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Fueling Change in Iran

Fueling Change in Iran

Strikes within Iran’s energy sector helped bring down the Shah. Weakened by sanctions, can it wield the same influence today?

Armin Tadayon

In assessing the potential for the current protests in Iran to topple the rulers of the Islamic Republic, one might assume that the energy sector is likely to play a central role, just as it did in the overthrow of the shah. While some parallels exist between 1979 and today, the changed composition of the Iranian oil sector, along with Iran’s weakened position in the global oil trade, renders the energy workforce a much less potent political force than it was four and a half decades ago.

In September 1978, some seven hundred oil refinery workers in Tehran went on strike to demand higher wages and protest the Pahlavi regime’s imposition of martial law following public unrest. Two days later, these strikes spread to the oil refineries of Isfahan, Shiraz, Tabriz, and Abadan. By the end of October, the strikes involved an estimated thirty thousand oil workers and had spread to other sectors, as well.___STEADY_PAYWALL___

The strikes and the public protests coupled economic grievances with political demands, including the abolition of Iran’s secret police, the lifting of martial law, the release of political prisoners, the return of Ruhollah Khomeini from exile, and the end of tyrannical rule. The strikes crippled the economy while the demonstrations deepened the crisis until the regime finally collapsed.

Today, a combination of sanctions, corruption, and economic mismanagement have destroyed the Iranian economy. According to the country’s own estimates, the inflation rate in January 2023 was 46.3 percent. The value of the Iranian rial is as low as it was during the Second World War. These conditions have led some labor groups, including limited elements of the oil sector, to organize strikes to fight declining wages, delayed payments, and other poor working conditions. Yet there are two significant differences between these strikes and those of 1978–79: first, the strikers’ demands tend to focus strictly on economic, and not political, reforms; second, the energy sector in particular does not wield the same influence as it did during the previous period of unrest.

At the time of the 1979 revolution, Iran exported over five million barrels of oil per day. Prior to the 1978 oil strikes, Iran produced approximately six million barrels of oil per day, used about 700,000 barrels for its domestic consumption, and exported the rest, roughly 5.3 million barrels. This amounted to approximately $23 billion in exports in 1978–79.

After the strikes began, Iran’s production dropped by 4.8 million barrels a day—approximately 7 percent of world production at the time. Because other oil producers were able to make up some of the lost volume, the full effect of the labor strikes and oil production decline was felt belatedly in 1980–81, as the nation’s oil revenues dropped to approximately $10 billion.

Today, Iran exports about one-tenth of what it did before the 1979 strikes and earns significantly less for those exports. Currently, Iran produces approximately 2.5 million barrels of oil per day, consumes about 2 million domestically, and exports the remainder to China and Venezuela. Following Russia’s invasion of Ukraine, when Russia significantly discounted its oil prices, China began purchasing more oil from Russia, which displaced some of Iran’s exports.

Not only does Iran export less oil, but international sanctions and the country’s pariah status compromise the value it can obtain for its oil. By one estimate, the country should have earned between $8.6 and $13.5 billion in 2022, but due to its oil revenue discounts, lack of accessibility, transaction costs, and other impediments, it earned about half the expected amount. U.S. sanctions have restricted Iran’s access to the foreign currency it needs to procure imports and consumer goods. The Central Bank of Iran has resorted to printing money, which has only led to a devaluation of the rial and increased inflation. Decreased revenue means the regime is strained to keep its cronies and the bloated bureaucracy of the oil sector content. Persistent economic mismanagement is one of the main causes of unrest. After the regime strictly rationed gasoline in 2019–20 and abruptly raised gasoline prices by as much as 200 percent, Iranians took to the streets to protest.

In 1979, the official number of oil-sector employees in Iran was approximately 40,000, and they were a relatively homogenous group. In 2022, official government estimates place the number of oil-sector personnel at 206,000, less than a third of whom are employed directly by the government—the remainder are private contractors.

In short, the oil sector in Iran today is not only fragmented but marked by corruption and cronyism, resulting in a workforce that is not likely to act as a unified political force as in 1979. A significant portion of these individuals have government ties and are unlikely to support anti-government protests, at least at this stage. Whereas the 1978–79 strikes involved about three-fourths of the oil sector’s personnel, today’s strikes by oil workers include a significantly smaller portion of the employees. There is thus much less of a chance that further oil strikes would significantly affect oil production.

While the participation of some oil workers in the ongoing unrest is unlikely to have a substantial or material effect on the regime, that scenario is not entirely inconceivable. If economic troubles persist to the extent that the regime proves unable to pay off its cronies in the sector, those workers who have been on the sidelines thus far could join the protests. Such wider participation in the strikes could sufficiently disrupt the production of oil, natural gas, petroleum, electricity, and other goods. This would have the potential to damage the country’s economy significantly given the large role oil plays in it—in 2020, oil revenue constituted 30 percent of the government’s budget and 17.15 percent of GDP—and just might have the potential to cripple the regime.

A major strike that meaningfully disrupts the production and export of oil and gas could have significant consequences for the region, as well as for China. The regime’s loss of revenue would mean it has less money to fund its network of terrorists and proxies. Any disruption in oil markets, even minimal, could also affect China’s fragile economic recovery.

The oil strikes in 1979 were pivotal in bringing down the Pahlavi regime. Since that time, the energy sector has been seen as a significant political force in Iran. Today, this sector is more diverse, regime-friendly, and bloated than it was in 1979, and thus less likely to incite political change so long as its members continues to benefit from the status quo. If economic and social conditions in Iran were to deteriorate to the point where a majority of oil workers share their countrymen’s dissatisfaction with the regime, then they just might make a fateful decision to stop production and join the protests.

Armin Tadayon is an associate at the Brunswick Group, where he specializes in data security and privacy. He teaches a variety of courses on law and technology at George Mason University’s Volgenua School of Engineering.

Image: Oil refinery workers protest in Iran. (Source: PMOI)