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Iraq
Oil in the 1980s
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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