Iran's health minister said on Sunday that currency fluctuations and collapse of the rial are fueling a rise in medicine costs across the country while a mass shortage is crippling the system.
Mohammadreza Zafarghandi added that the government plans to offset currency-driven price hikes by compensating insurance companies to prevent patients from bearing the cost.
Iran is grappling with a dire economic situation as the rial, which has depreciated by over 30% since September, sending ripple effects across multiple industries including the pharmaceutical industry, which heavily relies on the cash-strapped government for hard currency to import raw materials.
While Zafarghandi promised government action on rising medicine costs, Mehdi Pirsalehi, head of the Food and Drug Organization revealed that the government owes 360 trillion rials (approximately $4.47 billion) to the pharmaceutical sector, alongside 200 trillion rials ($2.48 billion) in medical equipment debt.
In July last year the head of Tehran Chamber of Commerce for Industries, Mines and Agriculture (TCCIMA) warned that Iran’s pharmaceutical and medical equipment sectors are struggling to secure both foreign currency and local rials, in an interview with the state-affiliated ILNA news website.
In 2022, Iran’s parliament decided to scrap an annual $9 billion subsidy for essential food and medicines, despite warnings of more inflation and hardship.
The subsidy was introduced in April 2018 when Donald Trump signaled his intention to withdraw from the Obama-era nuclear agreement with Iran known as JCPOA, and Iran’s national currency began to nosedive.
Before becoming Iran’s president, Masoud Pezeshkian criticized the Raisi administration for eliminating government subsidies, warning that such measures would hinder drug manufacturers from importing the raw materials needed to produce medicines.
Now, as president, Pezeshkian himself plans to cut the allocation for importing essential goods, including agricultural products, pharmaceuticals, and raw materials, to €12 billion, according to the 2025 budget outline released in October.
Addressing the country’s persistent power and fuel shortages, Mohammad Bagher Ghalibaf said, “The real problem lies in management. One person blames another, and the cycle continues. Until we solve the management imbalance, we cannot resolve the energy imbalance.”
The rare remarks which contradict the official government line blaming the crisis on resource shortages, came as Energy Minister Abbas Aliabadi warned of a looming electricity deficit and unprecedented challenges in the coming summer, following a season of widespread blackouts and gas shortages.
With a projected shortfall of 25,000 megawatts of electricity next year, Aliabadi admitted that immediate solutions look bleak.
Ghalibaf spoke about institutional flaws in Iran’s energy sector, attributing inefficiencies to outdated governance structures. “There is an institutional flaw in the energy sector, both in production and consumption, leading to policy mistakes. Our energy governance is flawed,” he said.
Energy Minister Aliabadi acknowledged the gravity of the situation, apologizing for gas shortages and outlining the government’s inability to resolve them in the short term. He cited last summer’s 20,000-megawatt electricity shortfall and warned of worsening conditions.
“Winter’s cold can be endured with warm clothing, but navigating the challenges of summer is not as simple,” he said.
However, Ghalibaf proposed the establishment of an operational center to coordinate between the Oil Ministry, the Ministry of Energy, and Parliament. “To address the energy imbalance, supply and demand must align. While production must be a focus, consumption must also be controlled,” he said.
Gas shortages have also reached critical levels, with domestic consumption exceeding production capacity, resulting in rationing and significant strain on households and industries. Efforts to curb usage, such as a 2-degree reduction in heating temperatures, have saved 45 million cubic meters of gas daily, but structural issues persist, in spite of Iran owning one of the world's largest gas fields.
Widespread impact on citizens and economy
Massoud Pezeshkian, Iran’s President, has also raised concerns over systemic failures in energy management, saying “Iran is experiencing shortages in electricity, water, gas, the environment, and finances, with some of these shortages bringing the country to the brink of a precipice.”
Power cuts in the summer of 2024 caused significant losses for industries, estimated at $11 billion, according to Ali Mahmoudian, head of the National Union of Alternative Fuels.
The closures of schools, universities, and government offices due to energy management have further strained Iran’s economy, costing an estimated $62.5 million per day.
As the country braces for a potentially devastating summer, officials are divided on how best to navigate the crisis. Ghalibaf’s comments that management reforms are key contrasts with the Ministry of Energy’s focus on immediate consumption reduction measures.
Iran now faces the dual challenge of overcoming internal inefficiencies and adapting to the growing energy demands of a population grappling with economic uncertainty and environmental degradation.