalance less visible. If a steel mill is ordered to stop production, the electricity it would have consumed disappears from measured grid demand. If a household loses power for two hours, the electricity it would otherwise have used during those hours does not appear in consumption statistics.

This creates an important measurement problem: recorded electricity consumption reflects what the system actually supplied, not necessarily what consumers would have demanded if electricity had been fully available. Supply and realized demand can therefore appear to move back toward balance precisely because part of demand has been forcibly suppressed.

The underlying need has not disappeared. It has been converted into unmet household demand, closed offices or lost industrial production. This distinction became visible again in 2025, when Tavanir reported lower peak demand following consumption-management measures, although temperatures were also lower than during the comparable period in 2024. Lower realized demand after enforced conservation is therefore not necessarily evidence that the structural deficit has disappeared. A shortage can be temporarily managed by cutting consumption. It cannot be eliminated that way.

The Visible Culprits

Persistent electricity shortages naturally encourage simpler explanations, and cryptocurrency mining is one of the most visible. Iran’s inexpensive electricity created powerful incentives for energy-intensive mining operations. A peer-reviewed study published in IET Generation, Transmission & Distribution estimated cryptocurrency-mining demand in Iran at approximately 750 MW during the period examined and showed how low electricity prices made even relatively inefficient mining equipment economically viable.

Seven hundred and fifty megawatts is not trivial, particularly in a system already operating with a narrow reserve margin. But scale matters. Even if that entire estimated mining load had been removed from the grid, it would have represented only a fraction of the national peak deficit that subsequently reached roughly 12–18 GW. Cryptocurrency mining can therefore aggravate an electricity shortage, but it cannot by itself explain the scale or persistence of Iran’s imbalance.

Electricity exports generate a similar debate. Iran exports power to neighboring countries while periodically rationing domestic consumers, which can understandably appear contradictory. Yet exports need to be assessed in relation to their scale, timing, contractual obligations, domestic network losses, and the much larger structural gap between dependable supply and peak demand.

A 2024 study published in Utilities Policy, using a system-dynamics analysis of Iran’s electricity production, consumption and exports, found that losses within the domestic electricity system were substantially larger than electricity exports and projected a worsening imbalance if prevailing trends continued.

This does not mean cryptocurrency mining or electricity exports are irrelevant. Both can place additional pressure on the system, particularly during periods of peak demand. But they are better understood as visible contributors rather than structural drivers of the shortage.

A power system with an adequate reserve margin can accommodate cross-border electricity trade and emerging sources of demand without routinely resorting to rationing. When that margin has already been eroded by rapid demand growth, insufficient investment, fuel constraints, aging infrastructure and other structural pressures, however, loads that might otherwise be manageable become much more consequential. In this sense, mining and exports expose the vulnerability of Iran’s electricity system more than they explain its underlying cause.

Arya Kia is an energy systems researcher focusing on renewable energy, energy and water systems, energy policy, and system dynamics. He is a doctoral candidate in Energy Systems Engineering at Sharif University of Technology and is based in Vancouver, Canada.

Section: (vision-iran-initiative) Photo: MAPNA

By Darius Barik

The National Iranian Oil Company (NIOC) is the world’s second largest oil company by managed reserves. Joint-ventures with NIOC and its subsidiaries represent the most important potential investment deals in any future opening of the Iranian economy. However, NIOC’s formal structure does not reflect the full range of stakeholders with influence over key decisions.

We examine how authority over NIOC is distributed across the wider Iranian state, and how sanctions have changed the marketing of its oil. We do so by looking at NIOC’s formal chain of command, the political bodies that share power over it, and the network of intermediaries on which it now relies to deliver oil to its customers abroad.

Critical Questions is Bourse & Bazaar Advisory’s series of concise research notes. Published every two weeks, these notes provide policymakers, executives, and investors the answers they need to understand evolving opportunities and risks in West and Central Asia. Each leverages the Bourse & Bazaar Foundation’s staff expertise, stakeholder relationships, and proprietary data to present qualitative and quantitative insights.

If you would like to receive these research notes, please contact Darius Barik to discuss your subscription:

darius [at] bourseandbazaar.org

Dear Colleague,

Welcome to the third edition of the Bourse & Bazaar Brief.

This week, associate fellow Francesco Schiavi has written a fascinating article about how trucking is transforming the Middle East. As disruptions in the Strait of Hormuz persist, overland routes have emerged as an important alternative for sustaining regional trade.

Francesco has also published a new article for Al Monitor about the upcoming UAE-China air drills. The piece includes insight from senior fellow Khalifa Al Suwaidi.

We are also launching a new series of research notes called Critical Questions. Published every two weeks for clients of Bourse & Bazaar Advisory, these notes provide policymakers, executives, and investors the answers they need to understand evolving opportunities and risks in West and Central Asia.

The first note in the series, prepared by CEO Esfandyar Batmanghelidj and analyst Ezana Tedla, assesses the potential for an Iranian attack on undersea cables in the Strait of Hormuz.

Finally, a reminder about our new account on X—follow us at @BourseBazaarFdn!

Best regards,

Layla Saghafian, Engagement Coordinator

Our Publications

Why Hasn’t Iran Targeted Subsea Cables?

By Esfandyar Batmanghelidj and Ezana Tedla - 31 August

As Maritime Trade Struggles, Trucking Is Transforming the Middle East

By Francesco Salesio Schiavi - 27 August

External Publications

UAE-China Air Drills Deepen with Fourth Falcon Shield Exercise

By Francesco Salesio Schiavi - Al Monitor - 29 August

Media Engagements

In the past week, Esfandyar Batmanghelidj was quoted extensively on the Trump administrations effort to raise economic pressure campaign on Iran. His analysis focused on whether the Trump administration can coerce Iran into making larger concessions and what additional economic pain means for ordinary Iranians.

His analysis was featured in Politico, The Banker, The New York Times, the Financial Times, and Fortune. Esfandyar was also interviewed on ABC Radio and the Drop Site Live Stream.

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By Esfandyar Batmanghelidj and Ezana Tedla

Policymakers and multinational executives are concerned that Iran could target subsea cables in a new round of escalation in the U.S.-Iran War. Iran has previously targeted data centers, but the undersea infrastructure so central to the region’s economy has not yet faced attacks.

In this note, we examine why this hasn’t happened and the circumstances in which it would be likely to change. To do so, we look at Iran’s offensive doctrine, its strategic objectives, and the extent of redundancy built into Gulf cable routes.

Critical Questions is Bourse & Bazaar Advisory’s series of concise research notes. Published every two weeks, these notes provide policymakers, executives, and investors the answers they need to understand evolving opportunities and risks in West and Central Asia. Each leverages the Bourse & Bazaar Foundation’s staff expertise, stakeholder relationships, and proprietary data to present qualitative and quantitative insights.

If you would like to receive these research notes, please contact Darius Barik to discuss your subscription:

darius [at] bourseandbazaar.org

By Francesco Salesio Schiavi

When the Strait of Hormuz effectively shut to normal maritime traffic at the outset of the U.S.-Iran war in late February of this year, Middle East oil producers scrambled to find alternative trade routes. Oil producers that already had bypass infrastructure in place, such as Saudi Arabia with its pipeline to the Red Sea port of Yanbu or the UAE with its Habshan-Fujairah pipeline, adapted the fastest. Pipelines, however, can only move energy products. When it comes to bulk and container trade, encompassing economic mainstays such as food, fertilizer, machinery, and consumer goods, new solutions were needed. Regional countries turned to a long ignored mode of trade—trucking. Six months on, with no clear resolution to the Hormuz standoff in sight, trucking has emerged as a new and likely permanent layer of the transport infrastructure in the Middle East.

Across the region, demand for trucks has surged as port operators and liners rely on truck freight to establish new intermodal transport corridors. UAE hauler Trukker reported a 30% rise in full-truckload shipments between February and March as demand for truck freight surged. Another UAE firm, Ramool Transportation, announced that it had earned more in March alone than in all of 2025, a sign of how sharply rates have risen for operators able to put trucks on the road.

At Khor Fakkan, a container port on Sharjah’s Indian Ocean coast that used to handle little more than transshipment traffic, truck movements rose from just 100 vehicles per day before the war to roughly 8,500 by the end of July. In turn, weekly container throughput rose from about 8,000 to 65,000 TEU. The port’s operator, Gulftainer, hired more than 900 staff within a fortnight to cope and later committed $2 billion to lift annual capacity toward 10 million TEU within three years, accelerating development plans in response to the crisis.

DP World, the world’s largest port operator, is reportedly planning a multibillion-dollar investment to expand capacity at the Port of Fujairah, after activity at its flagship Jebel Ali port fell more than 90% during the initial weeks of the war. The company also acquired 700 new trucks in July to increase freight capacity. These trucks now carry containers from Fujairah roughly 250 kilometers through the Hajar Mountains to Dubai and Abu Dhabi, reducing operational dependence on transits through the Strait of Hormuz.

Global liners have also begun adjust routes to connect with the new truck freight corridors. Maersk has added land legs linking Khor Fakkan and Fujairah to the rest of the UAE and MSC has launched a multimodal service that uses trucks to forward containers across Saudi Arabia towards the Jeddah and King Abdullah ports. In June, CMA CGM announced a $400 million joint venture with Oman’s Asyad Group for the construction of a new terminal at Sohar as part of a second land-bridge to the UAE.

