Water Bankruptcy and Political Risk: Iran and Spain as a proxy
Water is “not always the spark; it is the accelerant”
As the current Iran war rocks its economy, water will shape its future. Nationwide, 19 major dams hold less than 5 per cent capacity, and 97 per cent of Iranian territory is now in severe water stress (Tehran Times, 2019; The Water Diplomat, 2025). Rivers, wetlands, water basins, and lakes have all but dried up in the Central Asian state, including the famous Lake Urmia, once the largest lake in the Middle East and sixth largest saltwater lake on Earth, which has lost roughly 90 per cent of its former glory (Benamara, 2026).
But Iran is not alone. According to a recent report by the United Nations (UN), almost 75% of the world’s population now inhabit countries deemed water-insecure, where there is a lack of reliable, clean and safe water for human use (Madani, 2026a). The UN recently declared we are now in an era of global “Water Bankruptcy” (UN-INWEH, 2026). This term borrows from the language of finance to describe the emergency situation our global water systems are in: the overconsumption of water sources (savings) below safe depletion levels, relative to the level of sustainable and renewable inflows (income), and the irreversibility of the damages to, or costly loss of, these water sources (bankruptcy) as a result (Madani, 2026b; UN-INWEH, 2026).
This article argues that water scarcity—conceptualised as ‘water bankruptcy’—acts as a critical risk multiplier, linking environmental stress to governance failures and social unrest. Beginning with Iran, we can see how governance has affected the Iranian water system, what the response from the local people has been, and how the nation’s water bankruptcy has reached a drastic turning point: officials are now considering relocating the capital city, Tehran, permanently.
The next section compares Iran with Spain, another water-bankrupt country facing rising displacement and governance challenges. Control measures here have also produced friction with local farmers and residents, particularly in the south as officials struggle to get a hold of the situation. Unlike Iran, Spain has had significant rainfall in the past two years; however, groundwater depletion during drought periods has meant some controls must stay in place. Ultimately, both nations must now adapt to a new normal of less water availability and lower consumption – the bottom line of the UN’s declaration of water bankruptcy. Iran and Spain show how water insecurity and governance interlink to produce a powerful risk multiplier in an era of global water bankruptcy.
Iran’s Water Bankruptcy: Governance Failure and Structural Mismanagement
Tehran’s silent crisis looms in the background of war. The five dams that provide water to the capital are in a critical condition, with two – the Lar and Latyan Dams – below 10 per cent full, and its reservoirs have collapsed to just 12 per cent capacity (Pearce, 2025; The Water Diplomat, 2025). Iran’s President, Massoud Pezeshkian, warned in December 2025 that the capital city, a vast metropolis home to over fifteen-million people, may now have to relocate to prevent a Day Zero crisis, whereby local inhabitants and businesses can no longer turn on the water taps or rely on public water supply (Benamara, 2026).
How did Iran get here? Officials blame climate change for the worst of the water emergency, with prolonged droughts and extreme weather indeed wreaking havoc across the Persian state (Tehran Times, 2019; Madani, 2025; Benamara, 2026). Yet water system collapse is fundamentally a political problem – and it is not isolated to the capital, either.
Decades of water mismanagement originate in an ideology of self-sufficiency that has prioritised domestic agriculture and industry over responsible water usage, leading to the overexploitation of natural and artificial water resources in the wake of the 1979 Iranian revolution (Madani, 2021). To feed the ambitions of a self-sufficient state, Iran resorted to a dam-building frenzy that placed it among the top three dam-building nations in the 20th century (Pearce, 2025). The idea was to emulate the Chinese model and capture huge domestic growth through infrastructure development (Kowsar, 2021). As a result, agriculture is now responsible for 90 per cent of total water consumption, but only contributes 8 per cent of GDP (Benamara, 2026; Epstein and Khatinoglu, 2026). A massive inefficiency that highlights the level of waste in the Iranian water system.
