jordan pulse -

Ahmad Abdulbaset Rjoub

In the global energy landscape, not all crises are created equal. Some events pass as temporary market disturbances, while others become turning points that reshape the global economic order. The potential closure of the Strait of Hormuz—even if partial or temporary—falls into the latter category.

This narrow maritime corridor represents one of the most critical arteries of the global energy system. Nearly one-fifth of the world’s oil trade passes through it every day. Consequently, any military or political disruption that threatens navigation in the strait quickly transcends regional boundaries, evolving into a global energy crisis that reverberates through prices, markets, and national economies.

With regional tensions escalating in recent years, this scenario has once again moved to the forefront of strategic discussions. Yet its impact would not be uniform across countries. While energy-producing nations may view such fluctuations as part of normal market dynamics, energy-importing countries often face deeper and more complex economic challenges.

That said, Jordan may not be directly affected by a closure of the Strait of Hormuz in terms of its immediate energy supplies. Most of the country’s crude oil imports come from Iraq via overland transportation under preferential pricing arrangements, while natural gas is primarily imported through pipelines from Egypt and from Israel in Palestine. However, this reality does not insulate the Jordanian economy from potential shocks. Energy prices in the Kingdom remain closely linked to global markets, meaning that any sharp increase in international prices would inevitably be transmitted domestically.

Jordan’s Challenging Energy Equation

For decades, Jordan has faced a structural constraint: the limited availability of domestic energy resources. According to the 2024 annual report of the National Electric Power Company (NEPCO), total electricity purchases reached approximately 22,723 GWh, while wholesale electricity sales amounted to roughly 22,323 GWh.

More significant, however, is the structure of electricity generation. Data from 2024 that 59.4% of the peak load in Jordan’s power system was supplied by combined-cycle gas-fired plants, while renewable energy sources—mainly solar and wind—accounted for 23.3%. Domestic resources such as oil shale, primarily through the Attarat power project, contributed only 11.8% of peak demand.

Despite the rapid expansion of renewable energy projects over the past decade, the key challenge lies not in the availability of natural resources but in the electricity grid’s ability to integrate them safely and reliably. Increasing the share of solar and wind generation without strengthening storage capacity and spinning reserves can lead to fluctuations in grid frequency and voltage. These technical constraints effectively limit the pace at which renewable energy can expand unless the country significantly upgrades its power system infrastructure.

This structural composition is clearly reflected in the financial performance of the electricity sector. In 2024, the cost of purchased energy from conventional sources reached approximately 1.7 billion Jordanian dinars, representing the vast majority of total operational expenditures of around 1.79 billion dinars. As a result, NEPCO has accumulated significant financial losses estimated at 6.2 billion dinars, leaving the sector highly sensitive to fluctuations in global fuel prices.

Indirect but Significant Impacts

Even if Jordan’s physical energy supplies remain uninterrupted, a closure of the Strait of Hormuz would likely trigger a sharp rise in global oil and gas prices. For an economy heavily reliant on imported energy, this would have multiple repercussions.

First, the cost of purchased energy would increase, placing additional financial pressure on NEPCO and widening the gap between purchase costs and regulated electricity tariffs. Second, these higher costs may eventually be passed on to consumers through electricity tariff adjustments or through increased fiscal support from the national treasury—both of which carry clear economic implications.

The effects of rising energy prices extend beyond the electricity sector. Jordan’s water sector, for example, relies heavily on energy-intensive pumping, desalination, and wastewater treatment processes. Any disruption in energy supply or significant price increases could therefore directly affect water services.

Similarly, key industrial sectors—including cement, fertilizers, and pharmaceuticals—depend heavily on electricity as a core input in their production processes. Higher energy costs would weaken the competitiveness of domestic industries in regional and global markets.

The transportation sector would also be among the first to feel the impact of rising petroleum prices. Higher fuel costs translate directly into increased logistics and transportation expenses, which ultimately feed into the prices of essential goods, contributing to inflation and reducing household purchasing power.

The Limits of Current Alternatives

Jordan has pursued several initiatives aimed at strengthening its energy security, yet their ability to substantially reduce dependence on imports remains limited.

For instance, the Attarat oil shale power project contributes about 11.8% of peak electricity demand, but it has not delivered the expected economic savings originally envisioned. Instead, the project has introduced substantial financial obligations due to high capacity payments and its development structure under the so-called Developer Model, which allows the developer to own and control the project’s development, mining, and operational companies. This structure has contributed to higher-than-anticipated production costs.

Meanwhile, regional electricity interconnection projects with Iraq, Saudi Arabia, and Egypt are currently under development, alongside a floating storage and regasification unit (FSRU) intended to facilitate imports of liquefied natural gas. While these initiatives are strategically important, most remain in planning or implementation phases and are unlikely to significantly alter Jordan’s energy dependency in the short term.

Toward a More Flexible Energy System

Addressing these challenges requires a gradual transformation in both the policies and regulatory frameworks governing Jordan’s electricity sector.

One key area concerns the contractual arrangements with Independent Power Producers (IPPs). The IPP model has played an important role in attracting private investment and expanding Jordan’s energy infrastructure. However, it has also imposed substantial fixed financial commitments on NEPCO through long-term “take-or-pay” power purchase agreements.

As renewable energy penetration increases, the limitations of this rigid contractual structure are becoming more apparent. Moving gradually toward more flexible models—such as “take-and-pay” arrangements, where payments are linked to actual consumption, or commercial merchant power plants that sell electricity directly to large consumers—could help improve financial sustainability.

Equally important is the development of large-scale energy storage projects to enhance grid flexibility. One notable initiative is the proposed pumped-storage hydropower project at Mujib Dam, with an estimated capacity of around 450 MW. Given its strategic role in maintaining grid stability, it may be more appropriate for this project to be developed under full state ownership in its initial phase, as a critical national infrastructure asset rather than a purely commercial venture.

Expanding regional electricity interconnections could also strengthen system flexibility and reduce operational costs, provided that such integration is accompanied by advanced grid protection, control systems, and stability management technologies.

Lessons from Experience

Jordan’s experience in the energy sector over the past two decades demonstrates that diversifying energy sources alone is not sufficient to ensure energy security. Risks have not disappeared; rather, they have changed form—from dependence on a single fuel source to dependence on long-term contractual commitments with significant financial obligations.

In light of this experience, it may be worth exploring the development of new energy projects based on domestic resources under full government ownership and without long-term purchase obligations. Such projects could be located in southern Jordan and rely on a combination of imported coal through Aqaba Port and domestically extracted oil shale. This approach would grant the state greater control over costs and risks while enhancing the long-term financial sustainability of the electricity sector.

Conclusion

The closure of the Strait of Hormuz may not directly interrupt Jordan’s energy supplies, but the resulting surge in global energy prices could still impose substantial economic pressures. This reality highlights a fundamental truth: energy security is not solely about securing supply—it is also about building economic systems resilient enough to withstand external shocks.

In an era defined by geopolitical uncertainty and volatile energy markets, developing a more flexible and resilient energy system is no longer optional. For a resource-constrained country like Jordan, investing in energy security may ultimately prove to be one of the most important investments in long-term economic stability.

Ahmad Abdelbaset Rjoub

Strategic Planner and Researcher

Former Director of Water Department – Abu Dhabi