Risking a major drop in oil prices, Iraq is making an all-out drive to begin pumping an additional half million barrels of oil a day by September, according to senior government officials and private industry sources here.
This would be a jump of almost 50 percent over its current export quota assigned by the Organization of Petroleum Exporting Countries.
The key is a new pipeline into Saudi Arabia due to be finished in September and still on schedule, according to Iraqi officials. Its completion is considered vital to the war-worn economy not only for sorely needed cash but also as a "psychological factor" in the renegotiation of major debts falling due in October, industry sources said.
This and other new pipeline projects in Saudi Arabia and Turkey are planned to bring Iraq's export capacity up from 1 million to about 3 million barrels a day by early 1988 even if it is unable to build a controversial line through Jordan or restore facilities cut off by a 1982 Syrian blockade and the continuing war with Iran.
The new projects are designed to be sufficiently far from the fields of battle to ensure their continued operation despite continued hostilities. But while Iraq views them as essential to its survival in the protracted war against Iran, oil market analysts are concerned that such major increases could do serious damage to the already fragile world oil price structure.
Oil-producing nations have limited their exports to keep the price of petroleum from collapsing in the glutted market. While there is some recognition that something might be done to accommodate Iraq's half million barrel increase this year, said one well-informed western economic analyst here, "I don't know who would be willing to cut back 2 million barrels a day" to accommodate the other projected increases.
But Iraqi officials are adamant.
"We will certainly use the first phase of the Saudi pipeline regardless of the quota," Deputy Oil Minister Issam A.R. Chalabi said Monday in an interview. Chalabi maintained that, given current market fluctuations, half a million barrels probably can be absorbed. But he added, "If they OPEC don't agree, we will find a way out. We will insist on our fair share of the market."
Pressed for Iraq's export goal when all projects are completed, the deputy minister said, "I personally believe that my country's share of the market should be 3 million barrels." He said that the country's proven petroleum reserves are 65 billion barrels.
In 1980, in a very different world market, Iraq was exporting as much as 3.75 million barrels a day. But early in the war, which began in September of that year, Iran shut down Iraq's ports and terminals on the Persian Gulf from which it had been shipping 2 million barrels a day. In early 1982 Syria, which supports Iran in the war, shut off the 1 million barrel-a-day pipeline through its territory to the Mediterranean.
By the time OPEC set its quotas in 1982 Iraq's export capacity had been chopped back from 3.75 million barrels to the 650,000 through the pipeline that stretches from Kirkuk to Ceyhan in Turkey. Improvements in that line brought it up to a capacity of about 1 million barrels.
The 1.2 million barrel quota for Iraq was more than its capacity.
"There was no point in arguing," said Chalabi. "But we made it clear in all the conferences that that figure would never represent our true share of the market."
Iraqi officials downplay their economic problems. "We are going through a period of difficult cash flow," was the most conceded by a top Foreign Ministry official.
But western economic analysts are more forceful. "The pipelines are really an economic imperative at this moment," one said. Iraq was once a comparatively wealthy country, with foreign exchange reserves estimated at $35 billion.
But when war broke out the government of President Saddam Hussein pursued "a policy of both guns and butter," as several diplomats put it, pushing massive development projects to shore up the home front at the same time he fought Iran's Ayatollah Ruhollah Khomeini.
In 1983, after the Syrian cutoff, Iraq apparently ran out of foreign exchange reserves. Several companies completing cash contracts were asked to take deferred payments that come due this year, according to diplomatic and commercial sources.
Western businessmen here believe the new Saudi pipeline is a vital element in Iraq's efforts to renegotiate these debts once again. The American firm of Brown & Root has technical advisers on the $500 million project. An Italian-French consortium is actually building the line.
But the Iraqis themselves are handling management and driving hard to complete the project on or ahead of schedule "no matter what," as one industry source put it. The status of the other projects vary, but all appear to be moving forward.
The line due for September completion runs from Zubayr in southern Iraq to a connection with Saudi Arabia's existing east-west line to Yanbu. What is called phase two of the Saudi project is a new Iraqi line paralleling the Saudis'. According to Chalabi, several technical problems have been cleared up with the Saudis in the last few weeks, contracts should be signed by early next year and the project completed in early 1988. Phases one and two operating together will have a 1.6 million barrel capacity.
Bids have been received for a second line through Turkey that would boost the total capacity on that route to 1.5 million barrels. That project, too, would be finished by 1988.