An increase in truck traffic extending east from Saudi Arabia’s Route 95, running through the Shaybah oilfield to Oman’s Ramlet Khelah crossing, has cut transit time between the two countries by 16 hours. Truck freight has become the main channel for Saudi-Omani trade, with the value of goods crossing there nearly tripling to $830 million within one month of the Iran war.

Earlier this month, Oman’s Arkan Logistics and Saudi Arabia’s SPARK Logistics signed an agreement formalize the route as a “Secure Green Land Corridor,” though neither side has disclosed target volumes or a timeline for operationalization. Meanwhile, Saudi Arabian Mining Company expanded its truck fleet from 600 to 3,500 vehicles in the early stages of the war to ensure a reliable flow of fertilizer to Red Sea ports.

In Iraq, tanker trucks have emerged as a vital lifeline for the country’s oil industry. Reducing loadings as the Basra terminals, which normally account for more than 90% of Iraq’s oil flow, has depressed export revenue. To compensate for these disruptions, Iraqi authorities established a new corridor through Syria, routing an estimated 2.1 million tonnes of fuel oil overland to the port of Baniyas since April via two reopened border crossings, under a plan initially set at 500,000 tonnes a month. Baniyas now unloads roughly 900 tanker trucks daily. The overland route is costly, but has allowed Iraq to maintain oil exports to customers in Spain, Egypt, and the United States, among others. The new route has also boosted customs revenue for Syria, with direct receipts estimated to have reached $25 million since April.

Overcoming Limits

The rapid expansion in truck freight across the region is coming up against commercial, infrastructural, political, and geographic limits. Commercial operators describe a persistent shortage of trucks and drivers as the main constraint, one they expect higher freight rates to spur investment in larger fleets.

Underinvestment in truck-related infrastructure has also created capacity constraints. Customs depots, weigh stations, rest stops, and warehouses are struggling to handle the surge in truck traffic. In Iraq, a lack of truck-loading facilities at the country’s southern oil fields continues to cap how much crude can be transported overland.

The increased movement of Emirati, Saudi, Omani, Iraqi, Syrian, and Turkish truckers through the region represents a new form of cultural encounter and exchange, stitching together countries that have long been disintegrated.

Political difficulties have also emerged. Since July, trucks crossing from the UAE into Saudi Arabia at the Al Batha border post have faced extensive delays with drivers reportedly sleeping under their trailers while cargo, ranging from building materials to fresh flowers, sits in customs limbo. Traders blame tensions between the Gulf’s two largest economies. Historically, low levels of intra-regional trade meant that customs harmonization and the administration of border crossings were not a political priority for Middle Eastern countries, undermining coordination during the recent crisis.

Finally, geography will limit the extent to which truck freight can compensate for the traditional maritime routes through the Strait of Hormuz. Westward routes from Fujairah, Khor Fakkan, and Sohar through Oman, the UAE, Saudi Arabia, and beyond are confronted by the vast Rub al-Khali desert, also known as the “Empty Quarter.” Moreover, because Iran’s coastline sits so close to these ports, insurers and carriers continue to treat the new routes as exposed to Iranian attacks. During the war, Iran has hit structures or vessels at all three ports.

Transformative Potential

While the shift to overland trade may face inherent limits, it will nonetheless prove transformative for the Gulf and the wider Middle East. As parallel can be drawn to the rise of European trucking in the years following the Second World War.

Postwar Europe’s shift from rail freight to road freight helped physically connect national markets in a way fixed rail corridors alone had not, as trucks began crossing onto the Mediterranean corridor linking Spain to Hungary, moving along the Rhine-Alpine axis between Rotterdam and northern Italy, and over the Brenner Pass on the Scandinavian-Mediterranean corridor. The increased dependence on truck freight led to the establishment of the European Union’s TEN-T road network in 1996, just three years after the formal establishment of the union.

But aside from political or infrastructural connections, the shift towards trucking also helped create cultural ties across the European continent. The movement of tens of thousands of trucks also meant that tens of thousands of drivers of different European nationalities traveled through countries they would never otherwise have visited. While the parallel is inexact, the increased movement of Emirati, Saudi, Omani, Iraqi, Syrian, and Turkish truckers through the region represents a new form of cultural encounter and exchange, stitching together countries that have long been disintegrated.

The Strait of Hormuz is likely to stay central to global energy flows for years and trucking will never suffice to reduce the dependence of Middle Eastern economies on maritime trade. But trucking has emerged as a transformative new layer of the region’s transport infrastructure and with it has come new avenues for economic, political, and cultural integration.

Francesco Schiavi is an Associate Fellow at the Bourse & Bazaar Foundation. He is an international relations specialist focused on security, defense, and governance in the Levant and the Gulf.

Section: (integrated-futures-initiative) Photo: DP World

Dear Colleague,

Welcome to the second edition of the Bourse & Bazaar Brief.

This week, we are pleased to share an article on Syria sanctions relief authored by attorney and former OFAC Chief Counsel Rachel Alpert. Syria’s designation as a State Sponsor of Terror, the “last major legal barrier” preventing Syria’s reintegration into the global economy, has now been rescinded. Rachel explains the significance of the move.

We have also published a new analysis by the Bourse & Bazaar Foundation’s Executive Director of Research and Programs, Mehran Haghirian. The article unpacks the significance of the Makkah Agreement signed by Saudi Arabia, Turkiye, and Pakistan and suggests that “concentric arrangements” will come to underpin the new regional security architecture in West Asia.

We have set up a new account on X. Follow us at @BourseBazaarFdn.

Best regards,

Layla Saghafian, Engagement Coordinator

Internal Publications

New Concentric Arrangements Will Underpin Middle East Security

By Mehran Haghirian - 24 August

Explainer: U.S. Removes Last Major Legal Barrier to Syria’s Economic Reintegration

By Rachel Alpert - 21 August

Announcements

Inaugural Rihla Summit to Convene in Abu Dhabi

The inaugural Rihla Summit will take place on 29 September 2026 at the Anwar Gargash Diplomatic Academy in Abu Dhabi. The summit is part of the Bourse & Bazaar Foundation’s flagship project, the Rihla Initiative for Green Economic Growth.

The Summit will bring together 80 members of the Rihla Initiative’s Policy and Implementation Councils, alongside GCC policymakers, executives, and technical experts, to strengthen cooperation between the Gulf and the Global South in green economic development.

Welcoming Imad Ahmed and Chenjie Song

The Rihla Initiative for Green Economic Growth is welcoming two new team members. Imad Ahmed, a climate finance expert with extensive experience structuring renewable energy deals, has joined as a Senior Fellow. Chenjie Song, a PhD researcher at Johns Hopkins University with a focus on the GCC, has joined as an analyst focused on Gulf outward investment.

Media Engagements

In the past week, our CEO Esfandyar Batmanghelidj was quoted extensively on the Trump administration’s announcement of “Operation Economic Outcast,” a new push to isolate the Iranian economy. His analysis was featured in The New York Times, The Economist, AFP, NPR, The Telegraph, and Fortune. Esfandyar was also interviewed on BBC World Service and BBC Radio 4.

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By Mehran Haghirian

For years, policymakers in Washington and several Arab capitals discussed the possibility of creating an “Arab NATO.” The most developed proposal was the Middle East Strategic Alliance (MESA), promoted during the first Trump administration. It was intended to bring together the six Gulf Cooperation Council (GCC) states, Egypt, and Jordan in a security structure that would strengthen collective defense and, above all, contain Iran, at a time when security cooperation between several Arab states and Israel was expanding.

It never got very far. Egypt withdrew from the initiative in 2019, while the Qatar crisis and disagreements among the participating states made any meaningful collective-security arrangement increasingly difficult. What followed instead was a greater reliance on smaller “minilateral” arrangements between countries with more closely aligned interests, particularly Saudi Arabia, the United Arab Emirates (UAE), and Bahrain.

Nearly a decade later, amid a regional war, the idea of an Arab NATO has given way to a multiethnic NATO, bringing together Arabs, Turks, and Pakistanis through the Makkah Joint Defense Agreement signed on 7 August. Its central provision is very NATO-like. The pact stipulates that an armed attack against one of the three states will be regarded as an attack against all. The agreement is intended to strengthen collective deterrence and deepen defense cooperation and will have an institutional structure, including a ministerial committee and a permanent secretariat in Saudi Arabia.

Geography makes certain interpretations of the pact almost inevitable. Turkiye sits to Iran’s northwest, Pakistan to its east, and Saudi Arabia across the Persian Gulf to its southwest, and all three are Sunni-majority states. At a time when Iran remains at the center of a regional war, the emergence of an Arab-Turkish-Pakistani collective-defense arrangement can easily be presented as the anti-Iran alliance that MESA never managed to become. But that reading may be too narrow.

Unlike many earlier attempts at regional collective security, the exclusion of a specific regional player has not been built into the agreement as its organizing principle, and this distinction matters. The three governments themselves have refrained from defining the agreement as either a Sunni bloc or an alliance directed against Iran. Turkish Foreign Minister Hakan Fidan has explicitly said that it is not aimed at Iran or any other country. More importantly, he has said that the intention is not for the arrangement to remain limited to its three founding members. Recent reports suggest Iran was encouraged to endorse the Makkah Agreement by its founding members, but it has not yet formally done so.

Broadening Frameworks

The most immediate pathway for expansion is already visible through the R4—Saudi Arabia, Turkiye, Pakistan, and Egypt. The four countries have increasingly coordinated their regional diplomacy during the current conflict, not as a military grouping but as a diplomatic one. All four have direct security interests in the conflict, but they have also emerged as intermediaries capable of maintaining channels with different sides.

