Implications of the Iranian Revolution: Global Oil Markets, US Policy, and Saudi Arabia
For decades, Cold War thinking had dominated the political circuits in the United States and Russia alike. The economic war split the world in two, those who were democratic and those who were communist. Political philosophers claim that this ‘binary’ thinking has never really gone away and has instead shifted to other specific classifications of those who are in and those who are out. As the line between Communism and Democracy faded, the importance of a unified globalized economic world began to be preached. Ayatollah Khomeini’s revolution in 1979 would challenge this very view. Spurred by anti-western sentiment, the Islamic cleric channelled the anger of the population and nationalized the oil companies that operated within Iran for decades. The drop in supply during the nationalization process would have drastic effects on the global economy, reaping havoc on the net-importing Western democracies. The revolution caused drastic shifts in American foreign policy, marking the beginning of a shift in the global importance of Soviet-American competition, towards protection of the world’s most vital resource. As a result of this American shift, a new binary would be created in the Middle East, those who supported America and those who did not. Although the Cold War ends a decade following the revolution in 1981, the shift away from its importance begins two years earlier in the nation of Iran.
For most of it’s modern history, oil dominated the importance of strategic involvement in the Middle East. The world’s first refineries were built under contract by the British “Anglo- Persian Oil Company” in 1913, and would serve as a vital strategic resource by providing oil for Britain’s newly converted military fleet. Refined oil would allow Britain to extend the range of its shipping, out competing its coal predecessors that would eventually be dropped for superior speed and ranges oil could provide. As the magnitude of oil discoveries was realized by both western and local leaders; exploration, construction, and production increased massively in the years following world war I. With it’s increased importance on a global scale, interventions within the Middle East became increasingly common. It is no coincidence that the British landings at Al Faw were some X miles from Abadan, and was designed to stop the threat the Ottoman Empire posed against vital oil refineries in Iran. Military interventions became commonplace, with local governments and populations becoming increasingly critical of the lack of sovereignty and self determination imperialist countries allowed . The 1970’s saw Iranian’s themselves in a very similar situation they had existed in prior to World War II. Although British intervention had decreased as a whole, it was America that realized the full potential of the Middle East, and would set the competitive pace of policy in the region. In 1951, democratically elected Prime Minister Mohammad Mosaddegh attempted to audit the Anglo-Iranian Oil Company, and vet the companies control on reserves and profits. Mossadegh’s attempt to audit the company came in a wave of anti-imperialist and anti-western sentiment, as Iranians began to blame concessional policy that had dominated Iranian political process since the mid 19th century. The AIOC refused this attempt to audit the company, as an estimated 16% of net profits remained in Iran, with the rest being transferred outside of the country. Using this significant public support, Mosaddegh pushed a bill through the Iranian parliament that would nationalize the Anglo-Persian Oil Company, which the Americans and British saw as a direct attack on the flow of this strategic resource. As a response, Britain organized an international boycott of Iranian oil, and for the second time, mobilized troops to secure the operation of the Abadan oil refinery, which is located on the southern shore of Iran. To regain control of oil production, British and American interests would need to remove the democratically elected Mossadegh, who ousted a sympathetic Reza Shah in 1951. Operation Ajax was the CIA codename for the operation that would seek to regain western control of Iran. By bribing officials in Mossadegh’s political parties, coupled with the economic downturn caused by an international embargo on newly nationalized Iranian oil, saw the quick and effective removal of Mossadegh. Replacing him would be Reza Shah, who would operate under western influence, ensuring the flow of oil would be unimpeded throughout his reign, that is until his eventual overthrow in 1979.
