The Aftermath of the Iranian Revolution

With the 1979 revolution in Iran, which led to the overthrow of Mohammad Reza Pahlavi’s regime, American policy in the Middle East was in tatters. The USA had lost an important ally against the USSR. The new Iranian government shared with the USSR the details of the military and intelligence gathering technologies that the USA was using in the Middle East—this created a nightmare scenario for the American defense establishment. There was chaos in the world’s oil markets. The price of oil tripled within days of Pahlavi’s flight from Iran. Several service stations across the USA and Europe were shut down due to lack of supplies.

Iran rescinded the contracts that the Shah regime had signed with companies in Western countries causing a loss of hundreds of billions of dollars to these companies. The British company BP lost forty percent of its oil production after it lost access to the Iranian oilfields. The company was forced to go into a major reorganization. The contracts to build steel factories, airports, ports, power plants, armament industries were cancelled overnight. Orders for purchase of goods and services from the USA were cancelled leaving manufacturers with a large inventory and a big hole in their accounts. The Western governments and the Western companies had gambled heavily on the Shah regime for decades—now the gamble had flopped. 

U.S President Carter had a meeting with German Chancellor Schmidt after the Iranian revolution. Carter called the meeting “one of the worst days of my diplomatic life.” Chancellor Schmidt heaped personal abuses on Carter when they were discussing the Middle East. Schmidt alleged that “American interference [in the Middle East] has caused problems with oil all over the world.” Carter’s political career was gone in the aftermath of the Iranian revolution—his ratings tanked to an unthinkable 28 percent and he lost the election to Ronald Reagan.