The Garrulous Jay – H2zerO

A Substack piece by Peter Frankopan grabbed my attention this week. Titled, Evacuating the Capital? Inside Iran’s Water Crisis and the Politics of Drought, it addresses the increasingly urgent challenge the country faces keeping the taps running in Tehran.

Frankopan describes how, “Tehran’s water shortage has gone from chronic to critical”, leading to Iran’s President now raising the very real possibility that parts of the capital may need to be evacuated.

He acknowledges that others claim this to be alarmist politicking, and in a way this is the point. There are districts of Tehran where the fountains are still running, while other areas suffer night-time drops in pressure to limit availability. There are also claims of chronic mismanagement of the country’s water infrastructure.

But the root cause is the same: supply. The rains aren’t coming, rivers aren’t flowing and reservoirs aren’t being replenished.

Tehran’s problem is by no means unique. Perhaps most infamously, in 2017 Cape Town’s authorities started counting down to ‘Day Zero’: the day on which the city would literally run out of water. 

Cape Town’s experience features in a February article on theconversation.com that also explores how four other cities also addressed water crises: Las Vegas, Sao Paulo, New Orleans and Melbourne. What is striking is that these five cities are located on four different continents.

Furthermore, research carried out by the World Resources Institute suggests that by 2030 India’s water demand is expected to be twice the available supply. Globally, UNICEF estimates that over two billion people live in countries where water supply is inadequate.

I think that water is the forgotten material in Ed Conway’s excellent book Material World. Overlooked because its supply is often taken for granted. For most of humanity’s time on earth it has been abundant and free… It falls from the skies, runs in rivers, accumulates in lakes and gathers as ice.

The growth of cities has brought costs and challenges, but in broad terms the raw material itself remains free. As a result water has become a case study in “the tragedy of the commons”: a resource that is over-exploited by everyone because it is owned by no one.

This problem has been exacerbated by climate change and its impact upon weather patterns as well as ice melt. The taps are running dry in places because the sky is running dry.

What relevance does this have to investors?

At the broadest level I think water serves as a stark example of an ‘elephant in the room’: a variable that is so large there is a risk it gets overlooked. Economies and businesses that thrive based on other activities would not survive without H2O.

Then there are the second order effects in terms of political unrest and migration. These are issues that could destabilise the worst affected countries, but also those nations where people driven from their homes seek to relocate.

In the long-run it may be the Big Issues such as the threat of ‘H2zerO’ that undermine superficially attractive short-term investment ideas.