Oil in the 1980s

Iraq Table of Contents

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.

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Source: U.S. Library of Congress