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The Iranian Revolution: Its Impact on Economic Relations with the United States

Published online by Cambridge University Press:  29 January 2009

Khosrow Fatemi
Khosrow Fatemi
Affiliation:
Middle Tennessee State University, Murfreesboro, Tennessee
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Extract

The international political implications of the Iranian revolution will not be known for many years to come, and American foreign policy makers and pundits will debate the question of “who lost Iran” long after that. Even the international economic implications of the revolution will not be fully realized, or recognized, in the near future. It is, however, already amply clear that the fall of the Shah has had profound consequences on Iran's economic and trade relations with other countries, in general, and with the United States in particular. It is to the latter issue that this essay addresses itself.

Type
Articles
Information
International Journal of Middle East Studies , Volume 12 , Issue 3 , November 1980 , pp. 303 - 317
Copyright
Copyright © Cambridge University Press 1980

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References

Notes

1 The United States' refusal to grant Iran most-favored-nation status or include Iranian non-oil export products in its General System of Preferences (GSP) limited, and in fact effectively eliminated, Iran's ability to penetrate the U.S. market. That notwithstanding, Iran's potential to expend its non-oil exports to any country was severely curtailed after the 1974 oil price increases by added consumption and hyper-inflation at home and by more intense competition from other countries in potential markets such as the United States.

2 While there were no indications that he was planning a nuclear capability, his insistence on nuclear power plants for Iran seemed highly precarious. Why would a country with the world's second largest reservoirs of natural gas and while exporting more than five million barrels a day of oil want to build more than 20 nuclear power plants at an estimated cost of $60–80 billion? Even politically this did not seem justified because Iran does not have any uranium deposits and such a reliance on nuclear energy would have made Iran dependent on other countries for raw material for a very large percentage of its energy production. Considering that the Shah was not politically naüve, it could be argued that his long-range plans did indeed include a nuclear capability. In doing so, one could not think of a better way of obtaining both the enrichment plants and the technology needed for nuclear weapons than having 20 nuclear plants in Iran.

3 The Wall Street Journal, 02 5, 1979.Google Scholar

4 The breakdown of ownership in the Iranian Oil Participants, Ltd., commonly known as the Consortium, was as follows:British Petroleum (British) 40% Royal Dutch Shell (Dutch/British) 14% Exxon (American) 7% Texaco (American) 7% Mobil (American) 7% Standard of California (American) 7% Gulf (American) 7% C.F.P. (French) 6% Iricon Group of Companies (American)5%

5 Los Angeles Times, 01 I, 1979.Google Scholar

6 Joint ventures with American companies in the Iranian oil industry were: (i) Iran-Pan American Oil Company (IPAC), a venture with Pan American Oil Company, a subsidiary of Standard Oil Company of Indiana; (2) Iranian Marine International Oil (IMINOCO), an international joint venture including 162/3 percent by Phillips Petroleum Company; (3) Lavan Petroleum Company (LAPCO), a 50–50 joint agreement between Iran and four American oil companies: Atlantic Richfield Oil Company, Murphy Oil Company, Sun Oil Company, and Union Oil of California.

7 The revisions came after the 1974 Abu Dhabi meeting of OPEC Oil Ministers and was in fact an implementation of an OPEC decision in the framework of the 1972 agreement.

8 Based on an average lifting by Consortium Members of 3.5 million barrels per day National Iranian Oil Company's direct exports accounted for another 1.5–2 million barrels per day.

9 Indexation would have made the price of oil dependent on the price increases in the West as indicated by either consumer price indexes of industrial countries or an index of import prices of OPEC countries.

10 A possible exception is “Iran's Energy Picture after the Revolution” by Dr. Feraidon Fesharaki, a former Energy Advisor to Iran's Prime Minister. In Petroleum Intelligence weekly, special supplement, September 24, 1979.

11 This discussion only deals with the Consortium area (which accounts for more than 90 percent of total production) and does not include joint entures.

12 During a visit to the Abadan Refinery in September 1979, the oil minister was so severely beaten up by oil workers that he had to be hospitalized for several days.

13 Even during the Shah's regime many Iranian oil specialists, myself included, expressed the view that, for technical and economical reasons, Iran's production should be curtailed to about 3 million barrels per day. While highly unlikely under the present Iranian circumstances, it is entirely possible that on this issue the professionals have won over bureaucrats and politicians.

14 OPEC's traditional “moderates” have been Saudi Arabia, Kuwait, the United Arab Emirates and Qatar – all Persian Gulf producers. Consistent price “hawks” on the other hand, have been Irag, Algeria, and Libya. Iran's move has clearly shifted the balance in favor of the latter group.

15 Saudi Arabia's production in 1979 was 9.2 million barrels per day, up by 14.8 percent or 1.2 million barrels per day over 1978.

16 U.S. Department of Commerce, Iran: A Survey of U.S. Business Opportunities (1977).

17 Most of the drop was due to the reluctance or inefficiency of the U.S. government to reach an agreement with the Atomic Energy Organization of Iran for the sale of American nuclear power plants to Iran. Of an estimated $2.0 billion market for electrical generators, the U.S. was expected to capture $53 million, a mere 3 percent. Excluding this industry, the American share in Iran's capital goods market would have been 22 percent.

18 Assuming, of course, no further deterioration of the relations between the two countries and a peaceful' solution to the embassy seige.

19 Before the revolution, even while factories in Iran were operating at capacity, the country had to import consumer goods. Today the same plants are operating at an estimated 40 percent capacity, in effect reducing local production by 60 percent. Much of this reduced supply is counterbalanced by diminished demand caused by unemployment and revolutionary rhetoric, but the rest – a much higher percentage of the total than in prerevolution days –will have to be met by imports. Failing that, shortages, already reported in some sectors, will become widespread and more frequent.

20 This was repeatedly illustrated before an international television audience during the seige of the American Embassy in Tehran.

21 Even though some of the most severe criticisms of the Shah were directed against his military build-up, events since his downfall have given credibility to this argument.

22 For a more comprehensive discussion of the casual factors of the Iranian Revolution see Khosrow Fatemi and Ralph Salmi, Iran in Revolution: A Multidisiciplinary Analysis, forthcoming in 1981.

23 Many analysts believe that the seizure of the American Embassy in Tehran and particularly the prolonged holding of hostages is a diversionary attempt by Mr. Khomaini and his aides to save their faltering revolution.