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STRATFOR.COM's Global Intelligence Update - 13 April 2000
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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.
(c) 2000 WNI, Inc. http://www.stratfor.com/
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