THE WAR'S IMPACT ON THE ECONOMY
Iraq's attack on Iran in September 1980 provided the new Iranian
government with an external scapegoat to divert attention from
its own economic mismanagement. The war created economic dislocation,
decreased industrial and petroleum development, and caused further
deterioration of the agricultural sector, which had already suffered
from the flight of landlords in 1979 and 1980.
Iraq attacked Iranian ports, the oil terminal at Khark (then
the main export teminal for crude oil, also cited as Kharg) Island
and, beginning in 1984, tankers shuttling between Khark and Sirri
islands in the Persian Gulf. The heavy damage to refineries and
pipelines, factories, and industrial sites hurt oil production
but did not significantly slow the export of oil until 1986; between
1982 and 1986, Iran produced 2.3 million barrels per day (bpd--see
Glossary) on average (see
table 5, Appendix). The combined effects of decreased oil
production and falling oil prices, however, created an economic
crisis and a shortage of foreign exchange by 1986. The destruction
in 1980 of the important Abadan refinery (which produced an average
of 628,000 bpd), the bombing of refineries and shuttle tankers,
and the continued embargo on purchases of Iranian oil by Japan,
the United States, and France contributed to the crisis. By November
1987, Iranian oil exports were estimated at 1 million bpd, down
from an estimated 1.9 million bpd the previous month.
The Iraqi strategy of interrupting Iran's export supply line
dated back to February 1984, when Iraq attacked tankers shuttling
between Khark and Sirri islands. The terminal and cargo handling
jetties on Khark Island were hit, reducing the island's export
capacity from 6.5 million bpd to 2.5 million bpd within 3 months.
This new tactic did not halt Iranian oil exports, but it did decrease
them. As a consequence of lower export earnings, the new budgets
showed deficits in fiscal years 1985 and 1986.
After the bombings of Khark Island, Iran developed Sirri Island
as an alternate terminal. Operations began on Sirri Island in
February 1985. Iraq attacked the refinery there on August 12,
1986, temporarily disrupting Iran's oil exports, and again in
the fall of 1986, this time inflicting damage from which Iran
took longer to recover.
As a consequence of the early 1984 bombings, insurance rates
for tankers in the Gulf increased. The increase prompted Iran
to extend special incentives to tankers to compensate for the
risk involved. During the Iraqi attacks, Iran's main crude oil
customer, Japan, banned its tankers from the Khark-Sirri shuttle.
After Iran began giving preferential treatment to certain customers,
Japan resumed its shipments in July 1984.
The August 1986 attacks on Sirri Island caused oil exports to
fall to about one-third of their normal volume (from 1.6 million
bpd to 600,000 bpd). An effort was made to develop Larak Island
as a loading point, but monsoon winds temporarily closed Abu al
Bukush, Larak Island's main oil terminal, in September 1986. Iraqi
attacks on Larak Island's chief remaining oil export terminal
in November and December 1986 further damaged it. By November
1987, Larak Island had recovered and had become Iran's main export
point because of its distance from Iraq's air bases and because
of its air defense system.
The oil export terminal at Lavan Island, which for years had
exported 200,000 bpd, was also severely damaged in an attack in
September 1986. The success of this attack made it clear that
Iraq was gradually destroying Iran's export industry. By the end
of 1986, the Iraqis had bombed Khark, Sirri, and Larak islands,
as well as the shuttle tankers to Sirri and Larak; thirteen tankers
had been damaged in missile attacks in August 1986 alone. The
war also postponed the completion (projected for 1989) of a large
petrochemical plant at Bandar-e Khomeini (formerly known as Bandar
Shahpur, but renamed after the Revolution), an Iranian-Japanese
Data as of December 1987