US quietly boosts proposed Iraqi oil pipeline to Red Sea
Washington — As fighting persists in the Persian Gulf, the United States is quietly encouraging a project that would reduce Western oil vulnerability and perhaps help bring an end to the Iran-Iraq war.
The project is the building of an oil pipeline from Iraq through Jordan to the Red Sea port of Aqaba. Bechtel Group, the US construction and engineering firm, has applied to the Export-Import Bank for financing of the American portion of the $1 billion project. The request is expected to be acted upon soon.
''Things are moving fast,'' says John Cooper, a Bechtel executive. ''Board action on a preliminary commitment could come in a week or so.''
Administration officials see economic, political, and strategic benefits from the proposed project, which began to take shape seriously at the end of last year.
* The pipeline would provide 1 million barrels of oil a day that did not have to go through the vulnerable Strait of Hormuz, increasing the security of Western oil supplies.
* It would help make clear to Iran that it cannot win a war of attrition against Iraq and thus offer incentive to end the war.
* It would provide oil-rich Iraq with an alternative shipping route and help Jordan, which would receive transit fees and the benefits of an expanded port.
* It would enhance Iraq's interest in stability in the region, bringing it more into the Saudi-Jordan camp, and give both Iraq and Jordan incentive not to get involved in hostilities with Israel. Israel is said to be sympathetic to the project.
* Not least of all, the pipeline would provide an estimated $500 million worth of business for US companies, creating jobs and improving the US balance of payments.
Even though US companies are less competitive than the West Europeans or Japanese, Jordan and Iraq recently asked for a larger US involvement in the project. This seems to reflect their desire to batten down the American presence for political and strategic reasons; in other words, the pipeline's proximity to Israel.
''They wanted a major US involvement of about 50 percent,'' Mr. Cooper says. ''So this is an opportunity for American suppliers to be involved in a part of the world where they have lost out to West Germany, Japan, and others.''
Administration officials maintain that the US is not ''tilting'' toward Iraq in the Gulf conflict. Richard W. Murphy, an assistant secretary of state for Near East and South Asian affairs, told Congress this week that ''a victory by either side is neither militarily achievable nor strategically desirable.''
But diplomatic and academic experts see a definite US sympathy with Iraq now because Iraq seeks a negotiated settlement of the dispute. As regional and international pressure builds against Iran, the administration has intensified its jawboning of Britain, South Korea, Italy, Israel, and others to halt the supply of arms to Iran. No similar pressure is being applied to countries supplying arms to Iraq, US officials say.
''The United States and the Soviet Union are both taking a more benevolent look at Iraq now,'' says Christine Helms, a scholar at the Brookings Institution. ''They have no hope in the near future of establishing relations with Iran, and Iranian activities throughout the Gulf have been destabilizing.''
The Iran-Iraq war is a concern not merely for economic reasons but because of the danger of the spread of Islamic fundamentalism should Iran be victorious. Already Middle East specialists see considerable Iranian-inspired activity aimed at subversion of existing governments. Kuwait, for instance, last week arrested four Iranian fundamentalists suspected of forming a sabotage network.
The Iraq-Jordan pipeline is not the only project under consideration. Brown & Root, another US engineering company, has contracted with Iraq to do the engineering and management work for construction of a line from the Rumaila field in Iraq southward to the Trans-Saudi pipeline, which also terminates at the Red Sea. A second phase of the plan would involve building a parallel pipeline to the Saudi Arabian line.
Brown & Root officials say bid documents for Phase 1 of the project, expected to cost in the vicinity of $700 million, will be released soon. No formal request has been made to the Export-Import Bank for financing, officials say, but some discussions with the bank have taken place. This project could be under way by mid-1985.
The US is interested in these projects because Iraqi oil would be shipped through the Red Sea and thus not be subject to interdiction in the Gulf.
Moreover, the 600-mile-long Iraq-Jordan pipeline, which could be built in about 18 months, would pay for itself in two or three years.
''The real benefit would be that it would change the expectations on vulnerability of oil,'' says a State Department official. ''A significant amount of oil could be moved without traveling through the Gulf.''
''But it would also send a signal to Iran and may encourage them to take a lower-risk strategy,'' adds the official.
Bechtel Group, the leading firm in the proposed project, would also contract with West German, British, French, and other suppliers.
Where US exporters are concerned, the Export-Import Bank will make the financing decision on the basis of economic factors, including ''reasonable assurance of repayments,'' as the bank's congressional mandate puts it.
Both Jordan and Iraq are offering government credit backing, but the bank appears to be looking for an especially strong source of security in the case of Iraq. Iraq, for instance, could insure the whole pipeline or put the oil revenues into an escrow account. Another possibility is to have outside oil users offer guarantees.
Experts on the Middle East point out that Iraq, although it, like Iran, has an authoritarian regime distasteful to many outsiders, is becoming an increasingly important state. Historically, it was always one of the dominant Arab powers in the area, together with Syria and Egypt. But in the recent period the pendulum has swung to the oil-rich countries of Saudi Arabia, Kuwait, and other Gulf states.
Still, experts say, Iraq alone possesses the oil and the most precious nonoil resource - water - to enable it to have a diversified economy. It therefore has an edge over Egypt and Syria in the pursuit of influence in the region.