SPECIAL ANALYSIS -- IRAN-IRAQ: CEASE-FIRE PORTENDS LOWER OIL PRICES

Created: 8/30/1988

OCR scan of the original document, errors are possible

National Intelligence Daily

Tuesday

8

PE11ASEIH PARI EXEMPTIOHS [IlKll

[bill] DATEl

Special Analysis

PortenoS Loaae Oil Price*

II the cease- tiro In the irtn-lreq war holds, tneteeted exports Irom Persian Gulf oildrive pricesuc* itfoer barrel over the neat year or two. I

eace. salliemmt might improve the environment for cooperation in OPEC tosipport prices, divergenlong lis Persian Gulf member states will continue toefforts loorkable production allocation scheme bMi|bh

Iraq's ellorls lo bulla an extensive exporl pipcllno syslem and to maintain an aggressive, oifeld development program Dave put itood positionncrease oil output. II trie cease-rirn holds. Iraq would be able lo increaseillion barrels po- day within six months by using two slnrjhj-polnt moo-ing Buoys in Ihe Gull. Even without these buoys. Iraq wll expand Its export capacityy laic next year witn the complelion o- its pipeline through Saudi Arabia I

Non-Communist oil consumption, however, is expected lo grow by onlyext year, and nonmemtnrs will supply as mucnf lhalm ana lor OPECcurrent prices- will increase byxl

Should Iraq opl IO uso all lis additional exporl capacity, oil priccs would collapse. Statements by Iraqi oil officials suggest lhat Iraq will iry lo export as much oil as possible alter ihe war wilhout triggeringrice riacline.lj

Given Ihe relative strength of Iraq's oil sector. Baghdad is (tilery touota Irom OPEC :ha( is much higher lhan thai ol Iran. Baghdad may decide lo Seal witn the rest or OPEC, including Tehran, in ihe marxel rather than ol toe bargaining labie. This wouldhaiieivgejc^yjjr Gull producers also looking lor nigrter quotas and expoits. I

The war's end pro jnbly wll have tiitle effect on Iranian oil production and exporl capacity over Ihu next several years. Iran has allowed lis oil production enpacity to deteriorateillion lo3 millioruring the war. and it doesvo mucn poteniial lor an aggressive increase In oil exports. With current production. iran can Increase lis oil outpjt over the near term by no more thani

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4

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lelian Islo Dvsensitive lhan Iraq lo IKe impact of higher output or on price* 'I'ougficu' the war. Iran prOd-JCed well under Its productive capacity, r'eisjl.cg higher prices loolicy trust probacy Wi: continue .1

Saud'Sis. tne key rosetncof tne postwar market. Put theterersia among Gut procrucers writ mainitncutt tor Riyadh toreate price support Mo-nc-rar |he SauCis -avc little oil pottcv tore-age seerlthough Piyadh rtos the aWlity to limit Iraqi exports ffirough the pptilmo thai vanslts Soudi AraOia. it la not likely to do up tor fear ol anlaqoniing lis powerful ne(chDor|

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