Yergin – Chapter 33 “The Second Schock: The Great Panic”
– Anonymous newspaper article against Ayatollah Ruhollah Khomeini sparked great animosity towards Mohammed Shah’s regime
– Animosity between two parties dated back to 1920s during struggle for power between Shiite clergy and Reza Shah
– After millions of dollars were lost in failed attempts of modernization, Iran was in the midst of economic chaos and social and political tension
– People were moving into overcrowded cities, agricultural output was down and food imports were rising; Inflation was fueling discontent of Shah’s regime
– Electricity demand outweighed supply causing periodic blackouts throughout the country
– Khomeini embodied opposition to and discontent of the Shah, becoming political voice against the “White Revolution”, a reform program
– Under Jimmy Carter, Human Rights became an issue leading to organizations to target Iran and the Shah, while he was focused on the political liberalization of Iranian Government.
Human Rights record began to mount against him where the United States openly criticized his handling of his government crackdown (through SAVAK – secret police) and many other abuse of power. Inside frustration also increased and this brought intense pressure on the Shah after Carter’s election.
– Another article ridiculing Khomeini was printed on January 7, 1978 and sparked riots in holy city of Qom; many demonstrators were killed leading to a 40-day mourning period after which more demonstrations led to more killings; known as “doing the 40-40.” This article aimed at killing Khomeini’s credibility, but this fired back at the Shah when riots were set of in the city of Qom.
– Mohammed Shah was focused on his liberalization, joining British and American ranks in not believing that his regime was in trouble
– In the meantime, US intelligence on Iran was not important and not on the forefront of policy; as a analyst said “ You couldn’t give away intelligence on Iran”
– By September 28, 1978 the Defense Intelligence Agency predicted that the Shah will weather the storm and remain in power for another 10 years.
– At the same time, fundamentalists set movie theaters on fire, opposing “sinful movies”; by early September demonstrations had reached Teheran
– Signs of the Shah having leukemia became noticed by British ambassador in mid-September, as he had previously been diagnosed by French doctors in 1974
– Seeing the collapse of his regime, the Shah begins to admit when he stated “we are melting like snow in the water.”
– Khomeini who had been exiled to Iraq gets expelled from there as well and established himself in France in October 1978
– Global impact of oil strikes following discontent of Iranian regime as exports of 4.5 million barrels per day were reduced to just one million per day
– In order to quell demonstrations, the Shah installed military government, yet the General in charge suffered a heart attack, weakening any authority
– Carter Administration in wake of lack of intelligence was in shock with incidents as they were more focused on Camp David Accords, SALT negotiations with Soviets and Chinese relations
– The US did not send clear signals to the Shah on how to deal with the situation and some articles published in respected papers in the US predicted Khomeini to be a progressive ideologue who would be seen as a stabilizing factor in Iran.
– In December 1978, Khomeini called for blood, vengeance and more martyrs
– Shah refused to crush major demonstrations and humiliated by prank phone call
– Christmas day, Iranian oil exports came to a halt, spiking spot prices on oil 10-20%
– Osco, decided to evacuate its Western employees with the last man leaving at the end of January following an “epic” journey home
– Second Oil Shock started in December 1978 when Iran ceased its exports
– Lack of oil was offset by other companies
– Saudi Arabia increased oil production but then cut back early 1979
– Jan. 16, the Shah went to the airport and said that he was tired and needed rest. The show was over.
– Feb. 1, Khomeini was back in Tehran
– Lack of Iranian oil only represented 4-5% loss of supplies, but caused price increases of 150% caused by panic explained by five circumstances
– Apparent growth of oil consumption and the signal that it gave to the market
– Disruption of contractual arrangements within the oil industry, resulting from revolution in iran
– Contradictory and conflicting policies of consumer governments
– Upheaval presented the oil exporters with the opportunity to capture additional rents, pushing the price up
– Uncertainty, anxiety, confusion, fear and pessimism fueling actions during the panic
– Many governments and buyers bought as much oil as possible while prices were low on any given day, increasing their reserves, continuously driving up prices through hoarding
– As Britain was more dependent on Iran for their oil imports, BP was forced to invoke “force majeure” (act of God) to cut back on third party contracts to buyers
– created a domino effect down the line, as more suppliers cancelled contracts and shipments
– spot crude prices spiked more early in 1979 with OPEC countries deciding they can charge whatever the market could provide for oil; “Free-for-all” in setting prices
– Leap frogging: producers vying with each other to raise prices
– Scramble: bruising competition for supply among purchasers
– Iran slowly began exports at the beginning of 1979, but spot crude prices had risen by 30%
– Saudis opposed the leap frogging of prices and issued “Yamani Edict” stating they would stick to the official prices, yet cut production again sending spot prices even higher
– Carter Administration started pursuing synthetic oils and other means of energy
– Three Mile Island nuclear plant incident stalled progress and raised doubts about nuclear energy
– Fears of running out, consumers stockpiled oil spiking prices and creating gas lines as before in 1973
– Spot prices finally eased off during the Summer of 1979, but some OPEC countries continued the decrease in production
– So, the combination of so many factors -oil crisis in 1979-80, the Iranian political collapse, and the Three Mile Island nuclear plant leak and the inflation was also moving up in the U.S. – were clear signals for the beginning of the end for Carter administration, who came to power in 1977.
– Carter, in aim to boost his administration, asked for every member of his cabinet to submit resignation to send a signal to Americans that he was to begin fresh. This had a boomerang effect and Washington Post editor soon reported that US Central government collapsed.
– Egypt was embargoed by Iraq for the signing of the Camp David peace accords
– Nigeria nationalized its BP fields and then auctioned them off for a higher price
– Iran’s internal struggles caused a state of anarchy by the fall of 1979