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WEEKLY NEWSLETTER
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Iraq
Index
In 1987 petroleum continued to dominate the Iraqi economy,
accounting for more than one-third of nominal gross national
product (GNP--see Glosssary) and 99 percent of merchandise
exports. Prior to the war, Iraq's oil production had reached 3.5
million bpd
(barrels per day--see Glossary),
and its exports had
stood at 3.2 million bpd. In the opening weeks of the Iran-Iraq
War, however, Iraq's two main offshore export terminals in the
Persian Gulf, Mina al Bakr and Khawr al Amayah, were severely
damaged by Iranian attacks, and in 1988 they remained closed. Oil
exports were further restrained in April 1982, when Syria closed
the pipeline running from Iraq to the Mediterranean. In response,
Iraq launched a major effort to establish alternative channels
for its oil exports. As an emergency measure, Iraq started to
transport oil by tanker-truck caravans across Jordan and Turkey.
In 1988 Iraq continued to export nearly 250,000 bpd by this
method. In mid-1984, the expansion of the existing pipeline
through Turkey was accomplished by looping the line and by adding
pumping stations. The expansion raised the line's throughput
capacity to about 1 million bpd. In November 1985, Iraq started
work on an additional expansion of this outlet by building a
parallel pipeline between Kirkuk and Dortyol that used the
existing line's pumping stations. Work was completed in July
1987. The result was an increase in exports through Turkey of
500,000 bpd.
In September 1985, construction of a spur line from Az Zubayr
in southern Iraq to Saudi Arabia was completed; the spur linked
up with an existing pipeline running across Saudi Arabia to the
Red Sea port of Yanbu. The spur line had a carrying capacity of
500,000 bpd. Phase two of this project was begun in late 1987 by
a Japanese-South Korean-Italian-French consortium. Phase two was
to be an independent pipeline, parallel to the existing pipeline,
which would run 1,000 kilometers from Az Zubayr to Yanbu and its
own loading terminal. The parallel pipeline was expected to add
1.15 million bpd to Iraq's export capacity when completed in late
1989. Iraq negotiated with the contractors to pay its bill
entirely in oil at the rate of 110,000 bpd. According to Minister
of Petroleum Isam Abd ar Rahim al Jalabi, Iraq negotiated special
legal arrangements with Saudi Arabia guaranteeing Iraqi ownership
of the pipeline. Iraq also considered construction of a 1-million
bpd pipeline through Jordan to the Gulf of Aqaba, but in 1988
this project was shelved.
The expansion of export capacity induced Iraq to try to boost
its oil production, which in 1987 averaged 2.8 million bpd of
which 1.8 million bpd were exported. The remainder was retained
for domestic use. In addition, Iraq continued to receive oil
donations of between 200,000 and 300,000 bpd from Kuwait and
Saudi Arabia pumped out of the Neutral Zone on the east end of
Iraq's southern border with Saudi Arabia. By the end of 1989,
Iraq's goal was to have the capacity to produce oil for export at
the prewar level of 3.5 million bpd without having to depend on
any exports by ship through the Persian Gulf; however, at a
posted price of approximately US$18 per barrel, and with spot
prices at less than US$13 per barrel, oil was worth less than
half as much in 1988 as it was when the Iran-Iraq War started.
Iraq's oil revenue in 1987 was estimated at US$11.3 billion, up
about 60 percent from the 1986 level of US$6.8 billion (see
table 6, Appendix).
The expanded export capacity theoretically gave Iraq greater
leverage in negotiating an increase in its OPEC quota. For the
first several years of the Iran-Iraq War, Iraq attempted to stay
within its OPEC quota in order to bring OPEC pressure to bear on
Iran to curtail its production. In early 1988, this issue was
moot, however, because Iraq had announced in 1986 that it would
not recognize its 1.54 million bpd quota and would produce
whatever amount best served Iraqi national interests. In 1987,
however, Iraqi oil minister Jalabi reasserted Iraq's willingness
to hold its oil production to the 1.54 million bpd OPEC quota if
Iran adhered to an identical quota level. This would represent a
decrease of about 40 percent from the 2.61 million bpd that Iran
was authorized by OPEC to produce.
