Iran wins big in oil war with Iraq
Nicosia, Cyprus — While the armies of Iran and Iraq are stalemated on the battlefield, Iran is definitely winning a behind-the-scenes war over oil.
This war involves oil production and sales, which in turn enable the two sides to pour money into the costly, indecisive conflict that has raged between them since September 1980.
Iran is financing its side of the war by pumping and selling oil at levels not seen in that country since the days of the Shah, who ruled until three years ago. Iranian production is approximately 2.7 million barrels per day (bpd), according to oil industry sources, and Iranian planners have targeted output at 3 million bpd by year's end.
The production quota assigned to Iran by the Organization of Petroleum Exporting Countries (OPEC) is 1.2 million bpd. Iranian officials have repeatedly ignored calls by OPEC members to abide by the quota so that the dwindling world oil market can be shared. (A stormy OPEC meeting on this issue is expected in Vienna Dec. 18 to 20.)
Meanwhile, Iraq and its Arab allies - the same power bloc angry at Iran and other OPEC overproducers - are trying to crimp the Iranian oil flow. But their military and political pressure has been ineffective so far.
Iraq last week tried to disable the Iranian oil loading facilties at Kharg Island, through which 2 million bpd of oil is processed. A raid by Iraqi jets and gunboats appears to have had little effect, and normal loading was reported.
Iraq's reluctant allies in the Gulf Cooperation Council (GCC), meanwhile, are threatening Iran and other OPEC nonconformists with a price and production war if they do not return to their quotas. Iran has not budged, however.
So far, Iran and its allies have had the upper hand in this economic war.
Iran's most steadfast Arab supporter, Syria, has been holding out against Iraqi pleas that it reopen its cross-country pipeline to Iraqi crude. Some 700, 000 bpd of Iraqi oil could pass through this line, which has been closed since April, just after Syria switched to processing tanker-borne Iranian crude at its Mediterranean refineries.
Iraq's only oil outlet at present is the 700,000 bpd pipeline to Turkey's Mediterranean terminal at Ceyhan. Two planned pipelines, which might have given Iraqi crude more access to the outside world, have been shelved for the time being. These were a 1 million bpd line running from southern Iraq to the Saudi Red Sea terminal at Yanbu and a 600,000 bpd line from Iraq to Kuwait.
Limited access has cut Iraq's oil income drastically, reducing it, according to one estimate, to half the country's budgetary needs.
Besides withstanding the Iraqi attacks on Kharg Island, Iran has succeeded the past month in recapturing some of its oil fields in the Misan region, along the border with Iraq. Moreover, Iran's offensive thrust the past seven months has all but dashed Iraqi hopes of regaining use of its former main oil terminal at Basra. This is still considered too vulnerable a spot for oil tankers to visit.
There are moves afoot that could aid Iraq, but they are long shots.
Turkey has agreed to expand the Kirkuk-Ceyhan pipeline's capacity by one-third. But work has yet to begin and the building program is extensive and vulnerable to Iranian attack and sabotage by Kurdish rebels.
Also, Saudi King Fahd is mediating between Syria and Iraq (which follow rival Baathist ideologies) in the hopes of reopening the Syrian pipeline to Iraqi crude. Syria has said it is willing to resume Iraqi shipments, provided Iraq reduces its price to the $26 per barrel that Iran asks, but so far Iraq has declined. A committee of the Organization of Arab Petroleum Exporting Countries (OAPEC), under Saudi chairmanship, is to consider the issue Dec. 18.
The Saudis could also pressure Iran by using their own oil power. By far the strongest member of both OPEC and the GCC, Saudi Arabia has been hinting that it might unilaterally cut its oil prices and/or increase output. Much of the revenue from GCC oil has found its way to Iraq in the form of war grants and loans. More output by the GCC would not only put pressure on OPEC's overproducers, such as Iran, to conform, but the money could also aid Iraq's war effort.
Meanwhile, Iraq finds its oil flow severely constrained. And if the world oil market remains static, Iraq's Arab allies may soon find they cannot spare much more money to finance a war they have never approved of.