Document Type : Research Article

Authors

• Yasin Javadi ¹
• Abbas Maleki ²

¹ Master of Science in Energy Systems Engineering, Faculty of Energy Engineering, Sharif University of Technology, Tehran, Iran

² Professor of Energy Policy, Faculty of Energy Engineering, Sharif University of Technology, Tehran, Iran

Abstract

Highlights

Extended Abstract

Objective:
Natural gas plays a pivotal role in Iran’s energy mix, serving as the primary fuel for power plants, steel, petrochemicals, cement, and household consumption. Despite its strategic importance, Iran’s natural gas pricing system remains highly subsidized and administratively controlled, leading to severe distortions: wasteful consumption, declining export capacity, underinvestment in upstream development, and seasonal supply shortages. While numerous studies have addressed natural gas pricing, most suffer from narrow economic perspectives, static methodologies, and a lack of attention to Iran’s unique institutional, political, and structural characteristics. This paper aims to conduct a critical review of existing literature on natural gas pricing for energy-intensive industries in Iran, systematically identifying methodological shortcomings, policy-irrelevant assumptions, and research gaps. The ultimate goal is to chart future research directions that can support realistic, sustainable, and context-sensitive pricing reforms.

Methodology:
Following Grant & Booth’s (2009) typology of reviews, this study employs a critical review approach rather than a mere descriptive summary or meta-analysis. A critical review enables the assessment of theoretical foundations, methodological biases, implicit assumptions, and policy relevance of prior studies. We systematically identified and analyzed 30 domestic (Persian-language) and international (English-language) studies published between 2012 and 2022. The studies were classified along four dimensions: (1) pricing model type – cost-plus, market-based, energy parity, or value-based; (2) analytical approach – econometric, simulation, case study, system dynamics, or policy analysis; (3) geographical scope – Iran, regional (MENA/Asia), or global; and (4) policy implications – whether the study offered actionable, context-specific recommendations. Each study was evaluated for its treatment of dynamic feedbacks, long-term effects, multi-dimensional interactions (economic, social, environmental, industrial), and sensitivity to Iran’s rentier, state-dominated, and subsidy-heavy economy.

Key Findings:

The critical review reveals five major research gaps:

1. Lack of localization:Most international studies assume competitive markets, strong regulatory institutions, and price-elastic demand – conditions that do not hold in Iran. Domestic studies, while context-aware, rarely challenge generic models or integrate political economy factors.
2. Underuse of dynamic and scenario-based modeling:Over 70% of reviewed studies use static econometric or descriptive methods. Only a handful employ system dynamics or simulation models capable of capturing feedback loops, time delays, and non-linear responses – essential for understanding Iran’s energy system.
3. Neglect of multi-dimensional interactions:The majority of studies focus on a single dimension (e.g., fiscal impact, household welfare, or environmental emissions) without analyzing trade-offs and synergies. Pricing policy is treated in isolation from industrial competitiveness, social equity, and environmental sustainability.
4. Short-term and non-dynamic analysis:Many studies use cross-sectional or short-panel data, failing to assess long-term policy durability, adjustment paths, or systemic delays (e.g., investment lags, infrastructure constraints).
5. Absence of policy-engaged and multi-actor scenario design:Few studies involve stakeholders (policymakers, industry, consumers) in scenario development, limiting their practical utility. Recommendations are often generic (e.g., “full liberalization” or “keep subsidies”) and ignore implementation feasibility.

In addition, the historical review of Iran’s gas pricing (1980s–2020s) shows that past reforms have been episodic, driven by political pressures rather than evidence-based analysis, and often reversed. The current price gap between domestic and export/netback levels continues to incentivize smuggling, inefficiency, and resource depletion.

Discussion and Policy Implications:

The findings underscore that Iran’s gas pricing challenge is not merely a technical economic problem but a complex systemic issue. Four critical insights emerge:

• Consensus on the need for reform:All reviewed studies agree that the current pricing system is economically inefficient and environmentally unsustainable. However, there is no consensus on the optimal reform path. International studies favor market liberalization, while domestic research warns of inflationary and social backlash.
• Reform design must be gradual and compensatory:Sudden price hikes would harm energy-intensive industries (steel, cement, petrochemicals), reduce output and employment, and trigger social unrest. A phased approach, combining price increases with targeted protection (e.g., lifeline tariffs for households, productivity support for industries), is essential.
• Need for systemic and integrated policymaking:Pricing reform cannot be isolated; it must be coordinated with industrial policy (to maintain competitiveness), social policy (to compensate vulnerable groups), and environmental policy (to reduce emissions). Ignoring these interactions leads to policy failure.
• Advancing analytical tools:Iran’s policymaking would benefit from adopting system dynamics models, multi-scenario simulations, and comparative studies with similar resource-rich countries (e.g., Russia, Algeria, Indonesia, Venezuela). These tools can help anticipate unintended consequences and test policy resilience under uncertainty.

Conclusion and Future Research Directions:

This critical review demonstrates that the existing literature is insufficient to guide Iran’s natural gas pricing reforms. Major shortcomings – lack of localization, static approaches, mono-dimensional focus, and weak policy engagement – render most studies impractical for real-world decision-making. To move forward, future research should:

1. Develop localized system dynamics modelsthat capture Iran’s specific feedback loops (e.g., subsidy- demand-investment-supply).
2. Adopt integrated economic–social–environmental frameworksto evaluate trade-offs and synergies.
3. Design multi-actor, scenario-based studiesinvolving policymakers, industries, and consumers to co-create feasible reform pathways.
4. Conduct comparative case studiesof successful (and failed) pricing reforms in similar economies.
5. Analyze the resilience and adaptabilityof energy-intensive industries to price shocks, including potential for energy efficiency improvements.

By filling these gaps, researchers can provide actionable, robust, and context-sensitive evidence to support Iran’s transition toward a more efficient, equitable, and sustainable natural gas pricing system.

Keywords

• Natural gas pricing
• energy-intensive industries
• critical review
• system dynamics modeling
• energy policy
• Iran

Main Subjects

• Energy Policy Making