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Economic ft Energy Week]
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price* are likely to remain under upward pressure in the near termlong as Kuwaiti and Iraqi oil export! arc shut down. Oil export* from Kuwait and Iraq have fallen byillion barrels per dayuwaiti export* remain shutdown,ff the market. Iraq will probablyew hundredn August, a* compared with prelnvaiion sake. In addition to the low of oile expeci some extra pressure on demand a* East European countries seek to hot up supplies to replace tbe shortfall* in Soviet oil deliveries to tbe
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In light of these rapidly unfolding events in the Persian Gulf region. we have examined three scenarios for oil prices. Each assumes that oil exports are shut down from Kuwait and Iraq for an extended period, but makes differentabout the availability of surplus capacity to replace these supplies-
! xamined the implications of higher oil
prices tor
In the first scenario, Kuwaiti and Iraqi oil exports are shut down for aa extended penod, but ocn-Persiac Gulf producers make their surplus capacity available. Under these conditions, tfte market would losef exports from
ulf,:h= pjJJ^pj^HPJ^BpJsurplus production capacity
potentially available from producers outside iheas Venezuela.and pcihapson Hoc. The net oil supply shortfallprolonged, such aiverageoil
pricesthe next year. Higher oil prices cut OECD GNP
economic growthmd raised OECD inflation by several
percentage points]
ariant of this scenario, Kuwaiti and In but Saudi Arabia raiset crude oil outpuil and most surplus production outside the Gulf becomes available. Although lost iuppl.es from Kuwait and Iraq would be largely offset by increased production from other OPEC producers, some upward pnee pressure would remain because the market would be tight and tbe world oil system operating at nearly fall throttle- Prices wuukl mot: likely hover at or aboveSJO per barrel The impact on the OECD economies would be more moderate.H
Although oil inventories arc plentiful worldwide, oil companies may be reluctant to draw down those holdings substantially if theyrolonged disruptionise in oil prices. Under these conditions, government-owned orincluding "strategican important role in curbing upwardin oil prices and in cushioning tbe impact of lost oil supplies on economic
International: Economic Interdependence of Persian Gulf and OECD Countries
following presentationin statist!-caidegree to which the West relied on Persian Gulf oil supplies prior to the Iraqi invasion and Iraq's equally important dependence on foreign economic ties. It is the disruption of these links with the Persian Gulf producers that will cause dislocations in the world oil
Persian Gulf Oil Essential
The Persian Gulf has the highest ccaccc(ration of oil resourcca in the world:
The region contains overercent of the world's proved oil reserves- with Saudi Arabia alon*for one-fourth Iraq now controls one-fifth.
- The Gulf also has over ont-fourtb of theil production capacity and aboutercent ofpacit) -gsjsjfjj
Persian Gulf oil produccri normally supply one-fourth of the world'* ml -oquiramenu.6 million barTcli per day fb/di Of this3reported
Overillionmore thanercent of worldexported via Gulf oiland iransii the Strait of Hormuz.
f exports were sent via pipelines to terminals in the Mediterranean Sea and Red Sea
s consumed by the Gulf produc-ers.ffJfaVJi
ependence on Paralan Cidf Oil
The United States receivedf Persian Gulf oil through May of this year, almost all of which came from Saudi Arabia and Iraq. These imports represented aboutercent of USandercent of US act imports. Japan is heavily depcoden: on Persian Gulf oil. which usually account! forercent of Japanese oil coesumption. Tokyof Gulf oil so far this
year, mosUy from the UAE and Saudi Arabia.Europe relied on the Gulf forercent of its requirements, with Saudi Arabia, Iran, and Iraq being the largest suppliers. ffl
The Pivotal Roll of Iraqi and Kuwaiti Oil Exports
Iraq exportedf oilmam export routes:
Iraq's pipeline through Turkey that ends in the Mediterranean. Most of this oil il sold toin Europe, the United States, and
America
-pipeline Through Saudi Arabia, which endsRed Sea. Most of this oil was sent to Asia
through thee
ports went to the United States. Korea, and Brazil.
alsomall amount of crude oil to Jordanmall amount of refined products to
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The United States was by far Iraq's largest single customer. Through May of this year, the US importedf Iraqi oil, whichercent of US net imports during theonths of the yean
Moreover, this figure had been rising steadily throughout the year and industry forecasts indicate that US imports ofn July.
A small amount ofeen purchased by the US Government in recent months to help fill the US StrategicReserve.
OECD Oilail amji
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receivedercent of its net imports from Iraq Jiit year. Largely because of its proximity. VVes ern Europe impoiled a. much larger amount from Iraq, aboutercent of iis net imports, pj
Kuwo far this year all throughrimary Persian Gulf terminals:
Of;thisas told as crude ol andas sold in the form of leaned products.