This first chapter provides a brief insight into the history of oil production in Iran, and the many challenges the young country faced to its direct sovereignty of its people for imperialist rule. The experiences of Iran serve as a benchmark for the general political process that was happening in the Middle East at the time. A broad historiography for the region would state that popular politics would continue to be suppressed in many countries in exchange for western control of strategic interest. When fit into this theme, the actions of Ayatollah Khomeini in 1979 mark an important shift in the direction of the region as a whole, and a victory for popular politics and anti-imperialists alike. Following the coup in 1953, Reza Shah’s rule was “characterized by political repression and military and political dependence on the United States.”[1] The popular discontent for foreign interventions remained, and thus the Shah was forced to adopt a policy that aggressively cracked down on local dissidents. This policy was massively effective for nearly 20 years, until the conditions for economic and political action began to develop in the later half of the 70’s. Oil continued to be the economic lifeline for Reza Shah’s regime, as nearly all of the government revenue stemmed from the export of oil in the massively developed international oil market. Initial rumblings of change began in 1977 from some of Iran’s estimated 80,000 workers who oversaw the extraction, refining and exporting of 3 million barrels per day.[2] 1977 saw increased inflation and a recession that crippled purchasing power for all workers in Iran, and popular discontent grew for the economic direction of the country. Workers in the oil industry began to demonstrate for increased housing allowances and higher wages to combat the decrease in purchasing power. In September of 1978, workers in Tehran became the first to organize and demonstrate. The government responded by attempting to disperse the demonstration in Tehran’s main square which led to the death of 12 demonstrators.[3] The next day, the protest swelled to 700, this time arguing not only for higher wages, but also the end of military crackdowns on legal demonstrations. By the end of September, what started out as discontent for housing allowances had swelled into a massive anti-government protest stemming out of the crucially important oil sector. SAVAK, the Iranian secret service reported that by the end of September, some 21 individual strikes occurred at oil refineries, extraction points, and exporting centres, involving some 11,000 workers.[4] Emboldened by the effectiveness of striking, many politically motivated individuals joined the ranks of striking oil workers and began the public and popular reform of the Shah’s oppressive monarchy. What began as economic discontent quickly grew into a challenge of government authority, and the ideas that inspired Mossadegh’s nationalization attempt in 1953 were reiterated in a modern context. In an excerpt released to the public, oil workers justified their actions
“because we oil workers are witness to the savage pillage and robbery of our national wealth by imperialism, we are determined to stop the production and export of oil by withdrawing our labour and by preventing [others from] working so that the 5th column of the enemy is unable to continue the destruction of our lives without taking into account the rage of the Iranian nation.”[5]
National feelings and fueled by anti-western sentiment emboldened the political debate, particularly an Islamic cleric by the name of Ayatollah Khomeini, who spread his ideology from his exile in Paris. Preaching a rejection of western influence in all aspects of Iranian life, Khomeini preached martyrdom against any injustice and tyranny.[6] In a few short years, the exiled Khomeini harnessed the discontent and established an Islamic republic, consolidating power and drastically reducing the power and effectiveness of western influence on the country. The economic complaints of the oil workers in Tehran had been drastically mismanaged by the Shah’s regime and created a “unity with the fighting people of Iran” with the purpose of “eliminat[ing] the influence of foreigners in our country.”[7]
The immediate effects of the Iranian revolution were startling to the many countries and companies that made up the global oil market. Oil exporting from Iran resumed quickly following the revolution, however; because of anti-western sentiment, the industry lost vital foreign contracted workers, and thus resumed below maximum efficiency. Contemporary analysis places the total decline of global production at 4% following the revolution[8], despite efforts by OPEC to offset the loss in Iranian production by increasing production in OPEC’s ten member states. The loss of just 4% of global production created a massive route in the spot market for oil. At the same time of this decrease in production, the U.S. imported around 30% of its oil from Saudi Arabia, with Western Europe and Japan sitting in far more vulnerable position importing 60 and 70 percent respectively[9]. Fearing reserves would eventually run out, the spot market increased massively in price, with routing countries buying oil at any price to increase their reserves. With the route forcing the spot market higher and higher, OPEC was eventually forced to raise prices as a response. Adjusted for inflation, oil peaked at 102 American Dollars per barrel in 1980[10], causing recessions, inflation and high unemployment in the many western countries that relied on the import of Middle Eastern oil for the daily health of their economies. Coined as ‘stagflation’ by modern economists, the period saw a lack of growth for nearly half a decade, with varying complex effects on the economies of Canada, the United States, Western non communist Europe, and Japan. The revolution in Iran, in a few short years had dealt a substantial blow to the health of the global economy, and proved that isolated events could have real implications beyond the country they emanate from.
