TEHRAN, Iran – The capital of Iran, along with its surrounding provinces, has been grappling with intermittent power outages for several weeks during October and November. These electricity interruptions have severely affected daily life and business operations. Among various suspected causes for the disruptions, cryptocurrency mining is believed to be contributing significantly to the power woes.
For years, Iran’s economy has struggled under international sanctions related to its nuclear program advancements. Additionally, the country has seen a sharp decline in fuel reserves as the government has increased sales to mitigate budget shortfalls amid ongoing conflicts in the Middle East and poor resource management. Despite a cool down in temperatures prompting a reduction in air conditioning usage, the electricity demand on the national grid remains high, especially as residents prepare to use gas heaters for winter.
Recently, the price of bitcoin soared to unprecedented levels, reaching $100,000 soon after the U.S. elections, as Donald Trump designated a cryptocurrency supporter as a candidate for the Securities and Exchange Commission’s chairmanship. As a result, many suspect that the considerable energy consumption from organized bitcoin mining operations has contributed to the ongoing outages in Iran.
Mostafa Rajabi, CEO of Iran’s state-owned electrical company, pointed out in August that some individuals are exploiting subsidized electricity and public networks for unregulated cryptocurrency mining. Despite attempts to reach the state energy company for further comments, there has been no response.
Power outages have occurred before in Iran, attributed partly to outdated infrastructure at many power plants. This past summer, industrial areas around Tehran faced prolonged outages, and by October and November, residents in various neighborhoods began experiencing regular power interruptions during the day. Compounding the problem, climate change, including ongoing droughts, has lowered water levels in hydroelectric dams, further straining electricity production.
In a bid to address the situation, President Masoud Pezeshkian ordered a cessation of mazut burning at several power plants due to its high pollution levels. This type of fuel, common in certain post-Soviet states, has been previously utilized to supplement electricity generation in Iran. Even though Iran boasts one of the world’s largest natural gas reserves, the country still faces low diesel and gas fuel supplies, prompting theories that the government has possibly sold off these resources to bridge budget gaps.
In a public address in mid-November, Pezeshkian acknowledged the energy crisis, advising citizens to conserve energy amid ongoing cold weather conditions. He implored the public to be resourceful, reflecting on his own use of warm attire at home.
As winter approaches, heating needs are not yet fully in effect in Tehran, creating inquiries about the destination of the available power. Several impoverished, densely populated regions benefit from free, unmetered electricity. Religious institutions, educational facilities, and health establishments also receive complimentary power, contributing to a highly subsidized electricity market that fosters the growth of bitcoin processing centers.
These mining establishments rely heavily on electricity to operate specialized computers and maintain cooling systems. However, estimating their energy consumption is challenging, particularly because many miners now use virtual private networks to conceal their locations. Additionally, some miners are renting apartments to clandestinely house their equipment, dispersing machines across several units to evade detection, as highlighted by Masih Alavi, CEO of a government-licensed mining operation.
In 2021, Iran was estimated to have managed up to $1 billion in bitcoin transactions. Given the recent price surge, this figure has likely climbed. Notably, substantial blackouts coincided with bitcoin’s leap from approximately $67,000 to over $100,000, intensifying scrutiny regarding the connection between mining activities and power outages.
Rajabi announced a reward program for reporting unauthorized bitcoin mining operations, implying these activities have led to an extraordinary uptick in energy consumption and subsequent strain on the power network. He emphasized that around 230,000 unregulated devices consume energy equivalent to the total power requirements of Iran’s Markazi province, a vital manufacturing area.
While Iranian officials and media outlets have not explicitly linked the bitcoin surge to the ongoing blackouts, the public perception has connected the two, sparked by social media videos showcasing massive, previously undiscovered bitcoin farms operating within Iran. Voices in these clips question the electrical company’s oversight in failing to identify these operations sooner.
The United States Treasury and Israeli officials have targeted bitcoin wallets allegedly associated with operations managed by Iran’s Revolutionary Guard, indicating potential involvement of this influential military faction in cryptocurrency mining.
Conversely, Iranian media frequently report on law enforcement raids on individual mining operations, depicting a clear governmental response against illicit activity. The possibility of using bitcoin as a financial buffer against external pressures from an assertive U.S. administration and a chaotic regional context has not gone unnoticed by analysts.
The dynamics of the situation prompt questions among economists regarding the trustworthiness of bitcoin as a viable funding source for the Iranian government. However, experts caution against overlooking the risk of increased scrutiny on bitcoin wallets, as they could be vulnerable to sanctions.
A sense of urgency surrounds the issue, as a pattern of behavior raises alarms among intelligence agencies and compliance departments in the banking sector, highlighting the necessity for Iran to address these challenges effectively.
