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The Iranian revolution has also had a dramatic impact on Western economies. 1979 was the year in which the world economy moved from an era of recurrent oil surpluses into an age of chronic shortages. Indeed, it was a year in which the frequent warnings of pessimists that the industrial nations had made themselves dangerously dependent on crude oil imported from highly unstable countries came true with a vengeance. For more than three centuries the industrial West had prospered thanks partly to resources from colonies or quasi-colonies. Now a great historical reversal was at hand.
"If there had been no revolution in Iran," says John Lichtblau, executive director of the Petroleum Industry Research Foundation, "1979 would have been a normal year." The strikes that accompanied the revolution shut off Iranian production completely early in the year. Though output resumed in March, it ran most of the time at no more than 3.5 million bbl. a day—little more than half the level under the Shah. Khomeini made it clear that no more could be expected. In fact, Iranian output has dropped again in recent months, to around 3.1 million bbl. a day. Oil Minister Ali Akbar Moinfar says it will go down further because "at the new price levels, Iran will be able to produce and export less and still cover its revenue needs."
The cutback in Iran reduced supplies to the non-Communist world by about 4%. That was enough to produce a precarious balance between world supply and demand. Spot shortages cropped up, and the industrial West went through a kind of buyers' panic; governments and companies scrambled to purchase every drop available, to keep houses warm and the wheels of industry turning, and to build stockpiles to guard against the all-too-real prospect of another shut down in Iran or a supply disruption somewhere else. The lid came off prices with a bang. OPEC raised prices during 1979 by an average of 94.7%, to $25 a bbl.—vs. $12.84 a year ago and a mere $2 in 1970. Moreover, oil-exporting nations shifted a growing proportion of their output to the spot market, where oil not tied up under contract is sold for whatever price buyers will pay. Before the Iranian revolution, the spot market accounted for only 5% of the oil moving in world trade, and prices differed little from OPEC's official ones. During 1979, anywhere from 10% to 33% of internationally traded crude bought by the industrial countries went through the spot market, and prices shot as high as $45 a bbl.
The runaway price rises will fan inflation in the U.S., Western Europe and Japan. Affected are not only the price of gasoline and heating oil but also the cost of thousands of products made from petrochemicals—goods ranging from fertilizers and laundry detergents to panty hose and phonograph records. Oil price hikes will bear on apartment rents and the price of food brought to stores by gasoline-burning trucks. The price boosts act as a kind of gigantic tax, siphoning from the pockets of consumers money that would otherwise be used to buy non-oil goods and services, thus depressing production and employment. In