Iranian Revolution — second oil shock
Shah Mohammad Reza Pahlavi fled Iran on January 16, 1979, and the Islamic Revolution that brought Ayatollah Khomeini to power within weeks immediately disrupted Iranian oil exports. Iran had been the world's second-largest oil exporter; its near-complete withdrawal from world markets through 1979-1980, followed by the Iran-Iraq War starting September 1980, took roughly 8 percent of global oil supply offline. Crude prices doubled from about $15 to over $35 per barrel. The second oil shock triggered the worst Western recessions since the 1930s, ended Jimmy Carter's presidency, and pushed Volcker's Federal Reserve into the brutal interest-rate hikes that finally broke the inflation that had been building since the 1973 shock.
The 1979 oil shock is also where the 'energy security' policy concept solidified in the U.S. — the Carter Doctrine (January 1980) explicitly committed American military force to preventing any outside power from controlling the Persian Gulf. The doctrine remained the operational basis for U.S. Middle East policy through Reagan, Bush, Clinton, and beyond.
04 · The Petrodollar
When Nixon closed the gold window in August 1971, the dollar lost its commodity backing. It immediately gained a new, less visible one. In 1974, Saudi Arabia agreed to price all its oil exports in U.S. dollars in exchange for American security guarantees and a Saudi commitment to recycle oil revenues into U.S. Treasury bonds. Every country that wanted oil now needed dollars. Sovereign wealth funds emerged as the warehouses of recycled petroleum money. The petrodollar system was as load-bearing for the post-Bretton-Woods financial order as gold had been for the previous one — and far less visible.
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