Pakistan has become a critical channel between Iran and the United States and has hosted and facilitated contacts between the two sides, including the negotiations leading to the Islamabad MoU. Turkiye has maintained intensive diplomatic and backchannel contacts with Iran, the United States, and the GCC states throughout the conflict and has reportedly stopped a ground invasion of Iran. Egypt had already assumed a more active role on the Iranian nuclear file before the war, particularly since the September 2025 Cairo agreement between Iran and the International Atomic Energy Agency.

On 5 August, just two days before the Makkah Agreement was signed, the four R4 foreign ministers held their fifth meeting since March. They called for continued diplomatic efforts and de-escalation, emphasized freedom of navigation through the Strait of Hormuz and Bab al-Mandab, and discussed strengthening and institutionalizing their coordination.

The overlap between these two arrangements is significant. Three members of the R4 are now also members of a collective-defense agreement, while the fourth, Egypt, has already been publicly identified as a possible future participant. While there is a heated debate as to why Egypt did not sign on to this pact in August, the same geopolitical tensions that prevented it create a political and diplomatic layer around the new defense arrangement that could facilitate its expansion.

The fact that the other GCC states are not among the initial signatories should also not be interpreted as their exclusion from this process. Oman and Qatar have been directly involved in mediation throughout the conflict and continue to play important roles in negotiations involving Iran and the United States. Bahrain, meanwhile, has publicly welcomed the Makkah Agreement and described it as an addition to the wider regional defense architecture that complements existing GCC collective-defense mechanisms.

The UAE is the more consequential case. It is simply too economically, militarily, and strategically important to remain outside any serious regional security architecture. Saudi Arabia and the UAE have developed increasingly visible differences over Yemen, Sudan, the Horn of Africa, and regional economic competition. But despite the tensions, they also remain deeply interconnected across security, economic, and political affairs. The UAE’s absence from the Makkah Agreement should therefore not automatically be interpreted as another Saudi-Emirati rupture. But it does raise an important question about where the agreement goes next.

If Saudi Arabia develops one security network with Turkiye and Pakistan while the UAE builds another around its own partnerships, particularly with Israel and India, and Iran remains tied to its own network of regional partners and proxies, the region could simply end up with another collection of competing blocs. That would reproduce the same fragmentation that has undermined previous attempts to establish a regional security framework. On the other hand, if the Makkah Agreement is designed as an expandable platform, the partnerships of individual countries could eventually become bridges into a broader architecture.

A wider architecture would have to work on a different basis as it cannot require countries to abandon their existing partnerships before joining a regional framework. Turkiye will remain a NATO member. Saudi Arabia and the other GCC states will continue to maintain extensive security relationships with the United States and European countries. The UAE, as well as Bahrain, will continue to develop its relationships with India and Israel. Pakistan will maintain its own strategic partnerships. The purpose of a regional architecture should not be to replace these relationships, but to establish common rules between regional states despite them.

The inclusion of Turkiye, Pakistan, and potentially Egypt also expands the scope of the discussion beyond the Gulf. For much of the past decade, proposals for regional dialogue have focused primarily on a GCC+2 format comprising the six GCC states, Iran, and Iraq. That remains an important foundation, particularly for matters directly affecting the Persian Gulf. But the current conflict has demonstrated the limitations of treating Gulf security in isolation from developments in the broader region.

The war has also accelerated a longer-term reassessment of the US role in Gulf security. Washington remains the principal external security partner for the GCC states, but it is increasingly viewed as an indispensable partner rather than a sufficient security guarantor, particularly after a war in which the Gulf states were exposed to direct Iranian attacks and even extensive US military deployments and defense systems could not fully protect their territories and critical infrastructure. This has strengthened the case for diversifying security partnerships and developing regional mechanisms that do not depend on Washington alone.

Saudi Arabia, as the convener of the agreement, and its post-war strategy of expanding its security and diplomatic relationships with other major regional states could therefore help widen the scope of dialogue. Egypt, Turkiye, and Pakistan each bring relationships, interests, and channels that differ considerably from those of the GCC states and their participation could also help break some of the deadlocks that have repeatedly constrained direct Arab-Iranian security dialogue.

Keeping the Door Open

Any regional system built permanently around containing Iran will produce Iranian counter-alliances and counter-deterrence rather than regional security. The experience of recent years, culminating in the current conflict, have made that clear. Iran cannot be removed from the geography of the region and will remain one of the largest states bordering the Persian Gulf, a major military power, and an important economic and political actor regardless of the nature of its government or the state of its relations with its neighbors.

At the same time, it would be unrealistic to imagine Iran simply joining the Makkah Agreement as it currently stands. Tehran is not going to enter a collective-defense structure under which an attack against Saudi Arabia, Turkiye, or Pakistan would automatically be treated as an attack against Iran. Cairo did not make this commitment within the newly established grouping either. The fact is that they do not need to.

A regional security architecture does not have to consist of a single military alliance containing every country. It can develop through concentric arrangements and the Makkah Agreement could remain an inner collective-defense arrangement between states prepared to make stronger military commitments to one another. Around it, a wider non-aggression and regional-security framework could gradually emerge involving Egypt, the other five GCC states, Iran, Iraq, and eventually other regional players, including Jordan, Lebanon, and Syria.

Europe provides an imperfect but useful precedent for such concentric arrangements. NATO has remained the collective-defense core for its members, while wider institutions and mechanisms have allowed countries outside the alliance to participate in broader systems of security cooperation, confidence-building, and non-aggression. The Helsinki process was built precisely on the understanding that competing alliances did not first have to disappear for adversaries to agree on rules governing their conduct toward one another. Tehran, Cairo, or Abu Dhabi would not have to join the Makkah defense pact to become part of the regional security architecture, just as states historically did not need to join NATO to participate in the broader European security order.

A regional security architecture does not have to consist of a single military alliance containing every country. It can develop through concentric arrangements.

The commitment would be different from the Makkah Agreement and an attack on one would not be an attack on all. Instead, the participating countries would commit not to attack one another, not to allow their territory to be used to launch attacks against another participating state, not to target civilian infrastructure, and not to disrupt the shared economic lifelines on which the region depends. Over time, such a framework could also address more difficult issues such as missile and drone deployments and other military activities that are particularly vulnerable to miscalculation.

If the objective is a genuine regional security architecture, the process cannot stop at either the Iranian or Israeli border. A system permanently designed to exclude Iran will fail, but so will one permanently designed to counter Israel. The eventual endpoint has to be an arrangement in which all regional states are bound by basic rules of non-aggression and regional conduct.

This is obviously not an immediate prospect. It could take a decade, two decades, or longer, and different countries would enter different parts of the architecture at different stages. But if the agreement remains an exclusive military alliance, it will become one more bloc in a region already full of them. On the other hand, the Makkah Agreement could become a whole new story by placing a military arrangement at the center without formally defining a regional state as the enemy, alongside a broader diplomatic mechanism that is already engaging competing sides.

Mehran Haghirian is the Executive Director of Research and Programs at the Bourse & Bazaar Foundation.

Section: (integrated-futures-initiative) Photo: Saudi Arabia Ministry of Foreign Affairs

Dear Colleague,

Welcome to the new weekly newsletter of the Bourse & Bazaar Foundation, the Bourse & Bazaar Brief.

As we aim to explain events and shape policy in West and Central Asia, we are publishing more analysis than ever before. Rather than inundate your inbox, we will now be sending you a single weekly newsletter email, enabling you to easily review our latest publications and media engagements.

Our latest analyses include commentary by economists Nader Habibi and Djavad Salehi-Isfahani, energy systems expert Aria Kia, and political scientist Anna Jordanová.

We are delighted to be sharing this newsletter with over 5,000 subscribers. Thank you for your readership!

Best regards,

Layla Saghafian, Engagement Coordinator

Internal Publications

Iran’s Leaders Eschew Wartime Rationing as Economic Pressure Mounts

By Nader Habibi - 20 August

Attacks Threaten Vital Corridor Spanning Caspian and Black Seas

By Anna Jordanová - 13 August

Iran’s First Geothermal Plant Brings Hope to a Battered Energy Sector

By Aria Kia - 11 August

Iran and the UAE are Working Together to Outlast Trump

By Esfandyar Batmanghelidj - 7 August

Gulf Export Credit Agencies Can Thrive in the Horn of Africa

By Ezana Tedla - 5 August

External Publications

Our board member, economist Djavad Salehi-Isfahani, published an op-ed with Project Syndicate arguing that in order to create sustainable peace, any diplomatic agreement must provide sanctions relief that creates jobs and gives ordinary Iranians access to international markets.

Writing in the The American Conservative, CEO Esfandyar Batmanghelidj, describes the mounting pessimism among Iran’s leaders that a deal with the Trump administration is possible.

Media Engagements

In the last two weeks, Esfandyar Batmanghelidj, was quoted in The New York Times, Al Jazeera, Gulf News, The National, and NZZ covering topics such as Iran’s decline in households consumption, the Strait of Hormuz as a regional “commitment mechanism,” and prospects for a return to the U.S.-Iran negotiations.

Our Executive Director for Research and Programs, Mehran Haghirian, spoke to NBC News about Tehran’s conditions for reopening the Strait of Hormuz and Iran’s approach to negotiations.

Senior Fellow Khalifa Al Suwaidi joined Becky Anderson on CNN International’s “Connect the World” to discuss what the GCC hopes to achieve with the bilateral Oman-Iran talks on the future management of the Strait of Hormuz.

