A REVOLUTION THEN A WAR & THE MASSIVE “II OIL CRISIS”

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In the first article we have seen that the first oil crisis was caused due to the war between Israel and Arab countries. 
Now in the second article We will discuss the second oil crisis. This time there is a war between two nations and also a war within the nation. 
So the second oil crisis was caused by 
  1.  Iranian revolution
  2. Iran - Iraq war
So this time we have to first develop a base about iranian revolution and also the Iran - Iraq war to clearly understand the oil crisis of 1979.
Mark my words, “whenever there will be tensions in the middle-east there will be an oil crisis”. Whether the crisis will be major or minor, this depends on the gravity of the situation caused by tensions among the middle east . 
IRANIAN REVOLUTION 


The iranian revolution is also known as the Islamic revolution. This revolution was against Shah Mohmad Reza Pahlavi who was an iranian monarch. 
Some of the main reasons because of which revolution took place were:
  1. There were massive earnings in 1973(first oil crisis). They were on new heights.
  2. But they planned over ambitious economic programs.
  3. Short economic contraction in 1977-78. 
  4. Corruption in the royal court.
This revolution was started in october 1977 and took a massive turn in 1978 when ‘Rex Cinema’ was burnt by the protestors. The protest was supported by Islamist, Leftist, and students. Later  Shah Mohmad Reza Pahlavi had to leave Iran. He was sent  to exile on 16 january 1979 and was the last persian monarch.
After that Ayatollah Ruhollah Pahlavi Kholmeini became the leader of iran. 
Shah Mohmad Reza Pahlavi  had good terms with America. Therefore he went to America claiming that he was going to New York for his treatment.
On November 4 , 1979, just after Shah arrived at New York. Around 52 US diplomats were held as hostages in Iran for around 425 days. The hostages were released only after America returned Shah back to Iran on January 20, 1981,
January 20, 1981, was the day when USA's president Jimmy Carter's term ended.
IRAN - IRAQ WAR
 
 As  Ayatollah Ruhollah Pahlavi Kholmeini  came into power in Iran, Saddam Hussein(5th president of Iraq) was deeply distressed. 
The main reason was that Saddam Hussein was threatened by the islamic revolution in Iraq. he was a “Sunni” muslim while Ayatollah was a “Shia” muslim.
On the other side Ayatollah considered Saddam as a brutal sunni leader who was suppressing his shia community.
Saddam wanted to throw Ayatollah from power as soon as possible. Therefore Iraqi army started invading Iran in september 1980. However Iran occupied the lost area in 1982. 

II OIL CRISIS


The Iran-Iraq war erupts in 1980 and disrupts the oil supply.
 After the first oil crisis, OPEC lost its status as their contribution in world’s supply declined to 29% from 50% in 1979.
 As I have written in my first article that after the first oil crisis other countries started finding alternative energy resources and those countries having oil as a natural resource started expanding their production. There are several countries like Norway , Venezuela, Mexico, Nigeria, and soviet union who expanded their production after the first oil crisis. 
Even after several measures there was a massive impact of the second oil crisis.
Iran’s oil production decreased by 4.8 million barrels per day, which was around 4% of the world's total oil production. Therefore, there was a world wide loss of around 4% crude oil. The prices rose about 3 times i.e. from $13 to $34. 
The US consumer price index (retail inflation) went up to 18% per year in march 1980. The great recession of 1981-82 was the worst recession since the depression of the 1930’s. 


IMPACT ON INDIAN ECONOMY 
India somehow managed the fiscal crunch during the first oil crisis but the second oil crisis forced India to borrow money from external sources. Therefore  India borrowed a three year loan of around $5.8 billion. 
There were many structural changes that were made during that period. Also Liberalization was introduced at that time in the industrial sector. 



Shaurya Gupta 
Bcom(Hons) , University of Delhi
Financial Markets(Hons), Yale University 

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