Iran’s water is dominated by a few select companies close to the regime. Namely, Khatam al-Anbiya, a subsidiary of the highly-influential Islamic Revolutionary Guard Corps (IRGC), acting through its dam-building arm, Sepasad; and Mhab Ghodss, a consultancy with ties to the regime that oversees water infrastructure design. Otherwise known as the “Water Mafia”, these companies aggressively lobby government for development contracts, reject any oversight or monitoring of its operations, and disregard expert advice on projects in favour of large-scale developments with political appeal (Kowsar, 2021).
The result of the water monopoly has been poor value for the Iranian public. For example, the Gotvand Dam in Khuzestan Province. Experts warned that a salt outcrop, or salt “mountain”, near the dam would cause an environmental catastrophe if the salts dissolved into the dam’s water supply and nearby Karoon River (Hamid, 2023). Mahab Ghodss and Sepasad ignored this advice and built the dam anyway, pocketing vast sums as costs for the project ballooned from $1.5 billion to $3.3 billion on completion in 2012. Their solution was to lay a clay-blanket over the salt mountain to prevent it from dissolving. But the salts dissolved “within days” of project completion and heavy brine (saltwater) settled along the bottom of the Karoon River, a vital water source for the region. Saltwater intrusion ruined the river ecosystem, and rendered the dam-water unusable for consumption. The project has since been called an “engineering disaster”, and after 10 years, and hundreds of millions of dollars spent by the Iranian government to try and resolve the disaster, there is still no solution (Ibid.).
Spain’s Water Crisis: Institutional Capacity Under Stress
While Iran represents a case of systemic mismanagement, Spain illustrates how even advanced economies struggle under water stress. In Spain, there are no drastic water measures in place in the capital (beyond rationing), and nor does a powerful cabal control the nation’s water development and infrastructure network. However, the European nation faces the same displacement of millions of people due to water shortages: 40 per cent of the country suffers from alarming and emergency levels of water scarcity, particularly in the south (Estrela, 2023; European Commission, 2026b). Prolonged drought has placed immense pressure on regional water systems. Meanwhile, agriculture uses vast amounts of water (much like Iran) totalling 77 per cent of extracted water consumption in water-stressed areas (BBVA Research, 2025).
To tackle the emergency, the country responded with its Global Water Strategy in 2023, pledging billions into the development of new water infrastructure and reforming its water system. Delivered under its Hydrological Plan (2022-2027) agenda and River Basin Management Plans (RBMPs), the bulwark of its water governance and policy agenda, this package includes the decentralisation of powers to overcome regulatory barriers, greater digitalisation to improve water system monitoring (helping to spot drought, overuse, and flood risk), and higher investment into sustainable water projects (MITECO, 2023). This package will help Spain to comply with a 2027 deadline under the EU Water Framework Directive, which regulates water protection in Europe.
However, in just one year after Spain announced its 2023 water plan, tragedy struck: extreme rainfall caused floods in Valencia, killing 230 people and causing €29 billion in damages (Gilliver, 2026). Spain went from a prolonged drought between 2019-2024 to serious flooding in one violent swing. Such weather extremes are expected to be more pronounced in an era of water bankruptcy, which captures the effects of a warming climate on underprepared local water systems (Madani, 2026a). The tragedy in 2024 exposes Spain’s preparedness for climate stress: the authorities and the water system were unable to cope.
Further south in Axarquía, a major agricultural region of the Málaga province in water-stressed southern Spain, prolonged drought brought local water systems to the edge. Officials struggled when regional dam-water levels reached historic lows of 7.5 per cent by January 2024, instigating emergency measures such as cutting off night-time supply and curbing water for agricultural use, a first for the region (Cabezas, 2023).