Thank you for engaging with our work. If you would like to share content from the Bourse & Bazaar Foundation with a friend or colleague, please click the button below:

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Tag: #noweb

By Nader Habibi

Iranian government officials have openly admitted that U.S. and Israeli war has caused severe damage to the Iranian economy. In addition to the destruction of many industrial and manufacturing units by airstrikes, an intrusive naval blockade has also caused major disruptions to Iranian supply chains. While Iranian economy was already suffering under maximum pressure economic and financial sanctions even before the 2026 war, the unprecedented direct conflict has resulted in a sharp increase in inflation, poverty, and food insecurity for large segments of the population.

There is evidence that addressing these hardships and preventing shortages of food and other essential commodities is a top priority for the government. Yet, instead of introducing a comprehensive and effective rationing system—a step commonly taken in countries facing major wars, including in Iran itself during the long Iran-Iraq war—the government has focused on managing the supply of these essentials without significantly interfering in market prices. The current policies include a digital voucher cash payment system (called “Kalabarg”), a monthly per-capita income support transfer, and a collection of price subsidies for fuel, electricity, and some food items. While these measures have offered some economic relief, they fall short of providing adequate minimum economic security under the current war conditions.

The Iranian government’s hesitation to introduce policies consistent with full wartime economic mobilization, incuding rationing and price controls, is puzzling. Involvement in a major war typically forces governments to make difficult choices about the allocation of scarce economic resources, leveraging mechanisms including price controls and the rationing of basic household necessities such as food and fuel. During World War II, for example, the United States, the United Kingdom, Germany, Japan and many other countries imposed strict rationing to manage their respective war economies.

The scale of economic warfare and military strikes that Iran has faced in 2026, is easily comparable to what it faced during the 1980-88 Iran-Iraq war and perhaps, even more severe. In several stages of the ongoing 2026 war the US and Israel expanded their targets far beyond the military structures to include basic industries such as steel, and petrochemicals; and critical infrastructure such as roads, railways, bridges and commercial ports. The impact of these operations on Iran’s economy has been visible in the severe loss of economic activity and sharp price increases for many products and services. Yet Iran has not switched from its ongoing system of price subsidies and digital voucher payments toward a more comprehensive wartime system of administrative allocation and rationing.

Programs Before the War

When the war began in January 2026, Iran had already introduced the Kalabarg digital voucher mechanism, depositing a fixed amount of credit per capita to the accounts of qualified households. The households then used this digital credit for purchase of specific necessities, which included eleven essential products such as rice, red meat, poultry, sugar and cooking oil. In addition to this monthly voucher the government also offers a monthly unrestricted cash payment (in the form of direct bank deposits) which has a much smaller nominal value than the voucher. As of August 2026, the monthly value of Kalabarg voucher was IRR 10,000,000 per month and the highest level of the monthly unrestricted cash payment was IRR 4,000,000.

When we compare these payments to the cost of goods and services, they are very small in real purchasing power. Summed together the exchange value of these direct per capita payments (IRR 14,000,000) is equivalent to $8 per month at the free market exchange rate. Since prices of some food items in Iran are lower than those in advanced countries, the purchasing power of this payment could be considered equivalent to $20. But even this monthly amount is negligible compared to the cost of living and only covers a small portion of the cost of basic food items. The main reason for this disparity is that there are no price control mechanisms and while the annual inflation rate has increased to near 100% in 2026, the nominal value of income support and the Kalabarg voucher have not been adjusted to keep up with inflation.

Iran also has a system of price subsidies for several energy products such as fuel, natural gas, and electricity, as well as traditional basic breads, which were introduced even before the 1979 Islamic Revolution. While these subsidies make the price of energy more affordable for low-income households, they also disproportionately benefit the middle- and upper-class households that own cars and large houses. Such transfers are inefficient and put a heavy fiscal burden on government annual budget.

While these inefficient subsidies and the small cash and voucher payments can be effective in more peaceful and “normal” conditions, they can hardly be considered sufficient during periods of intense conflict such as what Iran is currently experiencing. Their insufficiency is demonstrated by the multiple reports of mass poverty and unaffordability of many necessities for large segments of the population in recent months. What is even more surprising is that policymakers in the Islamic Republic have extensive experience with rationing mechanisms. Iran introduced a comprehensive coupon-based rationing system and price controls for several basic commodities in 1981 (a few months after start of the Iran-Iraq War). This system continued well into 2000s before it was formally replaced by a system of targeted income-subsidies in December 2010. In light of this familiarity and extensive administrative experience, the reluctance of the government to introduce a similar rationing system during the current conflict is puzzling.

Explaining the Puzzle

The lack of government intervention has not gone unnoticed, and there has been a growing debate around subsidy reforms and supply management in recent months. In response to open calls in Iran’s financial press for a return to a modern, digital version of rationing, agriculture minister Gholamreza Nouri announced on June 20^th that the government had no plan to introduce a comprehensive rationing system. He argued that the current system of free market adjustments and the Kalabarg digital coupon for food products is sufficient and insisted that the country’s food supply is well managed. While rejecting the proposals for rationing however, the government has embraced other mechanisms to make sure an adequate supply of basic commodities remains available in stores. Still, while there has been no visible shortage of food items in Iran, prices are so high that most families cannot afford the minimum recommended consumption of protein, dairy, and vegetables.

There are several explanations for the reluctance of Iranian government to initiate full wartime economic mobilization and quantity-based rationing. First, the sudden loss of a large number of top leaders including the supreme leader Ali Khamenei, who was killed by a U.S.-Israeli airstrike in February, has reduced the governance capability of the government to day-to-day management of the war and economic crisis. It is possible that in this emergency mood, the government officials have little time left to initiate a significant institutional shift for introducing a comprehensive rationing system.

Second, this inability to focus on large-scale economic plans can also be partly a result of the factional disagreements in the top leadership of the ruling elite in recent months. One faction is strongly opposed to negotiations with the U.S. because of lack of trust in Trump administration, and confidence in Iran’s ability to withstand the pressure. Another faction, which includes President Masoud Pezeshkian and the parliament speaker Mohamad Bagher Ghalibaf, is more concerned about the economic hardship on the civilian population. These factional competitions and lack of coordination among various centers of power, could have also made it more difficult for the government to undertake a large-scale transition to a rationing system.

Third, the gray nature of the current Iran war, which involves periodic oscillations between negotiations and military strikes can also be a contributing factor. The repeated cycles of negotiation-military strike-negotiation have created disagreements about how long the conflict will last, and hence the need for full scale economic mobilization. Some Iranian leaders believe that Iran’s ability to disrupt shipping in the Strait of Hormuz has given Iran a leverage that will force the U.S. to accept a negotiated settlement, which will include an end to the naval blockade and a reduction of sanctions. Some Iranian leaders evidently believe that the war will be won soon and there is no need for a comprehensive rationing system, which would undermine the partial deregulation and price liberalization reforms of the past two decades.

Finally, the shortage of resources and supplies for offering adequate rations of basic commodities can also be a factor in the government’s reluctance to adopt a comprehensive rationing system. The current combination of monthly digital Kalabarg vouchers and digital cash payments amount to monetary payments and the government can reduce the real fiscal burden of these payments by borrowing from the central bank, which in turn can cover the fiscal deficit by printing money. This approach also avoids reductions in the defense budget and the selective direct and indirect fiscal support for loyal supporters of the regime. This approach reduces the need to devote substantial real resources to the income support program—real resources which might require a reduction in the defense budget or the fiscal resources that are allocated to the loyal supporters of the regime

This continued dependence on cash transfers enables the government to fund the monthly payments but it has resulted in record high inflation rates and a decline in real purchasing power of these income supports. Hence there is a steady decline in the effective economic security that the program is expected to provide for the households. Switching to an effective rationing system requires adequate procurement and distribution of food items and other necessities—it is easier for Iranian authorities to monetize budget deficits than it is for the operationalization of a new rationing system under the conditions of war, sanctions, and the naval blockade.

The Islamic Republic faced considerable discontent and protests in late 2025 and January 2026. It responded to these mass protests with overwhelming force in January. According to a report by OHCHR approximately 16,000 to 20,000 people were killed by regime security forces during the protests. This massive crackdown ended the mobilization—the state is now more confident that it can use violence to handle any new mass protests that might be spurred by economic hardship.

Furthermore, to demonstrate its resolve against domestic opponents the regime has brought its supported on the streets in many corners of major cities for nightly pro-government gatherings. Consequently, some Iranian policymakers believe that the political and security cost of declining economic conditions are manageable. This calculation may also have played a role in lack of full economic mobilization (price control and rationing) despite deteriorating economic conditions for large segments of the population. This calculation, however, might also be shortsighted. If millions of households suffer from inadequate access to food, medicine, and transportation for a long period of time, their predicament can ultimately lead to political instability and even undermine the regime’s military strength.

Economic rationing and administrative allocation of resources cause many inefficiencies and challenges in both planning and implementation, but in times of severe disruption to normal economic activity, such as what Iran is currently experiencing, such measures can be effective tools for providing minimum economic and food security for all citizens. So far, the Iranian government’s approach has proven inadequate to protect the welfare of ordinary Iranians, who will remain under acute pressure so long as the current war continues.

Nader Habibi is the Henry J. Leir Professor of Practice in the Economics of the Middle East at Brandeis University.

Section: (vision-iran-initiative) Photo: Rahele Hesari

By Anna Jordanová

On July 30, two tankers transferring oil from Russia’s Novorossiysk terminal through the Black Sea were hit by Ukrainian drones, adding to five earlier incidents that month. The vessels sustained limited damage, but the attacks deepened concerns conflict was spilling over into vital trade corridors.