The 1980’s saw a shift in doctrine adopted by the United States that was to deal with the ever growing importance of oil and international markets. Through the 60s and 70s America had been fighting an ideological war with Soviet Russia that had yielded very little substantive results. Declining in economic stature, Soviet Russia invaded Afghanistan in 1980 in an attempt to prop up a communist government. The United States saw the invasion as a threat to the sovereignty of the region as a whole, having just experienced the very real effects of a revolution in Iran a year previously. In his state of the union address made on January 23rd, 1980; president Jimmy Carter states that America’s “vital interests” would be resisted by “any means necessary, including military force.”[11] The line drawn in the sand during Carter’s infamous state of the union address would lay the fundamental principles that still determine America’s foreign policy to this day. Russian and Iranian disruptions to oil production had caused massive financial implications, thus America would bear the burden of maintaining the delicate flow of oil from the Middle East through military interventions. Another implication of the Iranian revolution was the very fear that Khomeini’s ideology would begin to spread to other countries. His vocal preaching and use of media had toppled the Shah in Iran 2 years previously, and following a period where he consolidated his power, began spreading his ideology on a global scale. Following the same pro-Islamic and anti-western sentiment, America would be forced to develop close relationships in the Middle East to help combat his vocal preaching. The domino effect established 20 years previously under Nixon was meerly adapted to a semi-regional level in the Middle East. Instead of fighting the spread of communism, it would fight the spread of Khomeini’s anti-western attitude through ideological opposition.
Allying itself with Saudi Arabia would be the next policy decision that would help reestablish American balance of power in the region. Escalating this friendship was Khomeini’s argument for Islamic martyrdom as a central tenant of Shia Islam. In 1979 an attack on an American Embassy in Islamabad killed 6 people, including two Americans. The attack was inspired as a result of fake news that reported that America was responsible for a terrorist attack on the Grand Mosque in Mecca. Khomeini’s export of a radical Shia militancy was fueling tension between the regions Shia and Sunni Islamic denominations, with America bearing most of the blame for the region’s struggles. The early 80s saw a great divide created between the Iranian government and those loyal to American and Saudi interests. The ‘politicization of Islam’ and manifested itself in many specific instances between Saudi Arabia and Iran, and caused the division of the region as a whole. The first of these instances were challenges to the Hajj, the religious pilgrimages that Muslims make to the holiest of shrines, the Kaaba in Mecca. Khomeini’s supporters were using the pilgrimage as a way of demonstrating their new ideology developed under the new ruler of Iran. They called for the liberation and disavowal of infidels during the Hajj itself, which struck a contentious cord with the Sunni Muslims of Saudi Arabia, who had grown geo-politically close to the United States and her western allies. The Hajj was “not merely a religious duty but an occasion for an ‘Islamic uprising’ to expose the ‘misdeeds’ of the Pro-American Saudi regime.[12] As a result, Saudi Arabia responded controversially by limiting the amount of Iranian allowed on the pilgrimages from 150,000 to just 45,000 in 1983.[13] The ‘politicization’ of the Hajj reached a violent ending in 1987 when Shia demonstrators clashed with Saudi security forces, resulting in the deaths of 275 and injuring 303. Iran response was an official ideological declaration of war.