A study by Junquer et al. (2025) shows that poor water governance undermined the regional response to water system stress. There were “large uncertainties” in the availability of freshwater, how much water was being extracted, and the rate of groundwater depletion in the non-drought periods before the crisis (Ibid.). Officials were thus underprepared to tackle growing water scarcity: controls to protect dam-water use led to higher groundwater extraction; vital aquifers were depleted below sustainable levels; and the region’s main aquifer went below sea level, risking saltwater intrusion – which is what ruined the Gotvand Dam project in Iran. The region’s water system became bankrupt and emergency measures put in place to limit water withdrawals led to economic hardship. Axarquía farmers saw their crop yields plummet from water controls and growing water scarcity, with losses of 80 per cent and 50 per cent of the mango and avocado harvests respectively in the 2022/23 harvest year (Actis, 2023).
Implications for Political Risk
Water scarcity is a powerful risk multiplier (Madani, 2025; Kowsar, 2026). Farmers in the major fruit and vegetable region of southeastern Spain have protested against the River Basin Management Plans, or RBMPs, which they see as increasing scarcity in an already water-stressed region (Hedgecoe, 2023). Officials want to use water from the local basins in the region to assist drier areas and provide more supply to the growing cities and towns. The juggling of water supplies as natural stores deplete has raised social frictions over water inequality, with farmers organising over the issue. Protests in January 2023 to prevent transfers were met with a firm no from the Spanish government, who announced desires to expand water infrastructure such as desalination – a method of processing saltwater into useable freshwater – to meet needs under their Global Water Strategy; the farmers argue that desalinated water is too costly and lacks the nutrients for crop cultivation (Ibid).
In Axarquía, demand cuts have led to frustrations with the Plataforma de Regantes de la Axarquía, a group advocating for the region’s farmers. The group stresses the issue with poor water governance: local government planning was insufficient to meet the needs of farmers’ irrigation (Cabezas, 2025). The group requested six million cubic metres, arguing that cuts have been excessive for agriculture and that higher rainfall since has helped the local reservoirs replenish enough to supply their needs (Ibid.). However, Spain, like Iran, must reduce its agricultural water consumption if it is to mitigate worst-case scenarios from water bankruptcy, such as the Day Zero event facing Tehran. This further highlights the difficulty governments are now under to respond to the water emergency while ensuring provisions for local business and residents.
Axarquía water restrictions have now been significantly reduced in 2026 as much-needed rainfall has replenished vital reservoir stores. Structural concerns remain, however, and officials remain concerned over future water emergencies. They have advised local farmers, industry and residents in the region to maintain their new water habits, calling for “responsible water consumption” (Cabezas, 2026). This is the hallmark of water bankruptcy: adjusting to a new normal of lower water availability and consumption.
Iran, meanwhile, is facing similar revolt. In the Khuzestan province – home of the Gotvand Dam project – water-related protests have been going on for years. In July 2021, Khuzestan farmers and residents clashed with officials in the province over water shortages as plans emerged to transfer water from the dry, overused local basins to central Iran (Madani, 2021). Many protesters died as a result, despite figureheads in the Iranian regime displaying solidarity with the rural poor (Ibid.). This sparked fury nationwide as sympathies grew and frustrations boiled over into the streets, with demonstrations as far as Tehran (Kowsar, 2026). Isfahan, a key industrial city in central Iran, was a recipient of the Khuzestan water transfer; ironically, it too was suffering from water transfers to other neighbouring provinces, and protests here have been ongoing since 2012 (Ibid.). Now, the January 2026 protests have overlapped again with areas experiencing severe water stress, such as Illam and Khuzestan. These are “repeated episodes of escalation in regions already under acute water stress”, notes Nik Kowsar at the Atlantic Council research institute.
Solutions: The Cost of Desalination
There is a growing pattern of unrest in water scarce areas. But how are nations like Iran and Spain responding? To address the water emergency, both nations are pledging huge investment into expanding their desalination capacity. Iran is building a 800km desalination pipeline in Isfahan, which will pump seawater from the besieged Gulf of Oman at a cost of $300 million (Shokri, 2025). And Spanish officials are set to increase their nation’s desalination capacity too by another 20 per cent by 2027 (Morgan, 2025); the country is already the world’s fourth largest user of desalination and Europe’s largest adopter of the technology at 75 per cent of active European capacity (European Commission, 2026a).