Decades of infrastructure investment have stitched the Caspian Sea and Black Sea into a single transportation and energy corridor, linking East and West. Transit through the so-called “Middle Corridor” has emerged as an important alternative route for the delivery of both Central Asian energy and Chinese goods to Europe. This corridor, which avoids the sanctions pitfalls of logistics networks that pass through Russia and the Middle East, is also an economic and diplomatic lifeline for the states of Central Asia and the South Caucasus.

The “Middle Corridor,” officially known as the Trans-Caspian International Trade Route (TITR), has expanded significantly in recent years. The corridor is especially important for Uzbekistan and Kazakhstan, the two largest and fastest growing Central Asian economies.

Today, the corridor facilitates not just goods trade, but also green energy production, rare earths mining projects, financial services, and many other instances of trans-regional cooperation. Growth in the utilization of the corridor has been driven by new investment and policy reforms. Efforts are under way to improve legal harmonization and digitalization to speed up cross-border transit, while port and transport capacities are also being expanded.

Caspian littoral states are also expanding their merchant fleets, increasing capacity in the corridor while reducing dependence on Russian vessels. Turkmenistan has launched one new vessel this year and a second is under construction. Kazakhstan has announced plans to add six more ships. Azerbaijan, already boasting the largest Caspian fleet, is also promising further expansion. On the back of such investments, cargo volumes quintupled between 2018 and 2025, reaching just over 4 million tons per year.

Encroaching Conflict

Despite the strong commercial incentives for further investment, the development of the corridor linking the Caspian Sea and Black Sea is under threat due to encroaching conflict. According to data compiled by ACLED, more than 100 UAV attacks or sabotage incidents have been recorded in the Russian coastal areas of the Caspian Sea since 2025.

Kazakhstan, although far away from the Russian-Ukrainian frontlines, has reported more than a dozen cases of UAVs drifting into its territory since last year. Uncertainty also arises from the south, where the Iran war continues. A recent Ukrainian missile strike on an Iranian vessel traveling north in the Caspian Sea, allegedly carrying weapons from Iran to Russia, highlighted the risk that the two wars could merge.

Proximity to conflict zones is a growing challenge for countries across the Caspian region, especially given numerous chokepoints in key energy and transportation networks. The attacks on the Black Sea tankers were of particular concern for Kazakhstan, the largest and wealthiest Central Asian state. Around 80% of the country’s oil exports are routed through the Caspian Pipeline Consortium (CPC) pipeline, which originates at the Tengiz oil field and terminates at the Novorossiysk terminal. The attacks led to a pause in oil loadings at Novorossiysk. Loadings resumed in early August, but overall volumes fell 20% in July. A more protracted pause in loadings could impact production at the Tengiz fields.

Kazakhstan’s longstanding multivector foreign policy was crafted to help the country avoid getting embroiled in conflicts. By threatening no other states, it hoped not to be threatened in return. But this approach has proven insufficient to shield the country from collateral damage from the Russian-Ukrainian conflict.

Given the risks posed by Ukraine’s increasing targeting of Russian energy assets, it is understandable that Kazakh President Kassym-Jomart Tokayev recently urged Vladimir Putin to freeze military operations in Ukraine as soon as possible. On the other side of the battlelines, American Vice President JD Vance asked Ukrainian President Volodymyr Zelenskyy to halt the attacks on tankers loading at Novorossiysk—a reflection of the fact that American oil majors Chevron and ExxonMobile are the majority owners of the Tengiz field.

Much like how Gulf oil producers are dependent on the Strait of Hormuz, Kazakhstan is dependent on the CPC. Other routes, such as the Kazakhstan-China pipeline or the oil terminal in Batumi, Georgia, are either too distant from key customers or lack the necessary capacity. Just as its energy flows pass through Russian territory, so too does most of Kazakhstan’s goods trade. While the Middle Corridor has struggled to process more than 5 million tons of cargo, the so-called Northern Corridor, which utilized Russia’s railway network, processes nearly 20 times that cargo volume each year.

Uncertain Horizon

Despite diplomatic momentum and substantial infrastructure investment, the long-term horizon for the Middle Corridor remains unclear. Europe and China have strong economic motives to support the corridor, while Central Asian states continue to seek connectivity solutions to reduce dependence on Russia, especially as southern routes through Iran and Afghanistan remain unreliable. For now, Russia has tolerated the expansion of the Middle Corridor—the corridor’s good trade remains modest and energy exports continue to flow through Russian territory.

But the geopolitical pressures are mounting. Ukraine seems determined to continue defending itself at all costs; and even if Kyiv does not intend to target non‑Russian infrastructure around the Caspian and Black Seas, repeated incidents are changing the risk landscape for commercial operators. Trade through the Middle Corridor may become more expensive, more volatile, and more difficult to manage. There are also other challenges to consider, such as climate change. The Caspian Sea is shrinking and falling water levels are threatening port operations.

For Central Asia and the South Caucasus, the Caspian and Black Seas are an arena for trade, diplomatic relevance, and broader engagement with the world. Ultimately, while major powers shape the strategic environment, it is the regional states that must keep their shared corridor operating day-to-day and while safeguarding long-term viability. Their ability to do so will be a major test of diplomatic capacity and multivector foreign policies. The states of Central Asia and the South Caucasus will strive to remain economically connected without being drawn into the conflicts surrounding them.

Anna Jordanová is a former visiting fellow at Bourse & Bazaar Foundation. Her research examines Central Asian regional dynamics, regime security strategies, and relations with the West.

Section: (integrated-futures-initiative) Photo: Valentina Perfilyeva

By Arya Kia

On 22 July, Iran connected its first geothermal power plant to the national grid. Located near Meshginshahr on the slopes of Mount Sabalan in Ardabil Province, the facility has an installed capacity of 5.4 MW. Against an electricity system generating hundreds of terawatt-hours annually and facing shortages measured in gigawatts, its immediate contribution to the grid will be almost imperceptible.

Yet measuring the project only by its initial output misses its significance. The Sabalan plant represents Iran’s first attempt to produce continuous renewable electricity from underground heat. It also tests whether capabilities developed in Iran’s oil, gas, and power industries—including deep drilling, reservoir engineering, steam systems and turbine commissioning—can be transferred to an energy technology that reduces fossil-fuel consumption rather than expanding it.

The project is therefore a technical achievement. It shows that Iran can complete a complex geothermal project under difficult geographic and geopolitical conditions. But it also took decades to bring the modest Meshginshahr plant online—an indication that contractual, financial, institutional, and technological barriers could prevent geothermal power from developing in Iran beyond this first symbolic project.

Geothermal Potential

The Sabalan Geothermal Power Plant was commissioned for the state-owned Thermal Power Plants Holding Company, which functions under Iran’s Ministry of Energy. MAPNA Group’s Power Plant Services Company supervised the plant’s commissioning and grid synchronization. Iranian oil-service companies have also contributed to repairing and cleaning geothermal wells.

The plant sits at an elevation of approximately 2,700 meters, around 25 kilometers south of Meshginshahr. Several wells have been drilled to depths of approximately 3,000 meters to access the high-temperature reservoir beneath Mount Sabalan. Iranian reporting places reservoir-fluid temperatures at approximately 240°C to 270°C, although temperatures vary by well and measurement location.

The facility reportedly uses a single-flash generation system. In this configuration, high-pressure geothermal fluid is brought to the surface and depressurized, causing part of the fluid to turn into steam. The steam drives a turbine and generator, while the separated liquid must be managed and, ideally, reinjected to help maintain reservoir pressure and limit environmental impacts.

The process avoids burning fuel at the power plant, but it is not technically simple. Geothermal fluids can contain dissolved minerals, salts and gases that produce scaling and corrosion in wells, pipes and plant equipment. The Sabalan fluid’s chemistry reportedly creates risks of mineral deposition and chloride-related corrosion, requiring resistant materials, chemical treatment and continuous monitoring. Sustainable expansion will also depend on balancing production and reinjection so that reservoir pressure and temperature do not decline prematurely.

Iran’s energy minister described the project as requiring EUR 10 million in investment. However, a late-2025 project update reported that more than 650 billion tomans (approximately EUR 3 million at the contemporary free-market exchange rate) had already been spent on construction, drilling, well cleaning and rehabilitation. These figures may cover different project phases, use different exchange rates or apply different accounting boundaries. The safest conclusion is that EUR 10 million is the government’s announced project figure, but the plant’s full historical cost remains unclear.

Delayed Delivery

Iran began investigating geothermal resources in the 1970s. Mount Sabalan was identified as a priority area during work conducted in the 1990s, and detailed studies were later undertaken with international technical participation. Plans for a pilot power plant were publicly discussed more than a decade ago, followed by repeated projections that it would enter operation in 2013, 2015, 2021 and 2022.

Part of the delay is explained by the project’s physical location. Heavy snowfall, blizzards, icy roads, and severe winter temperatures restrict access to the site and shorten the annual construction season. Transporting heavy equipment to a remote site at high altitude also complicated construction and operations. MAPNA has characterized the plant as one of Iran’s most geographically and climatically challenging power projects.

But difficult geography does not explain the entire delay. In 2019, a parliamentary representative from Meshginshahr identified weak contractor performance, unsuitable contract terms, and the contractor’s limited financial capacity as major causes. An executive of the Thermal Power Plants Holding Company acknowledged shortcomings by the Ministry of Energy, while the contractor attributed delays partly to disagreements over the interpretation of the contract and unresolved financing.

