Well you are leaving out a lot of history, and it is not merely all about oil. There were many factors that occurred.
Iran was invaded and controlled by the Soviet Union in the 40's when Stalin later refused to remove his forces from the region when the other allies had left as they promised the Iranians.
The US and the Iranian government worked together to force them to withdraw, one of the starting points of the Cold War.
The Soviets employed secret police and installed parties to promote the Soviet backed People's Democratic Republics and initiated efforts to destabilize the government.
Initially in votes 102-2, and with overwhelming support the government in Iran supported the West and traded oil with the West.
Iranian Parliament became chronically unstable, and from the 1947 to 1951 period Iran saw the rise and fall of six different prime ministers.
The most recent prime minister was pro-Soviet from the Tudeh party and attempted to throw out the British control of the oil industry in Iran so they could have a Soviet based oil industry.
US and British lead efforts threw out their government and put in place their original king system and started to Westernise the country, which is where this photo comes from.
The liberal pro-Western policies alienated Islamic religious and political groups, causing the uprising and them seizing control. The leader of Iran at the time also made this far worse by being corrupt and using his wealth for his circle of elites rather than improving the economic conditions for the country.
The leadership thrown out by religious militias made Iran become the Islamic republic. Iran's rapidly modernising, capitalist economy was replaced by populist and Islamic economic and cultural policies. Much industry was nationalized, laws and schools Islamicized, and Western influences banned.
After this, the Sha of Iran would visit the US for medical treatment for his cancer. Iran in response took over the US embassy leading to a failed rescue operation by the US. Relations between the two completely collapsed and the violations of international law isolated Iran on the global map.
Following this would be the Iran-Iraq war, protests and uprisings by secularists, leftists, and more traditional Muslims. Soviet based and other rebel groups attempted to take parts of the country. The Kurds very much in favour of the monarchy and against the revolution would fight rebellions against Iran.
The death of the leader of Iran now leading into 1990 lead to Iran become quite and focused on rebuilding and becoming more neutral.
Upon that leading being thrown out, a more liberal and pro-West leader was elected into power but was quickly squashed by the religious branches of the government. Riots and protests broke out as the clergy censored and stomped out reformist thinking.
Mahmoud Ahmadinejad, the guy we know today, was elected into power over the previous guy, with Ahmadinejad having a very pro clergy stance and an anti-reformist.
Saddam was a Shia muslim dictator. The leaders of Iran and people of Iran are Shia muslims as well. When NATO invaded Iraq and due to their invasion of other Westernised countries, and throwing out Saddam, Iran became extremely hostile towards the West once again.
Iran restarted their nuclear weapons program after it had been destroyed by the Iraqis with help from the Russians and Chinese in response to the overthrow of Saddam, originally implemented by the United States in the 50's. The nuclear program was removed by their religious leaders as they deemed the weapons too destructive.
TL;DR: The issue is extremely complex, Iran's democracy was ruined because of political and Soviet instability, marked by the Cold War causing the intervention of the CIA to prevent Iran from becoming a Stalin ally.