The document discusses Iran's economy and its relationship to oil. It describes how Iran became heavily dependent on oil revenues in the early 20th century, allowing it to become a rentier state. This oil wealth contributed to economic growth but also severe inequality. The Iranian Revolution was driven partly by public dissatisfaction with this inequality and economic dependency on the West. The economy struggled after the revolution but has since stabilized due to rising oil prices, though it remains largely state-controlled.

1. Political Economy and
Development
SECTION 2

2. State and Economy
• British struck oil in 1908– bought most fuel from
Anglo-Iranian Oil Company
• Oil income continued to rise over the yrs from
$34 mil to over $100 bil
• Allowed Iran not to worry about feeding people

3. State and Economy
• Became rentier state: country that obtains
much of its revenue from the export of oil or
other natural resource
• Allowed Iran to be able to disregard its
internal tax base…. State became independent
of society… “little taxation meant little
representation”

4. State and Economy
• 1950s-1970s Muhammad Reza Shah tried to get
foreign investment in non-oil (carpet and
pistachio)
• http://www.youtube.com/watch?v=HKvU9H8jjfA
• 1979- oil = 97% of country’s foreign exchange
• Foreign investors put off by corruption, labor
costs, small internal markets, potential instability
and fear of confiscation

5. State and Economy
• Under shah: Land reform created >644,000
prosperous farms; Modern factories tripled;
Roads were built connecting villages with
provincial cities; Trans-Iranian railway
completed; GNP grew ave 9.6%/yr (1960-
77)One of fastest growing economies in the
world

6. Iran’s Economy under the Islamic
Republic
• Main economic problem= instability in oil market
• Eco situation complicated by pop explosion (rose
from 2.5% to 4%), Iran-Iraq war ($600b in
damages and >218,00 dead), and emigration of 3
mil Iranians (Islamic rev scared many to the west)
RESULT: 20 yr eco crisis lasting into late 90s
• Incomes dropped 60%, unemployment hit 20%,
2/3 couldn’t find jobs, Tehran grew 4.5m to 12m

7. Iran’s Economy under the Islamic
Republic
• Islamic Republic SUCCESSES:
-Reconstruction Ministry built 30,000 paved roads;
40,000 schools; and 7,000 libraries.
-Brought electricity and running water to 50,000
villages, registered vehicles increased 27,000 to
over 3mil.
-Agricultural ministry distributed 630,000 hectares
of arable land to peasants

8. Iran’s Economy under the Islamic
Republic
• Govt has always exercised major control over
economy (currently about 70% under state
control)
• President Khatami took steps to increase
privatization, supported by Ayatollah
Khamenei and President Ahmadinejad

9. Iran’s Economy under the Islamic
Republic
• Rise in petroleum prices = stabilized currency,
improved creditworthiness
• Free of foreign debt
• Foreign investments channeled into oil, gas,
cars, petrochemicals and minerals- but UN
sanctions have hindered these inflows
http://www.youtube.com/watch?v=80ksTLHx
ahE

10. Iran’s Economy under the Islamic
Republic
• Ahmadinejad promises to steer oil wealth to
help poor
• Self sufficient in food production, but
dependent on foreign gas imports
• $100b was allocated for subsidizing bread,
heating fuel, rice, milk etc… in 2011 trimmed
subsidies and instead gave cash directly to the
poor

11. Society and Economy
• During shah state investment went to social welfare
• The elimination of epidemics and famines, a rise in
school enrollment, as did hospital beds, medical
clinics = infant mortality drop and pop explosion
• Approach to development decreased popularity
(that wealth would trickle down… didn’t… the rich
were getting richer and poor were getting poorer)
• Despite aforementioned improvements, things
continued to gather criticism (cheap labor, bad
doctor-patient ratios, many landless peasants)

12. Society and Economy
• By mid-70s Iran was one of most unequal
countries in the world
• Inequalities = dual society: sharply divided into a
traditional poorer section (clergy, bazaar middle
class, rural masses) and modern richer section
(elites with ties to oil)
• Upper class = 0.01% of population; Middle class =
10%; Urban working class = 32%; rural masses =
45%

13. Society and Economy
• Inequalities = resentment expressed in
cultural and religious terms rather than
economic and class terms
• Fiercest critic was Jalal Al-e Ahmad: argued
Iran was being destroyed by mindlessly
imitating west, among other thing. He is
founder of “back to roots” movement
influenced Revolution

14. Society and Economy
• Ideas developed further by Ali Shariati(who was
influenced in Paris by Marxist sociology, Catholic
theology, algerian revolution, and Frantz Ganon’s
theory of violent World revolutions against
colonial oppression)
• His work so widely read and influential that many
accredit him rather than Khomeini as true
theorist of Islamic Revolution

15. Society and Economy
• Recent decades=life improved in Iran: social
services have narrowed gap, literary rate rose,
infant mortality rate fell, life expectancy rose
• Reopened birth control clinics, announced
ideal family had no more than 2 kids (and took
away social benefits from those with >2 kids)…
pop growth fell to 0.66%/yr in 2005

16. Iran in the Global Economy
• Integration into world system began latter half of
19th century, most importantly b/c of industrial
revolution in Europe and export to rest of world
• Economic dependency resulted.. Cash crops
(cotton, tobacco, opium) reduced acreage for
edible grains = disastrous famines
• New class awareness played role in constitutional
revolution in 1905
• Under shah became 2nd most important member
of OPEC

17. Iran in the Global Economy
• Iran occupied three small Arab islands in the
Strait of Hormuz ultimately controlling oil lifeline
through the Persian Gulf and creating distrust
with Arab neighbors
• 1970s- significant regional, if not global power
• US relied on it to ensure security and stability in
Persian Gulf (oil flow of the region to west)

18. Iran in the Global Economy
http://www.dailysilvernews.com/wp-content/uploads/2012/02/strait-of-hormuz-map.jpg

19. Iran in the Global Economy
• Most imports came from US.. Little trade with
neighbors
• Oil revenue consequences paved way for
revolution (widened class divisions, raised
public expectations, fickle dependence on oil
created instability, etc)
• Major promise of the Revolution was to end
economic dependency on oil and the west

20. • Oil is considered resource curse (concept that
revenue derived from abundant natural resource
often brings unforeseen ailments to countries)
• Blamed for creating “rentier states,” “dual
societies,” autocratic govts, unpredictable
budgets, and issues with other economic
activities in many other countries
• BUT oil has been influential in state development
and social modernization and main reason Iran is
currently so strong