Kuwait moved most of its refined products through iu own product distribution system, includingasoline stationsthroughout
The United States importedodest amounto farrercent of our net imports*!
wo-fifths of Kuwaiti oil sales were toii the Far East which has importeduwaiti crude so far this year. Japan bought
nearly half of these shipments, representingercent of its net imports. Other key customers included Singapore and SouthajaM
Oil Eaports from Saudi Arabia and tbi UaE
Saudi Arabia is the largest oil exporter in the world. It exports. primarily through Per nan Gulf capon facilities but also through its East-West pipeline that ends is the Red Sea:Nearlyercent of Saudirom two large terminals (Rax Tanura and Juaymah)maller terminal (Jubailt in tbe Persian Gulf.Overercent is sent across the country to the Red Sea port of Yanbu |
The United States has an important reciprocal oil relationship with Saudi Arabia. Wt are by far the largait Saudi customer and Saudi Arabia is by far out largest supplier. Through May of this year, the
Weutrnependence on Iraqi and Kmwaiii Oil
Western Europe's nei imports of oil from Iraq and Kuwait runninganS million barrelsercent of total oilto trade data for the first quarteresiern Europe apparentlyonsiderable cushion tous embargo on Kuwaiti and Iraqi oil. strategic oil stocks at the end9 equaled almost one year's worih of imports from the two counirlit.
The Netherlands. Italy, ande ihe leading purchasers and together accounted for almou half of Wen European oil imports from thePersian Gulf countritt Portugal. Greece, and Denmark. ho**ev*r. have been the most dependent on Iraq and Kuwait for their oil. The Portuguese and Greeks obtained aboutercent a] their imports from them8 and the Danes nearly Si per BB*^fJ
United Slates importedf Saudi oil. This represented aboutercent of US net imports and over one-fourth of Saudi ci! exports durxg the first five months of tbe )ear pj
Western Europe importsf Saudi oil, with France, the Netherlands, and Italy accounting for most of these purchascs-,B|
f Saudi oil is sent to the Far East:
Japan is tbe largest recipient in the region, with Imports of.
Other large customers in the region includeand Taiwan.*|
Turkey Is more vulnerable than its WesternTurkish oil imperii from Iraq were runningaten the first quarter0 and accounted for roughly three-fourths of Ankara's for-eign oil purchases.^
The United Arab Emirates haso far this year. ThreeDhabi. Dubai, andand export oi! from case onshore subsystem and seven offshoreOf thisas sold as crude oil andas sold in the form of refined products. The United Statesmall amount fromo farjbH
The Far East is by far theargest regional customer. Last year, the Far Easi receivedrom the UAE:
Japan accounted for tbe biggest share of the total imporungrom thelmost IB percent of the country's net imports.
Moreover, this figure has been nsuig steadily throughout tha year, with Japano far
Other major Far East customers include Singapore. South Korea, and Inctu |
Western Europe imports ate relatively minor, with about half of theoing to Italy.
Iraq's Dependence on Foreign Economic Ties
Iraq is critically dependent on the OECD wjuniries for trade. They normally provide aboutoercent of Baghdad's civilian imports
Despite efforts to develop substitutes. Iraq relies heavily on imported equipment for its oii andsectors and on importedda,food.
About two-thirds of its imports are manufactur mostly machinery and semifinishedto both civilian and military industries. Many of these manufactures are bigb-technology items generally unavailable outside ihe West.
Persian Guir Fact Sheet0
Million hit Uiccpctndiuird)
is not self-sufficient in food, which accounts for atuarter of its imports. The United States. Turkey, and Australia have been Baghdad'sfood suppliers ir. recent years!
Baghdad has relied on the USSR aod France for major weapon systems:
Moscow supplied close to half of Baghdad'sillion in arms imports last year. Iraq was to receive Soviet aerial refueling jets aod heavy transport helicopters this year and was negotiating forlighter aircraft.
Paris this year resumed delivering Mirage fightersontract worth about SI billion.
Poland, Yugoslavia, Hungary. East Germany, and Romania have provided various arms, munitions, overhaul services, and production facilities even though Baghdad produces munitions and some spares indigenously.
China has sold Iraq atillion worth of missile iccfir.oiocj in the past few yean "iJJJJJ
Iraq: Sources ol Ci'iUaa
Iraq depends heavily on oil export facilities that cross neighboring countries. Pipelines through Turkey and Saudi Arabia currently carry nearlyercent andercent of Baghdad's oil exports, respectively. Losing these pipelines would leave Iraq able to export onlyecause it hasimited ability to incrMscjgDorts through its terminal on the Persian Gulf.l
serious cash-How problems lead it to use the limited credit lines available whenever possible. Aboutercent of the nearly S6 billion in credit offers to Iraq during the past year were from OECD governments:
The United States made0 million in agricultural and export credit guarantees,!
Original document.
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