Desalination, however, carries risks: the discharge from desalination is a heavy brine that, if not properly managed, can cause serious environmental harm – like damaging crops and rendering water supplies unusable. For the Isfahan project, at 800km in length, there is also a strong chance of regional soil contamination from leaks due to the large distance covered, and up to 30 per cent of the processed seawater could be lost from evaporation (Ibid.; Benamara, 2026). Umud Shokri, an energy strategist and foreign policy advisor, calls this a “long-standing pattern…of improvisation rather than reform” (2025).
Desalination is also energy-intensive, and plans to expand the use of this technology come at a challenging time for local and global energy markets. Further, the energy-intensive nature of desalination means higher prices in areas with larger demand, in order to meet supply costs. Population dense areas like cities therefore see the largest increases in prices from desalination, as a result. In Spain, as desalination plants ran in ‘overdrive’ during the prolonged 2021–2024 drought period, water prices shot up 33 per cent higher in Catalonia by the end of 2023 (Morgan, 2025). This has placed great pressure on households in the region as they recover from the post-Covid cost-of-living crisis: almost 13 per cent of Barcelona’s residents cannot pay their water bill, and 1 in 5 now risk social exclusion due to poverty or severe material deprivation (Olivia, 2024).
Expanding desalination can help to bring in emergency supply, but the technology creates its own set of risks. Population dense areas, such as Barcelona and Isfahan, will face higher water prices in the future as officials lean on the technology to plug demand. This could fuel social unrest, creating a dilemma for policy-makers who are already struggling to manage the water problem. What’s more, farmers have stressed that desalinated water may not work for their crops, and the transfer of saltwater risks contaminating local soils, too, as leaks damage local environments and produce a conundrum for agriculture. The EU Blue Economy Observatory, a subsidiary of the European Commission that observes economic activity related to the oceans and coastlines, calls desalination an option of “last resort” (European Commission, 2026a). Despite stark differences in governance and capacity, both Iran and Spain reveal the same underlying constraint: modern states are structurally unprepared for sustained water scarcity.
What this Means for Political Risk
Water is “not always the spark; it is the accelerant” (Kowsar, 2026). The challenges facing water-stressed nations are multi-faceted and complex. Local and central governments must find ways to balance the water needs of multiple groups while adjusting to new, lower levels of supply. Ultimately, Iran and Spain must reduce their consumption of water to help water sources replenish, particularly in agriculture. However, this will require a fundamental culture shift and large spending in water infrastructure to assist local populations with the transition.
Low-cost, simple solutions do exist, however. Iran, for example, could adopt more drip irrigation technology, swap water-intensive crops like rice for pistachio or saffron, and improve wastewater treatment and reuse – changes that could reduce agricultural water consumption by 30-40 per cent in 10 years (Benamara, 2026). But such changes take time, and must come alongside Iran’s re-entry into the global community if it is to benefit from the exchange of goods and technologies. This future is in doubt amid the ongoing war, which recently has taken a dark turn as desalination plants have now become a target in the conflict (Kerr et al., 2026).
Spain, on the other hand, is adopting a variety of solutions, such as using digitalisation to improve monitoring and groundwater level analysis, decentralising water powers to regions and locales, and committing vast capital to update its water infrastructure. Yet a report by TYPSA, a consultancy and engineering services group, laid bare the extent of the challenge at a Madrid water conference in November 2025: Spain needs to invest €104 billion between 2026-2035, just over €10 billion per year, to guarantee future water supply, meet environmental goals, and reduce the impact of future droughts and floods (TYPSA, 2025).