When Jalabi was appointed Iraq's oil minister in March 1987,
he instituted a new round of reorganizations in the petroleum
sector. The Ministry of Oil assimilated INOC, thus consolidating
management of Iraq's oil production and distribution. The NPO
absorbed the CPO. This organization, along with SOOP, was to be
granted corporate status in an effort to make it more efficient.
Jalabi was also concerned about the proper handling of Iraq's
large hydrocarbon reserves. Although estimates of Iraqi
hydrocarbon reserves in the late 1980s varied considerably, by
all accounts they were immense. In 1984, Iraq claimed proven
reserves of 65 billion barrels plus 49 billion barrels of "semiproven " reserves. In November 1987, Iraq's state-owned Oil
Exploration Company calculated official reserves at 72 billion
barrels, but the company's director, Hashim al Kharasan, stated
that this figure would be revised upward to 100 billion barrels
in the near future. In late 1987, oil minister Jalabi said that
Iraqi reserves were "100 billion barrels definite, and 40 billion
barrels probable," which would constitute 140 years of production
at the 1987 rate. Western petroleum geologists, although somewhat
more conservative in their estimates, generally concurred with
Iraq's assessment; some said that Iraq has the greatest potential
for new discoveries of all Middle Eastern Countries.
Besides petroleum, Iraq had estimated natural gas reserves of
nearly 850 billion cubic meters, almost all of which was
associated with oil. For this reason, most natural gas was flared
off at oil wells. Of the estimated 7 million cubic meters of
natural gas produced in 1987, an estimated 5 million cubic meters
were flared. Iraq's Fifth Five-Year Plan of 1986-90 included
projects to exploit this heretofore wasted asset.
The war did not impede Iraqi investment in the oil sector. On
the contrary, it spurred rapid development. The government
announced in 1987 that, during the previous 10 years, 67 oilrelated infrastructure projects costing US$2.85 billion had been
completed and that another 19 projects costing US$2.75 billion
were under way. One Iraqi priority was to exploit natural gas
reserves. Because natural gas is more difficult to process and to
market than petroleum, the Ministry of Oil in late 1987 called
for the substitution of natural gas for oil in domestic
consumption, a move that could free more oil for export.
Therefore, it became a key goal to convey natural gas from oil
fields to industrial areas, where the gas could then be used. In
1987 the Soviet Union's Tsevetmetpromexport (TSMPE) was
constructing a main artery for such a system, the strategic
trans-Iraq dry gas pipeline running northward from An Nasiriyah.
In 1986 work was started on liquefaction facilities and on a
pipeline to transport 11.3 billion cubic meters per day of
natural gas from Iraq's North Rumaylah oil field to Kuwait.
Another focus of Iraqi investment was the maintenance and
augmentation of the oil industry's refining capacity. Before the
war, Iraq had a refining capacity of 320,000 bpd, 140,000 barrels
of which were produced by the southern refinery at Basra and
80,000 of which were produced by the Durah refinery, near
Baghdad. In the opening days of the Iran-Iraq War, the Basra
refinery was damaged severely, and as of early 1988 it remained
closed. The Durah refinery, however, remained in operation, and
new installations, including the 70,000 bpd Salah ad Din I
refinery and the 150,000 bpd northern Baiji refinery, boosted
Iraq's capacity past 400,000 bpd. About 300,000 bpd were consumed
domestically, much of which was used to sustain the war effort.
A second thrust of Iraqi oil policy in the late 1980s was the
development, with Soviet assistance, of a major new oil field. In
September 1987, during the eighteenth session of the Iraqi-Soviet
Joint Commission on Economic and Technical Cooperation, held in
Baghdad, Iraq's SOOP signed an agreement with the Soviet Union's
Techno-Export to develop the West Al Qurnah oilfield. This
oilfield was regarded as one of Iraq's most promising, with an
eventual potential yield of 600,000 bpd. Techno-Export planned to
start by constructing the degassing, pumping, storage, and
transportation facilities at West Al Qurnah's Mishrif reservoir,
expected to produce 200,000 bpd.
Data as of May 1988
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