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STRATFOR.COM's Global Intelligence Update - 13 April 2000 By The Internet's Most Intelligent Source of International News & Analysis http://www.stratfor.com/ __________________________________________ Know the every move of your competitors -- even before they do. Stratfor Intelligence Services http://www.stratfor.com/services/ __________________________________________ WHAT'S GOING ON IN YOUR WORLD Have you visited our web site recently? We've made some new changes that make using the site more efficient, allowing greater access to thousands of reports. Visit http://www.stratfor.com today. Russia's Dwindling Population Ensures Rigid Foreign Policy http://www.stratfor.com/CIS/commentary/0004130155.htm Threat of Russian Air Strikes in Afghanistan http://www.stratfor.com/MEAF/commentary/0004130241.htm __________________________________________ STRATFOR.COM Global Intelligence Update 13 April 2000 Iraqi Oil Smuggling and the U.S. Dilemma SUMMARY Iran detained 10 tankers April 11 that allegedly carried illegal Iraqi oil through the Persian Gulf. It appears that, for the time being, Iran is serious about interdicting Iraqi oil exports, and this will force Baghdad to exploit alternative routes. An oil pipeline running from Kirkuk, Iraq, to Syria's Mediterranean port Banias is the most effective, reasonable alternative. If Syria cooperates, the United States will face a serious dilemma as it tries to improve relations with Iran, contain Iraq and secure a peace deal between Israel and Syria. Washington can respond to Iran's overture or continue to cajole Syria into concluding a formal peace deal. ANALYSIS The naval arm of Iran's Revolutionary Guard Corp (IRGC) has detained 10 tankers carrying a total of 45,000 tons of smuggled Iraqi oil, reported Reuters. This report - the third in a week - clearly confirms that Tehran has begun enforcing U.N. sanctions against Baghdad in an attempt to curb Iraqi oil smuggling. Iran's crackdown is an extension of its disagreement with OPEC over the cartel's recent decision to increase oil production. Iran argued against the amount of OPEC's production increase, so to maintain higher prices Iran is now attempting to cut Iraqi output by deterring smuggling. In doing so, Tehran has set up a situation in which the United States cannot help but be an unwitting partner. Iraq is unable to retaliate with force, because the United States would be obligated to stop Iraqi aggression. Washington must decide how to reciprocate the Iranian gesture - if at all. The dilemma will arise when Iraq seeks other oil smuggling routes. According to the U.S. Energy Information Administration, on Oct. 4, 1999, the U.N. Security Council raised to $8.3 billion the cap on how much revenue Iraq can earn under the U.N. oil-for-food program. With oil prices currently around $22-$23, Iraq is able to export about 2 million barrels per day (bpd). However, Iraq has managed to smuggle an additional 200,000-400,000 bpd of oil out of the country. Until recently, Iran has reportedly facilitated Iraq's oil smuggling. Ships loaded Iraqi oil from a terminal on the Shatt al- Arab, a waterway leading from Iraq to the Persian Gulf. Once at sea, the smugglers met Iranian patrol boats, mostly manned by the IRGC navy. By paying the IRGC $50 per metric ton of oil, smugglers received forged paperwork asserting that the oil originated in Iran and providing safe passage through Iranian territorial waters, extending to the Straits of Hormuz - the mouth of the gulf. The U.S.-led Maritime Interdiction Force, charged with preventing Iraqi oil smuggling, cannot enter Iranian waters to enforce the sanctions against Iraq. Iranian cooperation has come to an abrupt halt with the interdiction of 12 tankers in three days. The administration of Kish, Iran's resort island and free-trade zone, has even lodged a complaint in the courts against "foreign oil tankers," which it blames for a large oil slick threatening the environment off the southeast coast of the island, reported Iran's official news agency April 12. Iran's shift in policy does not appear to be a temporary development. The gulf smuggling scheme was by far the most lucrative of Iraq's smuggling routes. Iraq has an oil pipeline from Kirkuk, Iraq, to Ceyhan, Turkey, that is currently capable of transporting about 900,000 bpd and is running at near full capacity. The oil-for-food program closely regulates output from this pipeline. However, truck tankers smuggle oil from Iraq to Turkey. According to the U.S. Energy Information Administration, Iraq also smuggles oil to Iran across the Fao Peninsula with barges. There have even been reports that Iraq smuggles oil by truck to the Mediterranean via Syria and Lebanon. None of Iraq's existing truck or barge smuggling routes is capable of moving the 200,000-400,000 bpd of oil that has been smuggled out of the gulf every day. However, there is an oil pipeline from Kirkuk, Iraq, to Syria's Mediterranean port Banias that has been shut off and in need of repair since the 1980-88 Iran-Iraq war. According to Iraq's deputy oil minister, the pipeline was repaired in March and is capable of transporting about 300,000-350,000 bpd. Syria reportedly agreed in February 1999 to reopen the pipeline, but Iraq will need U.N. approval to start legally exporting oil via Syria. This pipeline could become a viable alternative for oil smuggling. Syria could collect some badly needed cash from Iraq by reactivating the pipeline. This would create a significant dilemma for U.S. policy. Washington wants to contain Baghdad and can use diplomacy or force to ensure oil is not smuggled via the pipeline. Iran's behavior - whether intended or not - can be interpreted by Washington as an overture. Now the United States can take the opportunity to make an overture of its own. The U.S. overture might come in the form of disabling the pipeline to Syria, Iran's erstwhile ally. Washington could respond to Iran's tacit overture while curbing Iraqi oil smuggling. Disabling the pipeline within Iraq would take Syria out of the equation. Such a move would not be unprecedented. During the Desert Fox air strikes, U.S. warplanes bombed an Iraqi pipeline leading to the gulf that was used primarily for oil smuggling. Also, in February 1999, U.S. forces bombed a pumping station along the crucial Iraq-Turkey pipeline. According to Pentagon officials, the actual target was a radio relay station located along the pipeline that had a dual-use as an Iraqi military communications facility. Unfortunately, disabling the pipeline will provoke increased Syrian intransigence on the U.S.-propelled Israeli-Syrian peace process. However, should diplomacy be chosen over military action, the United States would find it costly to provide incentive for cooperating with Israel while attempting to dissuade Syria from cooperating with Iraq. The pipeline would become a political lever for Syria, and Washington would have to ante up something else to counter it. Ultimately, Syria is likely to cooperate with Iraq. Damascus will gain a viable source of income and leverage over the United States. But, Syria's cooperation with Iraq will further disconcert Iran, which is trying to curb oil smuggling to maintain high prices. Syria is already at odds with Iran over Lebanon and the peace process with Israel. But, Syria is also an old ally of Iran, and the two maintain an open dialogue. That relationship paves the way for Tehran to collaborate with Washington on convincing Damascus to keep the pipeline closed. 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