In Nov 1978, Iranian oil workers went on strike, removing more than 4 million barrels per day (bpd) from world markets. The second great oil shock was under way. By Jan 1979, the Shah was gone. The effects on the world economy reverberated for a decade. Historical parallels can be perilous; trying to make predictions about such a cloudy and volatile situation is equally dangerous. Last year, oil prices hit peaks in response to every geopolitical tremor, even in non-oil states such as North Korea and Lebanon. Yet this time, although Jean-Claude Trichet, the European Central Bank president, has pointed to the risks that Iranian unrest may have for the fragile global economy, world oil prices have not responded.
Is there a real threat to oil supplies from the protests in Iran? And what implications does this have for world markets? Mir Hossein Mousavi, the presidential candidate defeated in elections widely suspected to be fraudulent, has called for a general strike if he is arrested. Bus drivers and car workers have already expressed solidarity. If staff at the National Iranian Oil Company (NIOC) were to go on strike, the incumbent government would come under severe pressure. Last year, oil represented 70 per cent of government revenues, and the subsequent fall in prices has sent the budget into the red.
The IMF estimates that Iran needs an oil price of $90 a barrel just to break even. A long halt to oil exports would severely damage the already tottering economy. Oil has proved to be the Iranian state's Achilles heel before. As well as the strike that brought down the Shah, there is the example of Mohammed Mossadeq, the democratic prime minister. Fatally weakened by a western boycott of Iranian oil, he was ousted by a CIA-led coup in 1953, paving the way for a quarter of a century of the Shah's authoritarian rule.
It is hard to judge the readiness of NIOC personnel to strike, but in the first round of voting in 2005, the reformist Hojatoleslam Mehdi Karroubi comfortably won Khuzestan Province, the heart of the Iranian oil business, with Mr Mousavi's current backer, Ayatollah Hashemi Rafsanjani, in second place and overall winner Mahmoud Ahmadinejad a distant third. This time, official results have Mr Ahmadinejad beating Mr Mousavi even more heavily here than he did nationally, with Mr Karroubi coming nowhere.
There has for some years also been an undercurrent of dissent and unrest among the large ethnic Arab population in this province. Yet Mr Ahmadinejad's staunch ally, Hugo Chavez, was able to resist a similar strike in Venezuela in 2002. We must also question, with so many reformist leaders arrested, whether the opposition has the grass-roots organisation to mount a successful strike. Oilfields can be kept running with a skeleton staff, at least for a while, as threats of sacking and more severe punishment could be used to deter would-be strikers.
A more widespread stoppage, especially affecting transport and power, could hit output more severely. Despite this risk, oil prices fell on Monday when traders might have been expected to react to the weekend's violence. Deep OPEC cuts and, recently, some renewed optimism about the economy have helped oil prices to rally from their lows to reach about $70 a barrel, but they have drifted lower over the past few days.
How can we explain the sanguine reaction of oil markets to the crisis? For one thing, Iran is no longer as dominant an oil player as in 1978. Then, it supplied about 9 per cent of world demand and was the second-largest exporter. Today, that is down to 4 per cent and, with nearly half its output being used domestically, it ranks only sixth among exporters. Second, weak demand and OPEC production cuts have built up a large spare capacity. With recent start-ups at Khurais - which alone can meet 1.5 per cent of global demand - and Nuayyim, Saudi Arabia now has 4.5 million bpd in reserve, with another 1 million bpd in other OPEC states, largely the UAE and Kuwait.
Forecasts for global demand, although revised upwards, remain weak, while declines in non-OPEC output seem to be less steep than previously feared. Stocks have been drawn down somewhat from the lowest point of the credit crunch but remain high, giving a substantial buffer for any disruption. Abundant gas supplies take the pressure off oil as a fallback fuel for power generation. Third, oil traders seem to be dismissing the possibility of significant disruption. True, it seems unlikely that events within Iran will spill over the country's borders. A swift victory for either camp would minimise any upset in oil output.
But a long campaign of civil disobedience could take some Iranian oil off the market indefinitely. Venezuelan output has never really recovered from the mass sackings that followed the anti-Chavez strike, and remains at least 20 per cent below 2002 levels. In the longer term, the effects on oil production may be more damaging. Despite sanctions, under- investment and an almost total lack of deals with foreign firms, Iran has been surprisingly successful in keeping crude production creeping up. This can probably be sustained, as an Iranian government of any political orientation knows the petroleum sector's critical role.
Without a reconciliation with the West, though, major gains in Iranian production are unlikely and exports will be eroded by rampant, subsidy-fuelled growth in domestic demand. In the next few years, with substantial spare OPEC capacity and demand gradually recovering, this may not matter too much. In the longer term, Iran is one of the key exporters relied on to avoid a new price "crunch", although it could be supplanted by an Iraqi resurgence and the deepwater "pre-salt" boom in Brazil.
Gas is a different story. Although Iran has the world's second-largest gas reserves, export plans have made virtually no progress. The required combination of commercial savvy, technology, project management, political will and finance is missing. Human rights concerns and public pressure will make it hard for western companies to sign deals in the near future. This has particular implications for the Nabucco Project, to diversify Europe's gas supplies away from over-dependence on Russia. Nabucco will now have to rely on politically tricky Central Asian and Iraqi supplies.
A failure to move on gas is even more of a threat to the government itself, with the country's falling oil revenues, politically explosive subsidies and inability to diversify the economy. Further stirring these troubled waters is the ownership of quasi-privatised oil enterprises by the military-industrial groups known as the Revolutionary Guards. The great imponderable, of course, is the potential for a collision between Iran and the US over the nuclear issue. The "pragmatic conservatives", Mr Mousavi and Mr Rafsanjani, may well unclench their fists in response to Barack Obama's extended hand, but with emboldened hardliners in power, detente seems suddenly much less likely than a month ago.
Such a conflict could certainly lead to major disruption of oil supplies, even if the worst fears are probably overstated. As the Islamic Revolution shows, such happenings have a momentum of their own, following strange and unexpected paths. The Nov 1978 strike proved only distant thunder. The full storm of the second oil shock broke with the opening of the Iran-Iraq War. Events of the past two weeks might awaken such memories, but the oil markets, it seems, are content to doze.
Robin Mills is a Dubai-based energy economist and author of 'The Myth of the Oil Crisis' (Praeger 2008)
