The Oil Boom of the 1970s

The oil boom of the 1970s was the sudden rise in Iran’s oil income after the world price of crude quadrupled in late 1973. Mohammad Reza Shah used the money to launch a vast programme of industry, arms purchases and welfare that he called the road to a “Great Civilisation”. Within three years the boom had also produced high inflation, clogged ports, a flight from the countryside and an economic slowdown, and many historians count it among the causes of the revolution of 1978–79.

The shah and OPEC

Iran had pressed for higher prices since the 1960s. In February 1971 the Tehran Agreement between Gulf producers and the oil companies raised prices and taxes, and in 1973 the consortium handed full control of the industry to the National Iranian Oil Company. When war broke out between Israel and its Arab neighbours in October 1973, Arab producers cut supplies to countries that backed Israel. Iran did not join the embargo and kept selling, including to Israel, but it supported the price rises. On 16 October Gulf producers raised the posted price from about $3 to $5.12 a barrel. At a meeting in Tehran on 22 and 23 December, OPEC’s Gulf members set it at $11.65 from January 1974; it was the shah himself who announced the figure at a press conference, and he became, in Western eyes, the face of the price revolution.

Spending the windfall

In the summer of 1974 the shah ordered the Fifth Development Plan (1973–78) to be revised upward, roughly doubling its planned spending. The new targets included steel, petrochemicals, cars, a network of roads and ports, and a nuclear power programme of more than twenty reactors under the new Atomic Energy Organisation (see Iran’s nuclear programme). The state promised free secondary and university education, free school meals and expanded health care, added as new points to the White Revolution. Iran also lent abroad and bought into Western companies, including a quarter of the steel arm of the German firm Krupp.

A large part of the money went on weapons from the United States and Britain, a story told on Iran as a regional power. In his book Toward the Great Civilisation (1977) the shah predicted that Iran would soon be among the world’s five leading industrial powers.

Bottlenecks and inflation

The economy could not absorb money at that speed. Ships queued for months outside the ports of Khorramshahr and Bandar Shahpur, and goods rotted on the docks. Electricity, roads and housing fell short; Tehran had regular power cuts by 1977. Skilled workers were scarce, so tens of thousands of foreigners came to work in Iran, many of them Americans on defence contracts, which created friction with Iranians. Rural migrants poured into Tehran, where shanty towns spread on the southern edge of the city.

Prices rose fast, especially rents and food. Official inflation was in the teens and, by most estimates, higher in the cities in 1975–77. The government blamed shopkeepers. In 1975 it launched a campaign against profiteering, sending inspectors, many of them young members of the new Rastakhiz party, into the bazaars; thousands of merchants were fined, jailed or exiled from their towns. Historians such as Ervand Abrahamian see this campaign as a key step in turning the bazaar, traditionally linked to the clergy, against the shah.

The slowdown of 1976–77

By 1976 world demand for oil had softened and Iranian revenues stopped rising while spending commitments kept growing. The government borrowed, cut projects and, under Jamshid Amouzegar from August 1977, deliberately cooled the economy. Construction slowed and many newly arrived workers lost their jobs just as political protest began. Sociologists of revolution, following James C. Davies, have pointed to this sequence of rapid gains followed by a sharp reversal as a classic setting for revolt; economists such as Jahangir Amuzegar, who served the shah’s government, and historians such as Homa Katouzian, who coined the term “petrolic despotism” for the regime, differ on how much was bad luck and how much bad policy.

How it is remembered

Iranians who lived through the boom often remember it for new opportunities: travel abroad, cars, university places and well-paid jobs. Others remember inflation, overcrowding and the sense that the gains went to a narrow group close to the court. Both memories are real. Most historians agree that the boom gave the shah resources to pursue his ambitions without consulting anyone, and that when the money stopped growing the political system had no means of sharing the pain. See also the causes of the 1979 revolution.