As this piece has shown, the costs of water bankruptcy are significant, both economically and socially. The crux of the UN report is that the current situation demands a complete rethink of how our water systems are managed. Iran and Spain offer important lessons for water management as unrest grows in these water-stressed regions. For Spain, recent rainfall has been a welcome change, and investment and policy reform can help to save what’s left of the natural water supply. But the price of prior neglect is being felt by vulnerable groups who face spiralling water prices, farmers who are losing their crops and livelihoods, and the huge costs needed to balance water supply and demand. For Iran, it is the start of an “adaption story – or the point of no return.” (Madani, 2025).
Bibliography
Actis, A. (2023) ‘Mango harvest in Malaga falls by 80% due to overexploited aquifers and severe consumption restrictions’, Política Online [Preprint].
BBVA Research (2025) Spain | Water emergency, BBVA Research. BBVA Research. Available at: https://www.bbvaresearch.com/en/publicaciones/spain-water-emergency/
Benamara, E. (2026) ‘When the Wells Run Dry: Iran’s Water Collapse, Regional Lessons and Why Regime Change Cannot Fix a Hydrological Crisis’, Savage Minds, 3 March. Available at: https://savageminds.substack.com/p/when-the-wells-run-dry
Cabezas, E. (2023) ‘Vélez-Málaga and at least five other towns in the Axarquía region cut off the water supply at night’, D. Sur [Preprint].
Cabezas, E. (2025) Malaga farmers demand at least six million cubic metres of water from drought-stricken reservoir for summer, Sur in English. Available at: https://www.surinenglish.com/malaga/axarquia/the-irrigators-axarquia-ask-for-least-six-20250305110445-nt.html
Cabezas, E. (2026) End of water restrictions in Malaga’s Axarquía: beach showers are back for Easter, Sur in English. Available at: https://www.surinenglish.com/malaga/axarquia/end-water-restrictions-axarquia-showers-are-back-20260330162046-nt.html
Epstein, J. and Khatinoglu, D. (2026) ‘How Israeli technology could help solve Iran’s water crisis’, Atlantic Council, 5 February. Available at: https://www.atlanticcouncil.org/blogs/menasource/how-israeli-technology-could-help-solve-irans-water-crisis/
Estrela, T. (2023) ‘Water Governance in Spain’, 21. EURO RIOC 2023, Valencia (EURORIOC/REMOC), 16 October. Available at: https://www.inbo-news.org/wp-content/uploads/2024/11/2023_EURO-INBO_Presentation_Governance_Spain.pdf
European Commission (2026a) Desalination – EU Blue Economy Observatory – European Commission, EU Blue Economy Observatory. EU: EU Blue Economy Observatory. Available at: https://blue-economy-observatory.ec.europa.eu/eu-blue-economy-sectors/desalination_en
European Commission (2026b) Water scarcity and droughts – Environment, Water scarcity and droughts Preventing and mitigating water scarcity and droughts in the EU. EU: European Commission. Available at: https://environment.ec.europa.eu/topics/water/water-scarcity-and-droughts_en
Gilliver, L. (2026) ‘Growing threat’: How climate change worsened Valencia’s deadly floods, euronews. Available at: https://www.euronews.com/2026/02/19/valencias-deadly-flood-still-haunts-spain-would-it-have-happened-in-a-fossil-fuel-free-wor
Hamid, R. (2023) ‘Gotvand Dam: Environmental Catastrophe and Human Tragedy in Ahwaz Region’, Dialogue Institute for Research and Studies, 19 May. Available at: https://astudies.org/2023/05/gotvand-dam-environmental-catastrophe-and-human-tragedy-in-ahwaz-region/
Hedgecoe, G. (2023) ‘Spain’s water war gets political’, POLITICO, 20 April. Available at: https://www.politico.eu/article/spain-water-war-political-tagus-river/
Junquera, V. et al. (2025) ‘Severe water crisis in southern Spain under expanding irrigated agriculture: A multidimensional drought analysis’, Proceedings of the National Academy of Sciences, 122(39), p. e2508055122. Available at: https://doi.org/10.1073/pnas.2508055122.
