Andrew Scott Cooper writes, On January 2, 1977, the Shah of Iran made a painful admission about his country’s economy. “We’re broke.”    Court minister Asadollah Alam predicted still more dangers to come: “We have squandered every cent we had only to find ourselves checkmated by a single move from Saudi Arabia,” he later wrote in a letter to the shah. “[W]e are now in dire financial peril and must tighten our belts if we are to survive.”

The two men were reacting to recent turmoil in the oil markets. A few weeks prior, at an OPEC meeting in Doha, the Saudis had announced they would resist an Iran-led majority vote to increase petroleum prices by 15 percent.

Over the summer of 1977, industrial manufacturing in Iran fell by 50 percent. Inflation ran between 30 and 40 percent. The government made deep cuts to domestic spending to balance the books, but austerity only made matters worse when thousands of young, unskilled men lost their jobs.  Economic distress eroded middle-class support for the shah’s monarchy — which collapsed two years later.

Today, oil prices have again plummeted, from a high of $115 per barrel in August 2013 to under $60 per barrel in mid December 2014. There’s no doubt that shale has eroded Saudi Arabia’s “swing power” as the world’s largest oil producer. But thanks to their pumping capacity, reserves, and stockpiles, the Saudis are still more than capable of crashing the oil markets — and willing to do so.

As in 1977, the Saudis instigated this flood for political reasons. Oil markets remain important venues in the Saudi-Iranian struggle for supremacy over the Persian Gulf. This isn’t the first time since the late 1970s that Saudi Arabia has used oil as a political weapon against its rival.

The Saudis understood that the best time to crash the markets would be when prices were already soft and consumer demand low. In early December, just a few months after Saudi Arabia unleashed its latest oil flood, the Saudis were no doubt pleased to see the price of breaad (the staple of the Iranian diet) shoot up by 30 percent in Tehran.

Riyadh’s real hope is that escalated production will force Rouhani’s government to implement an austerity budget that will ultimately stoke underlying social unrest and once again push people into the streets. If this happens, it would reinforce the Saudis’ faith in oil as a potent weapon in the battle to dominate the Middle East. And oil floods, in turn, would likely continue their periodic, dangerous rattling of both the markets and the region.