Iran’s development bears the indelible stamp of its oil wealth. When oil prices went up in 1973/74 the Shah’s budget leapt ten times from just over two billion dollars to nearly 20 billion (see Lubricating the Economy). Iran shared the problem of all underdeveloped countries suddenly flooded with oil money: how to spend it wisely?
GUNS AND BUTTER
The Shah was bent on ‘modernisation’ and imperial extravagance. His priorities - reflected in the table alongside - were not so different from other oil rich states: arms spending - totalling $9.4 billion by 1978 - outstripped expenditure on more basic needs. But, so vast was Iran’s oil income, per capita expenditure on health and education still dwarfed that of most Third World countries. Industry mushroomed too. Sixty per cent of investment came from the government and the factory workforce grew to 2.5 million.
TURNING OFF THE OIL
By 1978 oil revenue accounted for 38 per cent of GNP, 97 per cent of export earnings and 77 per cent of government revenue. Then came the revolution. In early 1979, with oil workers striking against the Shah, production - and income - slumped to zero. When recovery came it was to a level of just two million barrels a day - a third its previous level. Even so, another round of OPEC price rises brought an income of at least $15 billion in 1979.
TRADE WITH THE WEST
Under the Shah, Iranian oil accounted for 14 per cent of world trade, second only to Saudi Arabia. The revolutionary cutback hit Western Europe hardest - their share of Iran’s oil used to be 46 per cent. West Germany and Holland lost their major supplier. With massive oil revenue still pouring in, Iran has cut back on its foreign expenditure. In the 70s the petrodollars were quickly spent and Iran was left with an extremely modest surplus; only $557 million in 1978. But trade figures have plummeted as supersonic arms deals are cancelled - and sanctions take effect. Ironically this gave Iran a $6 billion surplus in 1979 and its reserves reached a bulging $15 billion. This means that, however chaotic the economy, the government can still foot its enormous wages bill and - for the time being - buy itself out of trouble. But if Ayatollah Khomeini’s wish for self-sufficiency is to be realised, then the race to revitalise the rural economy and step up food production is still on.
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