Kerr, S. et al. (2026) ‘Gulf desalination plants emerge as new flashpoint in Iran war’, Financial Times, 9 March. Available at: https://www.ft.com/content/f273fa16-ff7f-4207-a9ae-abce5de93144
Kowsar, N. (2021) ‘The IRGC and Iran’s “Water Mafia”’, Middle East Institute, 5 February. Available at: https://mei.edu/publication/irgc-and-irans-water-mafia/
Kowsar, N. (2026) ‘How Iran’s water bankruptcy seeped into the protest movement’, Atlantic Council, 5 February. Available at: https://www.atlanticcouncil.org/blogs/menasource/how-irans-water-bankruptcy-seeped-into-the-protest-movement/
Madani, K. (2021) Explainer: Iran’s ‘Water Bankruptcy’ | The Iran Primer, The Iran Primer. United States Institute of Peace. Available at: https://iranprimer.usip.org/blog/2021/dec/05/explainer-irans-water-bankruptcy
Madani, K. (2025) Iran’s Water Crisis Explained: 6 Big Questions About Iran’s Water Crisis And Tehran’s Day Zero, Forbes. Available at: https://www.forbes.com/sites/kavehmadani/2025/12/03/6-big-questions-about-irans-water-crisis-and-tehrans-day-zero/
Madani, K. (2026a) Global Water Bankruptcy: Living Beyond Our Hydrological Means in the Post-Crisis Era. United Nations University Institute for Water, Environment and Health (UNU-INWEH). Available at: https://doi.org/10.53328/INR26KAM001.
Madani, K. (2026b) ‘Water Bankruptcy: The Formal Definition’, Water Resources Management, 40(2), p. 78. Available at: https://doi.org/10.1007/s11269-025-04484-0.
MITECO (2023) Spain’s Global Water Strategy. Public Policy. La Moncla: Spain’s Ministry for the Ecological Transition and the Demographic Challenge. Available at: https://www.miteco.gob.es/content/dam/miteco/es/agua/temas/convenios-acuerdos-internacionales/estrategia-internacional-agua/SPAINs-Global-Water-Strategy.pdf
Morgan, H. (2025) ‘Spain’s water desalination dilemma’, New Internationlist | The World Unspun, 21 November. Available at: https://newint.org/water/2025/spains-water-desalination-dilemma
Olivia, A. (2024) L’AMB en xifres 2024. The Metropolitan in 100 indicators. Annual Report 2024. Institut Metròpoli: L’Institut Metròpoli. Available at: https://www.institutmetropoli.cat/wp-content/uploads/2024/07/AMB_en_Xifres_2024.pdf
Pearce, F. (2025) ‘After Ruining a Treasured Water Resource, Iran Is Drying Up’, Yale Environment 360, 18 December. Available at: https://e360.yale.edu/features/iran-water-drought-dams-qanats
Shokri, U. (2025) ‘Iran’s Desalination Pipeline Is More Stopgap Than Solution’, Stimson Center, 11 December. Available at: https://www.stimson.org/2025/irans-desalination-pipeline-is-more-stopgap-than-solution/
Tehran Times (2019) ‘97% of Iran affected by long-term drought: expert’, Tehran Times, 1 February. Available at: https://www.tehrantimes.com/news/432532/97-of-Iran-affected-by-long-term-drought-expert
The Water Diplomat (2025) Threat of Day Zero in Tehran: water reserves drop below 5%, The Water Diplomat. Available at: https://www.waterdiplomat.org/story/2025/11/threat-day-zero-tehran-water-reserves-drop-below-5
TYPSA (2025) ‘Water and the Future: Roadmap for Water Resilience in Spain’, Grupo TYPSA, 28 November. Available at: https://www.typsa.com/en/water-and-the-future-roadmap-for-water-resilience-in-spain/
UN-INWEH (2026) World Enters “Era of Global Water Bankruptcy” UN Scientists Formally Define New Post-Crisis Reality for Billions, United Nations University. UN-INWEH: United Nations. Available at: https://unu.edu/inweh/news/world-enters-era-of-global-water-bankruptcy