The project also encountered a common problem in geothermal development: expenditure must occur before the quality and commercial productivity of the resource are fully known. Solar developers can assess irradiation with relatively inexpensive measurements and add capacity module by module. Geothermal developers must finance geological surveys and expensive exploratory wells before knowing whether the reservoir will provide sufficient temperature, pressure and fluid flow.

Sanctions amplified these risks, especially considering that MAPNA is designated under U.S. sanctions authorities. The designation restricted access to foreign finance, international contractors, specialized equipment, banking systems, software and high-performance materials. Currency depreciation made imported components more expensive and created uncertainty for contracts extending over several years. A recent peer-reviewed assessment of Iran’s energy transition concludes that sanctions have constrained renewable development by restricting capital, technology transfers, and participation in international climate-finance mechanisms.

However, attributing every delay to sanctions would be misleading. Iran’s heavily subsidized fossil-fuel prices, inconsistent renewable policy, institutional fragmentation, payment risks, and uncertain conditions for private investors have also weakened the economic case for investment in green power generation, limiting the degree to with authorities have prioritized projects like the Meshginshahr plant.

Transformative Potential

Iran possesses some of the world’s largest natural-gas reserves, but underground abundance has not guaranteed reliable electricity supply. According to the U.S. Energy Information Administration, natural gas accounted for approximately 85% of Iranian electricity generation in 2022, while oil supplied another 8%. Fossil fuels therefore generated approximately 93% of the country’s electricity.

This dependence creates several vulnerabilities. Gas demand rises sharply during winter as households require heating, forcing competition between residential consumption, industry and power generation. During supply shortages, some power plants switch to diesel or fuel oil, increasing costs and air pollution. In summer, high electricity demand, inefficient equipment, aging infrastructure and insufficient investment contribute to power shortages and forced restrictions on industry.

Geothermal power offers something that solar and wind cannot provide alone: continuous, weather-independent renewable generation. It can operate overnight, during cloudy weather and when winds are weak. It does not inherently require batteries or fossil-fuel backup to maintain output through daily weather cycles.

Geothermal is not the only type of firm renewable energy—hydropower, biomass, and some forms of stored renewable energy can also provide controllable output. However, Iran’s hydropower fleet is increasingly exposed to drought and declining water availability, while biomass resources remain limited. This makes geothermal particularly relevant as a complement to solar and wind in Iran.

At an illustrative 90% capacity factor, a 5.4 MW plant could generate approximately 43 gigawatt-hours per year. That is only around 0.012% of Iran’s 2022 electricity generation. Depending on the efficiency of the gas-fired plant displaced, that output might save roughly 9 million to 11 million cubic metres of natural gas annually. These estimates show both sides of the project: it is insignificant at the national scale today, but each dependable geothermal megawatt can replace more fossil generation annually than a megawatt of variable renewable capacity.

Comparative Advantage

Iran has genuine advantages in geothermal development. Decades of oil and gas production have created domestic experience in deep drilling, well completion, geophysical analysis, reservoir modeling, high-pressure fluid handling, and the operation of steam turbines. Companies such as MAPNA have demonstrated substantial capabilities in power-plant engineering and turbine services. Existing drilling and petroleum-service companies can undertake at least some of the work that would otherwise require foreign contractors.

These capabilities may give Iran an advantage over countries that possess geothermal resources but lack a mature subsurface industry. Developing geothermal projects could also help redirect oil-sector expertise towards lower-carbon energy without requiring an entirely new technical workforce.

The transfer is not automatic, however. A geothermal reservoir is not an oil or gas field. Its commercial value depends on the sustainable circulation of heat and fluid rather than the extraction of a finite hydrocarbon stock. Developers must understand thermal recharge, fracture systems, mineral chemistry, reinjection behavior, and pressure decline. Geothermal wells also expose equipment to high temperatures, corrosive fluids, and scaling conditions that differ from many petroleum applications.

Some specialized turbines, control systems, downhole instruments, corrosion-resistant alloys, and chemical-treatment technologies may remain difficult or expensive to obtain under sanctions. Iran may be able to manufacture or adapt a growing share of this equipment domestically, but localization claims should be evaluated through operating performance over several years.

Geothermal is also generally more difficult and slower to initiate than solar power. Developing a geothermal field requires resource exploration, expensive drilling and confirmation that a reservoir can sustain commercial production before much of the investment can begin earning a return; conventional projects can therefore require development periods of several years. Solar PV, by contrast, is modular and can be deployed at scales ranging from individual rooftops to large utility projects. This helps explain why Iran’s renewable expansion is currently dominated by photovoltaics.

Official data reported in May 2026 indicate that operational renewable capacity had exceeded 3,165 MW, with solar accounting for 60% and wind for 29%. Iran’s Seventh Development Plan originally targeted 12 GW of renewable capacity by 2028, while SATBA’s longer-term vision calls for 30 GW by 2031; the current government has since promoted an even more ambitious 30 GW expansion program.

Untapped Potential

Iran’s geology includes volcanic zones, extensive fault systems, hot springs and tectonically active regions. A peer-reviewed review identified at least 18 promising geothermal zones, including Sabalan in the northwest, Mahallat in central Iran, and the Makran region in the southeast. Approximately 9% of the territory examined in earlier resource assessments was classified as having geothermal potential.

But resource potential must be distinguished from commercially proven capacity. Officials say the Sabalan reservoir could ultimately support 250 MW and that wells already drilled may support approximately 30 MW. Academic studies have presented several different estimates. Earlier development plans discussed around 50 MW, while a detailed numerical reservoir model estimated approximately 31 MW as a best production case under its assumptions and suggested that as much as 114 MW might be sustained over 70 years under a larger development scenario.

These estimates do not necessarily contradict one another because they measure different concepts. The 250 MW figure may describe the wider heat resource. The 30 MW figure concerns the productive capacity associated with existing wells. The modelling studies estimate sustainable electricity output under assumptions about well placement, fluid flow, pressure decline and reinjection. The next credible milestone is whether the first unit can maintain reliable output and whether additional wells can support expansion to approximately 25–30 MW without unacceptable reservoir decline or maintenance costs.

There may also be a stronger economic case for using geothermal heat directly. After electricity generation, remaining heat can potentially serve district-heating networks, greenhouses, aquaculture, food drying, industrial processes, and spas and tourism facilities. Research has previously proposed cascading uses around Meshginshahr, where heat would be applied sequentially at progressively lower temperatures.

Such applications could create visible local benefits: lower heating costs, year-round agricultural production, employment and expanded tourism. They could also improve total project economics by extracting more useful energy from each well. The regional-development dimension may ultimately matter more to local communities than the small amount of electricity sold to the national grid.

Wartime Significance

The timing of the Meshginshahr plant’s grid connection gives the project political significance. In recent years, Iran has faced recurring electricity shortages, industrial power restrictions, and mounting pressure on its energy system. The ongoing U.S. and Israeli war on Iran has also drawn greater attention to the vulnerability of power plants, fuel infrastructure, transmission networks, and other concentrated energy assets.

In this environment, the Meshginshahr plant exemplifies technological self-reliance. Iran has completed a first-of-a-kind renewable project despite sanctions, difficult terrain, financing constraints, and repeated delays. More importantly, the plant illustrates that energy security is not simply a matter of producing more natural gas. A more resilient electricity system requires greater diversity in fuels, technologies, locations, and scales of generation.

At 5.4 MW, the Meshginshahr plant is far too small to materially improve national energy security or alter Iran’s electricity balance. The project has yet to demonstrate that geothermal power can attract sustained investment, operate reliably over the long term, expand economically or overcome the institutional and financial weaknesses that contributed to its prolonged development. But the plant’s significance could become clearer over the next several years.

If it achieves benchmarks in capacity factor, maintenance requirements, reservoir performance, gas savings and local economic benefits, the new plant will prove that firm renewable power can become part of Iran’s energy portfolio. For now, it is an isolated engineering achievement. But in an isolated country like Iran, such small achievements offer great hope.

Arya Kia is an energy systems researcher focusing on renewable energy, energy and water systems, energy policy, and system dynamics. He is a doctoral candidate in Energy Systems Engineering at Sharif University of Technology and is based in Vancouver, Canada.

Section: (vision-iran-initiative) Photo: MAPNA

By Esfandyar Batmanghelidj

Last week, the Financial Times published a major report that examined a new “truce” between the UAE and Iran, one that has spared Emirati cities and critical infrastructure from direct attacks even as Iran has sustained strikes on other Gulf states. According to the report, the deescalation began after direct contacts between senior Iranian and Emirati officials in mid-June. UAE officials pursued dialogue with Iran as part of a “suite of strategies to manage relations” in the face of ongoing instability in the region and the failure of the Trump administration to shield Gulf countries from the blowback of the U.S. and Israeli war.

According to a new Bloomberg report, the UAE managed to export more crude oil through the Strait of Hormuz than any other Gulf producer during the month of July. Several supertankers have managed to cross the strait without coming under attack from Iran after picking up oil from secondary terminals within the Persian Gulf, located at Zirku Island and Das Island. Smaller tankers have also crossed through the strait before undertaking ship-to-ship tankers off the coast of the UAE’s main oil terminal at Fujairah, located on the Gulf of Oman.

This uptick in UAE tanker traffic, which occurred before the recent progress in negotiations between Iran and Oman over a new traffic separation scheme in the strait, is a sign that what the Financial Times described as a “bold gamble” to seek a truce with Iran is paying off.