“The martyr’s blood [to] be avenged by burning the roots of Saudi rulers in the region… The true revenge is to remove the colossal and precious wealth belonging to the Islamic World which lies under the soil of the Arabian Peninsula from the control of criminals, the agents of colonialism, The Saudi rulers have chosen an evil path and we will send them to hell.”[14]
Official diplomatic ties with the two countries ended in 1988.
Meanwhile, the Carter Doctrine was spanning out during the early 1980’s. Major shifts in the balance of power in the gulf were mostly deterred by the impactful and intentionally broad declaration made during the creation of the Carter Doctrine. President Reagan began work on the development of the Rapid Deployment Force, or RDF.[15] Saudi Arabia quickly became the cornerstone of United States policy in the Gulf and Reagan was determined to not let Saudi Arabia ‘ be an Iran.’[16] Regan also pushed bills through congress that would allow the rapid armament of Saudi, Pakistani, and Turkish militaries and re-establish the sanctity of borders and airspaces within the Middle Eastern region. Reagan personally approved four E-3A airborne warning and control systems to be built along the Red Sea, and in 1984, Saudi F-15’s shot down Iranian fighter planes that violated Saudi controlled airspace for the first time. The policy of arming opponents of Iran continues to this day, with each new president approving new complex arms deals to the oil rich countries that fundamentally oppose Iran.
1979’s revolution in Iran saw a great shift in the balance of power in the world. Iran punished oil dependent countries in retaliation for its long and turbulent modern history. The policy of maintaining oil flow at all costs severely damaged both British and American credibility in the region, and left the Iranian government vulnerable to takeovers, like the one Ayatollah Khomeini perpetrated in 1979. Harnessing anti-imperialist and pro-islamic energy, Khomeini seized power at a time when the global economy and governments were not prepared. The oil shocks beginning in the 70’s caused massive panics in oil markets, leading to a shift in American policy in which they began the rapid armament of Middle Eastern governments that opposed the Islamic clerics regime. The obvious candidate for these military payments was Saudi Arabia, who engaged in intellectual wars with Iran, as they began to preach and demonstrate a new form of aggressive Shia Islam. The effects of the revolution, despite occurring 40 years ago, are still very much being felt today. The modern world still experiences this Saudi- Iran proxy, billions in heavily criticized arms deals to Saudi Arabia, and the Shia-Sunni split; all of which changed or developed following the revolution of 1979.
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[1] Peyman, Jafari. “Reasons to Revolt: Iranian Oil Workers in the 1970s.” International Labor and Working-Class History (2013): pp.195-217
[2]ibid
[3]ibid
[4] ibid
[5] Communique of the United Syndicate of Oil Workers of the Iranian Oil Industry, December 23rd 1973. Cited in Peyman Jafari “Reasons to Revolt”
[6] Wright, Robin “The Last Great Revolution Turmoil and Transformation in Iran”. The New York Times (2000).
[7] Moaddel, Mansoor, “Class Struggle in Post Revolutionary Iran,” International Journal of Middle East Studies (1991), pp.317-343.
[8] “Oil Squeeze,”Time, February 5, 1979, 9.
[9] Walter J. Levy, “Oil and the Decline of the West,” Foreign Affairs (1980), pp. 999.
[10] Mouawad, Jad. “Oil Prices Pass Record Set in ’80s, but Then Recede”. New York Time. March 8, 2008.
[11] Klare, Michael T,“Oil, Iraq, and American Foreign Policy. The continuing salience of the Carter doctrine.” International Journal (2006), pp.31-42.
[12]Bahman Baktiari, “Parliamentary Politics in Revolutionary Iran: The institutionalization of Factional Politics,” University Press of Florida, 1996.
[13] ibid
[14] Mohammed Mohaddessin, “Islamic Fundamentalism: The New Global Threat,” Seven Locks Press, Washington DC (1992).
[15] Kuniholm, Bruce R. “The Carter Doctrine, the Reagan Corollary and prospects for United States Policy in Southwest Asia.” International Journal (1986).
[16] ibid
