Libya Now, Iran Then: How Close Are We to 1979?
Today, the UK’s Telegraph is reporting that British government drones in Whitehall are figuring out the legal means to seize Muammar al-Gaddafi’s assets in Britain, which are said to total some £20 billion.
Notice that’s pounds sterling—the equivalent of US$32 billion: Enough cash to plug up California’s and New York State’s deficits, and still have enough left over for avery respectable weekend at The Palms in Las Vegas.
That these assets aregoing to be seized is, according to the story, a done deal: The only issue seems to be the legal means by which to do so—
—which means that the British government isn’t worried about pissing off Gaddafi—
—which means that Gaddafi’s days in power are numbered: Whitehall would never dare seize his UK assets, unless they were sure that Gaddafi won’t be around to exact revenge or retribution. After all, the Brits let the Lockerbie Bomber go in 2009, in order to shore up relations with Gaddafi.
Now, for my patented History Flashback™ (All Rights Reserve, All Wrongs Deferred):
When the Shah of Iran was overthrown by the Islamic Revolution in January 1979, Iran’s oil production dropped from 5.75 million barrels a day to zero. Such was the chaos of the Revolution.
Production eventually picked back up in the days that followed, to a new average of 2.25 million barrels a day in 1980—but as they say, the damage was done: In short order, the price of crude shot the moon from $14.95 per barrel in 1978, to $25.10 per barrel in 1979—the inflation adjusted equivalent of $74.67 in today’s dollars. By 1980, even though Iran’s oil production was improving, the price situation was worse: Oil averaged $37.22 in 1980, the equivalent of $99.11 per barrel. (Data is here.)
This led—directly—to the recession of ‘79–‘83, the worst since the Great Depression. Unemployment got to double digits, as did inflation. Gold famously went up to highs never seen before, as a hedge against that inflation, and it was all Paul Volcker could do to reign it in by inflicting 20% interest rates—that’s right: 20%.
An Oil Shock is nothing to take lightly.
Today, Libya represents far less of the world’s total oil production than Iran did in 1979. As of last year, from the worldwide total of 84 million barrels per day, Libya produced just 1.79 million barrels per day,according to the CIA Factbook—that’s less than 2% of world production, compared to Iran’s 5%.
But what’s happening in Libya is not just limited to Libya: 2011 is shaping up to be the region’s very own 1848, as Anne Applebaum cleverly pointed out. What started in Tunisia and spread to Egypt has now spread to Libya. And now this morning, there are reports that of severe disturbances in Iraq (Iraq! Where the U.S. is sitting like an army of occupation, and there are popular riots!). The Saudis—conspicuously—ominously—are giving free money and promising more benefits to their people.
Even before the revolutions in the Middle East, oil prices have been steadily rising—along with food, precious metals and industrial metals—as hot money flows to commodities. Regardless of what Krugman says, this rise in commodity prices is a direct product of the U.S. Federal Reserve’s zero interest rate policy (ZIRP, otherwise known as “free money”) and Quantitative Easing 2 (QE2, otherwise known as “money printing”).
So what does this all mean?
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