But what did Iran receive in return? Emirati officials continue to deny that any financial transfers were made to Iran. Reports that the UAE paid Iran “billions of dollars” to halt attacks are not credible. A large influx of hard currency would be immediately visible in Iran’s foreign exchange markets. In any case, Iran is unlikely to have asked for direct payment. During wartime, goods matter more than money. What Iran sought from the UAE were the logistical and financial channels necessary to procure those goods.

Over the last few weeks, UAE trade with Iran has accelerated. According to data from Kpler, over 50 container ships made the crossing between the UAE and Iran in July, approaching the pre-war tempo. These smaller container ships constitute feeder services between the Iranian ports of Bandar Lengeh and Bandar Abbas and the Emirati ports of Port Rashid and Jebel Ali, one of the world’s largest container ports. The ships arrive in the UAE mainly laden with fruits and vegetables and return to Iran carrying intermediate goods of critical importance for the Iranian industrial base.

Ironically, through the resumption of maritime trade with the UAE, Iran has indirectly benefited from Emirati efforts to bypass the Strait of Hormuz. The expansion of truck freight between the ports of Fujairah and Jebel Ali has given Iran a new corridor that can help compensate for the drop of container traffic through the strait itself, which stems from both Iran’s targeting of commercial vessels and the U.S. naval blockade.

The UAE has also helped Iran shore up its food security. Over the last week, at least eight bulk carriers have crossed the Strait of Hormuz and called at the port Bandar Imam Khomeini, Iran’s main terminal for soft commodities. These ships delivered grain and animal feed for the Iranian market, which depends on imports to meet the shortfall between food consumption and domestic agricultural output. The vessels are not owned by Iran—they are chartered from private fleets by the trading houses that sold the cargoes—and their safe transit would have been coordinated with Iranian authorities. But the UAE also played an important role in ensuring these essential commodities could reach Iran as the conflict with the U.S. persists.

Iranian imports of soft commodities are exempt from U.S. sanctions, but Iranian importers have historically struggled to access the dollar liquidity necessary to pay for cargoes. Iran was able to secure these cargoes by regaining access to dollar liquidity through the UAE financial system, an accommodation provided by Emirati authorities as part of deescalation efforts. This was an important reversal—Emirati authorities had instructed banks to block Iranian accounts in early March in retaliation for the first wave of Iranian drone and missile attacks on Dubai and Abu Dhabi.

The partial restoration of UAE-Iran logistics and financial channels cannot fully compensate for the significant disruptions caused by the continued closure of the Strait of Hormuz, which remains a major challenge for Iran, just as for the wider region. However, when considering the Trump administration’s hope that continued economic pressure and the naval blockade would leave Iran unable to sustain the war, the UAE appears to be directly undermining the U.S. strategy. Recent food deliveries and access to intermediate goods through the feeder trade will help stabilize the Iranian economy, at least for the coming weeks, forestalling a dramatic acceleration of the crisis in the country.

Some Western reporting on the UAE’s continued economic engagement with Iran has characterized the moves as a form of appeasement. But that is not what this trade represents.

Reports that Israeli Prime Minister Benjamin Netanyahu tried to convince President Trump to pursue a “land blockade” of Iran reflect this reality. The Israeli proposal would require convincing regional countries to close their border crossings (and ports) to Iran. But it is clear Iran’s neighbors will not take that step so long as their diplomatic outreach and economic engagements continue to offer a means of managing the insecurity created by the Trump administration’s oscillation between calls for a deal and threats of catastrophic airstrikes.

Some Western reporting on the UAE’s continued economic engagement with Iran has characterized the moves as a form of appeasement. But that is not what this trade represents. Rather, it is a reflection of the deep and long-standing interdependence between the the two countries. As the war dragged on, Emirati officials needed to mitigate harm to key parts of the economy, ranging from the oil industry to the tourism sector. Likewise, Iranian officials needed to restore critical supply chains, sustaining manufacturing output and safeguarding food security to maintain stability during the war.

Six months on, it is clear that the war has no military solution, only a diplomatic one. By restoring trade with its northern neighbor, the UAE is reprising the economic diplomacy and security coordination it first pursued with Iran beginning in 2019, when Trump’s “maximum pressure” campaign against the Islamic Republic first undermined the security environment in the Persian Gulf. Recognizing that the war will end with a negotiated outcome, Emirati officials are positioning themselves for the post-war settlement, restoring dialogue and rebuilding trust with Iran in a manner that will increase the UAE’s influence over Trump’s face-saving exit. Moreover, the UAE can better act to facilitate successful implementation of United States’ own economic commitments towards Iran, such as those outlined in the MOU signed in mid-June.

For now, Iran lacks the military means to decisively win the war and the UAE lacks the political influence to convince the Trump administration to end the fighting. Both countries have little choice but to wait until Trump and his advisors realize that it is in their best interest to simply walk away from this war. The wait could be long and Iran and its neighbors are facing acute pressures. It is therefore understandable that Iranian and Emirati officials would conclude that they should work together to outlast Trump.

Esfandyar Batmanghelidj is the Founder and CEO of the Bourse & Bazaar Foundation.

Section: (integrated-futures-initiative) Photo: Canva

A moderated discussion featuring:

• Khalifa Al Suwaidi, Bourse & Bazaar Foundation

• Yousuf Al Bulushi, Muscat Policy Center

• Rashid Al Mohanadi, Center for International and Policy Research

• Mahdi Ghuloom, Observer Research Foundation

• Mansour Almarzoqi, Prince Saud Al-Faisal Institute for Diplomatic Studies

The ongoing Iran–US negotiations cannot be understood solely as a bilateral process between Washington and Tehran. The GCC states are directly affected by their outcome and are already playing different roles in shaping the diplomatic environment surrounding the talks. Qatar is involved as a mediator, Oman is central to the Strait of Hormuz file, and Saudi Arabia and the UAE are influencing the wider regional context through their diplomatic positioning, security concerns, economic interests, and postwar engagement with Iran.

The Bourse & Bazaar Foundation is convening a 90-minute public dialogue with Khalifa Al Suwaidi, Yousuf Al Bulushi, Rashid Al Mohanadi, Mahdi Ghuloom, and Mansour Almarzoqi. Moderated by Mehran Haghirian, the dialogue will examine the role of the GCC states in the Iran–US MoU, the ongoing negotiations, and the prospects for a future regional security and economic architecture.

The discussion will test three propositions: whether the GCC states already have a meaningful role in the negotiations through both direct and indirect channels; whether the Hormuz file could provide the basis for an inclusive multilateral administrative framework for the strait, including possible maritime service or environmental fees consistent with freedom of transit; and whether a parallel process is needed to prepare the ground for a structured Iran–GCC–Iraq dialogue on regional security, deconfliction, and economic interdependence.

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By Esfandyar Batmanghelidj and Mehran Haghirian

Editor’s Note: This article was originally published on Friday. A full Persian-language translation of this article was published by Iran’s state news agency, IRNA, on Sunday.

This week Iran resumed attacks on commercial vessels passing through the Strait of Hormuz, targeting ships attempting to transit through a southern channel established by Oman in coordination with the International Maritime Organization and with the encouragement of the United States. The attacks have further weakened the already fragile Memorandum of Understanding signed between the U.S. and Iran on June 18. Iranian leaders believe that the Trump administration is seeking to reduce their negotiating leverage by enabling ships to transit through the strait without coordinating with Iran.

In Iran’s interpretation, Point 5 of the MOU grants them sole responsibility for restoring normal transit through the strait. But the same point also distinguishes between the transitional implementation period of 60-days and the longer-term framework. While it allows Iran to make arrangements for the safe passage of commercial vessels during the initial 60 days, it also explicitly requires Tehran to engage in dialogue with Oman to define the “future administration and maritime services” of the strait, in discussion with the other six Persian Gulf littoral states–Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).

Iran and Oman have held numerous bilateral consultative meetings to discuss how to establish joint administration of the strait, but have yet to present a coherent plan. In an effort to head off the most maximalist Iranian demands, Omani officials have stated that the country “does not support the imposition of transit fees on vessels passing through the Strait of Hormuz” given that the “right of transit passage through straits used for international navigation is guaranteed under international law.” In this respect, the Omani position differs from the Iranian position, which insists that the strait lies in Iranian and Omani territorial waters.

Oman’s role in these sensitive negotiations is often misread. Trump threatened to “blow up” Oman and the U.S. Treasury Secretary threatened the country with economic sanctions over their perceived accommodation of Iran. But Oman has a direct interest in normalizing traffic through the strait, and has sought diplomacy and de-escalation with Iran, to prevent the maritime crisis from widening into a broader regional conflict. Oman’s economy, regional relationships, and diplomatic credibility depend on the uninterrupted flow of vessels through the strait. In dialogue with Iran, Oman is also representing the interests of the broader Gulf Cooperation Council (GCC), and arguably the international community.

Given the stakes, Oman’s negotiators are seeking a compromise solution with Iran. The fee may not be charged for transit through the strait, but it could be charged for other maritime services drawing “upon international best practices and successful experience in other strategically important maritime corridors.” Reports suggest that they are considering models such as voluntary fees charged in the Strait of Malacca or the fees charged by Turkiye of vessels passing between the Black Sea and the Mediterranean. These fees can support maritime services, including services related to safe navigation and environmental remediation.

