CHAPTER 34 OUTLINE -- WE'RE GOING DOWN

Chapter 34 is entitled, 'We're going down.'

In a youth revolt, sixty-three American embassy workers in Iran were taken hostage. Thirteen were quickly released, but the remaining fifty were the subject of a drawn-out international affair.

The hostage takers were upset that the US had accepted the Shah into the country for treatment for his leukemia. The US attempted to conceal his presence but word quickly got out. Iranian authorities demanded that the Shah be handed over to them for examination to see whether he was faking his illness.

DEATH TO AMERICA

The invasion of the embassy quickly turned into a bizarre combination of a hostage situation and a media circus, which would last 444 days. To quote Carter, 'They [had] us by the balls.' In addition to the Iran sitation, some anti-American Saudi nationalists staged a minor uprising, and the USSR invaded Afghanistan. Carter outlined an extension of the Monroe doctrine which (verbally) made the Persian Gulf a protectorate region of the US. Carter's credibility as an effective leader in the geopolitics of oil was compromised and some felt the US was declining as a world power. The US and Iran imposed mutual trade sanctions on one another. This disrupted world oil supply channels, sending more buyers into the spot market. Sales went up to $45/barrel, even $50 a barrel for the oil-dependent Japanese. Again, companies began to stockpile oil.

THE BAZAAR

The oil consuming world and Saudi Arabia were both unhappy with raising oil prices. Saudi Arabia was no longer dependent on pilgrimage for its economic well-being, but on world growth and oil demand. They began selling at lower than market prices and increasing their production to try to dampen oil price growth. The oil pricing structure was disorders, with prices ranging from $18-$50/barrel. Again price-wise Saudi Arabia and Iran were at loggerheads. Yamani spoke gloomily of economic disaster if prices were not controlled. Some predicted a mini-glut as a coming market correction, theorizing it would come in 1981.

Page 687: '. . . still thinking of those "divine laws of supply and demand," . . . Yamani unburdened his private feelings to a friend. "They're too greedy, they're too greedy," he said. "They'll pay for it."

Demand started to drop, buyers started walking away, OPEC agreed to cut production.

The twentieth anniversary meeting fell into chaos. See next section:

THE SECOND BATTLE OF QADISIYAH: IRAQ VERSUS IRAN

Iraq launched a surprise attack against Iran.

Among the reasons for the fight was a disagreement over the border river between the two nations, Shatt-al-Arab, which happened to be the site of some very important oil infrastructure and shipping. As a favor to Shah-ruled Iran, Iraq had expelled the exiled Khomeini. Once the Ayatollah was in power in Iran, the favor lost its sweetness altogether. Hussein's Ba'th party supported pan-Arabic nationalism, the formation of one single Arab state. Hussein quickly made a reputation for himself as a ruthless, cold, strategic, amoral ruler. Husseins government, controlled by three inter-married families, published a pamphlet untiled Three Whom God Should Not Have Invented: Persians, Jews, and Flies. Khomeini's three enemies were the Shah, "the American Satan", and Saddam Hussein's establishment. Hussein ruled from a Sunni base over a Shia majority which was religiously closer to the Persians. The two countries squabbled more and more violently.

Iraq saw its opportunity as Iran was in a state of disarray, with an army decimated by a purge. Iraq struck hard and fast, thinking it could use a blitzkrieg to win the war within a week or two. Iran counterattacked more strongly than expected. Iran struck back hard within a 'human wave' strategy, even using children to manually set off mines, sacrificing them so that soldiers could then advance.

THE END OF THE ROAD

Iranian planes attacked Abadan, the world's largest oil refinery. 8% of world demand and 15% of OPEC production was immediately removed from the market. Governments quickly intervened to prevent companies from starting bidding wars and stockpiling oil. Companies had stored up vast quantities of oil after the previous panic, so they were more prepared for this crisis.

Nevertheless, panic still occurred, and prices shot up. Nevertheless, OPEC meetings were still held during the war, and the OPEC price increased to $36/barrel. Belgium threatened sanctions and forced Japan to clamp down on oil stockpiling. The Saudis ramped up production still higher, and other OPEC nations pitched in to make up for lost productivity.

The hostages were released the day after Carter left office, and demand slackened for oil. Finally OPEC agreed to a 5% price cut, and Saudi Arabia began to again cut back production. Iran and Iraq remained locked into their war, but Yamani knew that oil prices would continue to drop well below $34/barrel.