WORLD

A Gulf showdown

OPEC ministers bow to Iraqi threats

HOLGER JENSEN August 6 1990
WORLD

A Gulf showdown

OPEC ministers bow to Iraqi threats

HOLGER JENSEN August 6 1990

A Gulf showdown

WORLD

THE MIDDLE EAST

OPEC ministers bow to Iraqi threats

The 13 member nations of the world’s most powerful oil cartel, the Organization of Petroleum Exporting Countries (OPEC), traditionally dispute production quotas and oil prices. But, for 30 years, they have settled their differences in the conference room. Even when Iran and Iraq were at war in the Persian Gulf, their oil ministers conducted business as usual. But Iraqi President Saddam Hussein changed the rules last week, dispatching 30,000 troops to his country’s badly defined border with Kuwait. Although few observers expected him to invade his much weaker neighbor, many oil industry analysts described the action as extortion. And it achieved Hussein’s objective. Kuwait and other Gulf states agreed to curb oil production to raise prices—as Iraq had been demanding. The new target price: $21 (U.S.) a barrel (about $24 Can.), up $3 from the $18-a-barrel benchmark that OPEC set in 1986.

The confrontation lasted less than three days. Iraqi forces began withdrawing before OPEC reached agreement on the new pricing strategy last Friday. But Hussein’s unprecedented use of military muscle to intimidate fellow cartel members caused concern in Washington, which ordered an air and naval exercise in the Gulf. That, in turn, led to a hasty

mediation effort by Egyptian President Hosni Mubarak, who asked the Americans not to “escalate an issue between brotherly Arab states.” He persuaded Iraq and Kuwait to begin talks on a number of unresolved disputes, largely economic, and by week’s end Baghdad denied that it had sent troops to the Kuwaiti border at all.

Western oil analysts said that Iraq had clearly established itself as OPEC’s policeman, usurping the dominant role previously enjoyed by Saudi Arabia. “As long as Saddam [Hussein] stays in power, Iraq will act as a bully,” said Heino Kopietz, a London-based Middle East expert. “The Gulf states are petrified of Saddam.”

Although the Iraqi president has been increasingly assertive since the Gulf War ended in 1988, his effectiveness is limited by the country’s wartime debts. Iraq owes an estimated $90 billion—about $60 billion of it to non-Arab states and $30 billion to Saudi Arabia, Kuwait and the United Arab Emirates (UAE). Said a senior Arab banker, on condition of anonymity: “Iraq doesn’t intend to pay back [the Arab aid], and the Arab states don’t ever expect to see the money again.” He added, “But if they write it off, it will affect the international evaluation of all the countries involved.”

The creditors’ persistent refusal to cancel the debt led to an angry outburst from Iraqi Foreign Minister Tareq Aziz. He reminded Iraq’s Arab creditors that Iraq had “sacrificed rivers of blood” to protect them from Iranian expansionism and said that it was their “fraternal” duty to improve Baghdad’s credit rating.

At an Arab League summit last May, Iraqi officials denounced Kuwait and the UAE for producing oil far above their OPEC quotas and weakening prices. Although Iraq’s oil reserves are second only to Saudi Arabia’s, Iraq suffers more when prices are low because it does not have the production capacity of its neighbors and cannot increase its output. In the first six months of this year, Kuwait and the UAE together exceeded their quotas by as much as 1.5 million barrels a day, fuelling a glut that sent prices tumbling to $13.64 (U.S.) a barrel. They have since risen to $16.25 but, on average, oil prices have rarely reached the 1986 benchmark of $18.

Hussein stepped up his pressure on July 17, threatening military action against any OPEC member that continued to exceed quotas. He then accused Kuwait of stealing $2.8 billion worth of oil from the Rumaila oilfield, the site of a long-standing border dispute between the two countries, and he demanded direct negotiations to determine ownership of the field. On July 23, diplomats reported that two Iraqi armored divisions had arrived at the Kuwaiti frontier. That same day, Iraq’s government-controlled media launched a virulent personal attack on Kuwait's foreign minister, Sheik Sabah al-Ahmed al-Sabah, a brother of the emir, the country’s ruler, depicting him as a tool of the Americans whose “malignant hand is behind all the harm inflicted on Iraq.”

Washington, which had provided military escorts for Kuwaiti tankers during the Gulf War, responded with what U.S. officials called a “short notice” exercise in the Gulf. The Pentagon sent two KC-135 aerial tankers and a C-141 cargo plane to practise midair refuelling with the UAE’s French-built Mirage fighters. Two U.S. warships cut short port calls in Bahrain, and all six vessels in the Joint Task Force Middle East—four frigates, a destroyer and a flagship—went on alert status.

Baghdad denounced the manoeuvres as “anti-Iraqi acts,” but they seemed to have the desired effect. On July 25, Hussein told U.S. ambassador April Glaspie that he did not want to antagonize Washington and that he did not plan any military action. Then, Egypt’s Mubarak announced that Iraq and Kuwait had agreed to resolve their differences in talks hosted by Saudi Arabia. OPEC’s decision to raise oil prices to $21 (U.S.) fell short of Iraq’s demands for a $25-a-barrel price, but conference sources noted that Kuwait might make up the shortfall in Baghdad’s oil revenues by forgiving about $11 billion of the wartime debt. It was clear that Iraq finally and firmly held the upper hand.

HOLGER JENSEN with WILLIAM LOWTHER in Washington and correspondents’ reports

WILLIAM LOWTHER