Finding a workable model for administration of maritime traffic in the Strait of Hormuz will require careful consideration of what model will be politically viable, economically sensible, and technically feasible. There are a narrow range of options that could be acceptable to the eight littoral states in the Gulf and the broader international community. If the joint implementation of such an administrative model can serve as a platform to shore the ceasefire and strengthen regional diplomacy, its value would be obvious. In this respect, the creation of a “Hormuz fee” is not an attempt to impose new costs in a globally important chokepoint, but rather an opportunity to institutionalize the kind of positive-sum diplomacy that is necessary to protect that chokepoint from further disruptions.

Administrative Model

If fees are to be applied, a key consideration is which vessels would be charged. It would be counterproductive for Iran and its neighbors to impose fees that would increase incidental costs for imports. Even if nominal, such fees would ultimately be borne by consumers in the region as importers pass on the higher shipping costs. The fee could be focused on vessels exiting the Strait of Hormuz, which are carrying goods for export. But the broad imposition of such a fee would be a drag for regional exporters, especially non-oil manufacturers.

The logical target for any fees would be on the vessels exporting oil, gas, and related products. Given the enormous value of the exports and the nominal impact of a service fee, it would be straightforward to levy the fee on the large tankers that transport the vast majority of Gulf hydrocarbons to customers worldwide. Vessels would pay fees not for the right of transit through the strait, but rather in exchange for the services that enable their safe lifting of cargoes from Gulf ports.

All vessels calling at ports in the Gulf already pay port dues and service fees. The innovation of the administrative model would be to recognize that the Gulf ports are part of a regional maritime system, a kind of commons, which depends on the Strait of Hormuz. Establishing a surcharge that applies to any and all tankers lifting oil in the Gulf for export would be a step towards shared management of an important commons.

The imposition of the fee can be justified given the resources that all littoral states in the Gulf expend to manage the safe transit of Very Large Crude Carriers (VLCC) and Suezmax tankers and the environmental impact that such vessels have on the fragile coastal ecosystems of the Gulf. The shared nature of these burdens and the shared dependence on the strait also require that management of maritime traffic and the imposition of fees is administered by a multilateral body including all eight Persian Gulf littoral states.

In sum, the only viable “Hormuz fee” is one that is paid to a multilateral administrative body. The fee should be payable only by large tankers transporting oil and related products for export. The fee should also be associated with maritime services or environmental charges and must not contravene the freedom of transit through the Strait of Hormuz.

Estimating Revenue

There are around 900 operational VLCCs globally. Most of these vessels pick up oil or LNG from terminals in the Gulf at least once a year, even if they mainly operate in other regions. In order to estimate the likely revenue earned by the administrative body, we can say that there are roughly 600 VLCCs which will lift oil from a Gulf terminal each year. The true number is lower as some of the volume is handled by smaller Suezmax tankers.

To move the roughly 20 million barrels per day of crude oil and oil products that normally exit through the strait each year, these vessels need to make at least 2,000 lifts from Gulf oil terminals. If the service fee is payable each time a tanker lifts oil, there are 2,000 such payments that would be made each year. If the service fee is structured as an annual payment by each vessel, there would be 600 payments.

But what is the amount of the fee that needs to be paid? If the “Hormuz fee” is structured as a fee payable at each lifting, then the fee would need to be small. For example, the Port of Rotterdam charges tankers a “sustainability” fee of around $0.08 for each gross tonne. A VLCC can therefore expect to pay around $13,000 per call at Rotterdam. If a similar charge is levied at all ports in the Persian Gulf, on top of existing port-specific dues, the administrative body would earn $26,000,000 a year across the 2,000 liftings.

The fee would be higher if structured as an annual license that must be purchased for each vessel, but the increase in revenue would be modest. Even if the annual fee were as high as $100,000 per vessel, that would earn the administrative body a total of $60 million annually, when considering the approximately 600 VLCCs that might need to pay such a fee.

These are obviously tiny sums. The total value of the oil and oil products exported through the strait is around $600 billion per year, according to the International Energy Agency. Fees worth $60 million per year would represent an additional surcharge equivalent to just one-hundredth of a percent of the total value of the transported cargo. In this respect, the fees are economically meaningless. Vessel owners are also unlikely to care. As Greek shipping magnate Evangelos Marinakis, whose fleet includes more than 20 VLCCs, has stated, “it is better to pay a fee of $100,000 or $200,000, depending on the size of the cargo or the size of the vessel, than to have all this hassle.”

Iran could try and insist on higher fees, but it is unlikely that the final arrangements would differ significantly from the fee structures that are seen in other contexts. Even if the fees were much higher–say $1 million per vessel per year–the total revenue across the 600 VLCCs would still be one-tenth of a percent of the total value of the energy trade. Iran, like other littoral states in the Gulf, is too wealthy to actually need the marginal revenues on offer through a Hormuz fee. Clearly, the fees would neither harm the oil trade nor offer Iran or any other littoral state some undue windfall. Economically speaking, the idea of a “Hormuz fee” is a modest proposal.

Diplomatic Value

By contrast, the diplomatic value of the fee could be enormous. The suggestion that there exists some multilateral arrangement to manage the strait is inherently constructive. It represents an opportunity to institutionalize regional cooperation in ways that recognize the shared interests of all eight Gulf littoral states.

It is important to acknowledge that it would be perfectly normal for there to exist some kind of multilateral administration in the Strait of Hormuz. In fact, the absence of such arrangements is a historical anomaly, one that reflects the relative dysfunction of regional diplomacy in the Middle East. The Turkish Straits and Danish Straits are both governed by international conventions. The English Channel and the Strait of Malacca are managed through cooperative frameworks. The Strait of Hormuz has no such underlying legal status or cooperative arrangements because of the historic tensions in the region and the longstanding reliance on an external security guarantor, the United States.

A multilateral body already exists that includes all eight littoral states as members. The Regional Organization for the Protection of the Marine Environment (ROPME), was established in 1978 in Kuwait to institutionalize environmental cooperation in the Gulf. While its function has been limited to the management of environmental emergencies, there is clearly room to expand its mandate. ROPME could be revitalized for the purpose of addressing shared safety and environmental issues in the Strait of Hormuz and its expanded activities could be funded through the new fee. Alternatively, a new administrative body could be established. Whatever the approach, the institution that manages the fee matters more than the fee itself. It is the institution that helps regional countries move towards shared responsibility for a critical aspect of regional security and economic activity, building trust through its iterative operation.

The only viable “Hormuz fee” is one that is paid to a multilateral administrative body. The fee should be payable only by large tankers transporting oil and related products for export. The fee should also be associated with maritime services or environmental charges and must not contravene the freedom of transit through the Strait of Hormuz.

It is also important to note that several of the largest VLCC fleets are state-owned, such as Saudi Arabia’s Bahri and Iran’s NITC, which operate around 90 VLCCs between them. Should these fleets be made subject to a fee, it would offer a way to mutualize maritime services in the region. The revenues, if they reach the tens of millions, would offer a meaningful operational budget for any administrative body seeking to improve maritime safety or undertake environmental remediation in the Gulf. This would be a case of the region funding its own integration alongside the payments made by foreign vessel owners, and in turn, their customers.

When it comes to institutional arrangements that help break cycles of conflict, there are many historical antecedents. In 1950, the Schuman Declaration proposed that Franco-German “production of coal and steel as a whole be placed under a common High Authority, within the framework of an organization open to the participation of the other countries of Europe.” The joint administration of the Strait of Hormuz can be for the eight littoral states of the Gulf what the European Coal and Steel Community was for postwar Europe. It offers the opportunity to institutionalize regional cooperation over a critical modality of trade in ways that build trust and help foster greater regional cooperation.

Ultimately, Iran’s insistence on the fee is about far more than potential economic gains or safety or environmental concerns. Iran’s leaders want to restore the status of Iranian sovereignty and security in the wake of war by leveraging regional arrangements. At the same time, the majority of the GCC states are seeking a practical framework that would diminish the chances of another conflict breaking out in the region. Economic interdependence has become a key aspect of the post-war approach by the Qataris, the Omanis, and the Saudis. While Emirati leaders might appear apprehensive about the idea, they have the greatest level of economic engagement with Iran of any Gulf state. What was missing from past interactions was an institutionalized approach to economic integration that would have contributed to regional peace and security. A shared Hormuz fee can be the first step towards closer regional coordination, cooperation, and, eventually, integration.

The Gulf has developed into far more than simply an energy-producing region. It is a dense system of manufacturing sites, mobility corridors, logistics hubs, financial networks, and digital infrastructure that connect Asia, Africa, Europe, and the wider global economy. Much of this system is directly impacted by instability in the Strait of Hormuz. When movement through the strait is disrupted, the consequences are not confined to oil prices or naval calculations. Shipping costs rise, insurance becomes more expensive, cargoes are delayed, food systems are strained, industrial production falters, and governments far from the region are forced to respond.

In this sense, a collaborative approach in administering the Strait of Hormuz is a test. If regional countries, or Western governments, are unwilling to even consider the creation of a multilateral body to manage maritime issues in the strait or to consent to a nominal fee on vessels, it would signal that no genuine path towards deconfliction has been opened in the wake of the war. Rather than reject Iran’s idea of a new fee out of hand, regional powers and the broader international community should work towards the most constructive instantiation of the fee and its administration. Seen this way, a “Hormuz fee” is a small price to pay for a chance at peace.

Esfandyar Batmanghelidj is the Founder and CEO of the Bourse & Bazaar Foundation.

Mehran Haghirian is the Executive Director of Research and Programs at the Bourse & Bazaar Foundation.

Section: (integrated-futures-initiative) Photo: Canva