197. Telegram From the Embassy in Iraq to the Department of State 1

1135. Oil Crisis—consequences for Iraq of prolonged closedown of IPC. State 102651.2

1.
First should say we believe Syrians have moved against IPC after very careful calculations with perhaps four main objectives in mind: (1) to strike a telling blow against Eastern [Western ?] interests and to encourage other extremists in same direction; (2) to take Syrian claim to leading role in Arab causes; (3) to try to bring Iraq into radical camp; and (4) to get more money.3 We wonder whether current Syrian regime will back down unless, perhaps, Iraq pays an acceptable political price and Communist countries prove unable buy and market large amounts oil. Successor regime may have trouble disencumbering itself of current SARG commitment even if so inclined (which is imponderable). Thus we think there is good possibility of extended shutdown of Kirkuk-in Zala production.
2.
Economic consequences for Iraq more readily identifiable than are political. Two-thirds of GOI revenues come from Kirkuk-in Zala oil. While IPC apparently increasing Basra liftings to 30 million on rate without further investment, GOI at best will still receive less than half as much as heretofore. Impact would be severe on development plan, on payment of salaries, on employment and on essential ports. Payments to numerous contractors would be postponed and efforts would be made to postpone payments to external creditors. Internal tax and customs receipts would decline. All private investment would stop. Nothing would be done to reconstruct north. GOI has been facing real financial limitations for past six months as result of Kurdish war and [Page 365] has limited margin to work on at best. Despite presumed adoption of drastic measures, we would have to assume that in four to six months GOI would be scraping bottom of barrel and its credit abroad would be nil. This of course would have major impact on US exports and on US firms working in Iraq or seeking contracts here.
3.
Foregoing assumes GOI will fail ratify draft IPC agreements which would bring cash benefits and an improved credit rating. We must assume non-ratification since possibility of ratification seems limited. We assume IPC will refuse make any new investment without ratification. We also assume IPC willingness increase liftings of Basra oil to maximum possible with existing facilities in absence of any further GOI measures against IPC. If extremists eventually take over or if PriMin Talib pursues current threat to give North Umaila to INOC, another situation will exist.
4.
Political consequences both external and internal are difficult envisage. They are dependent on decisions taken by Iraqis on basis of relative power of different elements, something that is unlikely to be stable. If the present Cabinet remains in office, results will be unremitting and hope for effective resistance can be maintained only if sufficient resources found elsewhere, or perhaps not even then.
5.
Moderate trend in Iraq has been strong for three years. Efforts by extremists have been increasing in recent months and moderates have been getting more and more worried. Yet moderates have shown little inclination or ability organize and make weight felt. Many of moderates lack courage and are fearful that as individuals they may in future have to face peoples court if they stand openly against extremists. Also, moderate Sunni Arabs unable draw upon Kurds and Shias for support.
6.
We cannot rule out possibility that moderates will prove able to hold their own, but given nature of country and its history we justified in fearing worst. As we see it there is real possibility that as economic bind becomes felt increasingly, radicals will be able to obscure real issues and arouse emotions of people on basis of anti-Western, anti-IPC appeal to point of serious “street” action in form of mass student strikes and mob demonstrations which moderate authorities unable deal with short of serious bloodletting. Extremists then would be able to take over by default. This might then lead to takeover of IPC or even control of Iraqi oil production by Communist countries; complete socialization of Iraqi economy; reversal of present policy of improving relations with Turkey, Iran and Kuwait; a renewed threat to security of Kuwait; serious prosecution of “Arab causes”; hostility to foreigners in Iraq; and drastic increase in the strength of Commies with a concomitant rise in role of Soviets in Iraq. Moderates in Iraq would be persecuted and prosecuted vigorously. While economic situation in Iraq would become very bad, extremists likely remain in power [Page 366] for some time until revulsion plus normal fragmentation of power elements would permit reversion to something saner.
7.
If moderates are able to hang on, they are going to need good deal of help if IPC crisis continues more than a month or two and they will expect to receive help from West and its friends. Saudi Arabia and Kuwait are unlikely to want to help much.IPC is unlikely to extend loan if its issues with GOI remain unsettled. We doubt Western governments or banks will wish assist financially. International Monetary Fund can be tapped but this source inadequate for prolonged crisis. Yet failure to provide support will probably be fatal.
8.
Another imponderable is Kurdish question. If GOI gets into deep financial trouble, its ability to prosecute a war will decline. Would Kurds decide take advantage of GOI situation to start rebellion again? If moderates in office Soviets would be likely support Kurds, but if extremists in office would Soviets assist them against Kurds? In any event Kurdish problem could become even more serious than in past. Israelis and Iranians would probably try to stir up Kurds against radical regime.
9.
Foregoing is unhappy picture. We trust Department will not discount it. Whether it comes true or partially true depends on myriad of decisions and events in coming months over which USG will have limited influence in some instances and none in others. At same time we should state we advocate that IPC stand its ground with Syria on transit issue and with Iraq on draft agreement; while doing so it should be of maximum helpfulness otherwise to Iraq unless and until Iraq takes measures against IPC. If a successor to Talib Cabinet ratifies IPC agreements, IPC should be willing to provide supplementary benefits such as construction of new pipeline from K–2 to loading terminal in Gulf if GOI so requests. This might be held out to a moderate GOI as a reward to encourage ratification.
10.
Situation will have to be played by ear, note by note, without advance knowledge of what tune is. Objective should remain constant: prevent crisis from deepening and prevent Iraq from sliding into extremism.
Strong
  1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, PET 6 IRAQ. Confidential; Limdis. Repeated to Beirut, Cairo, Damascus, Jidda, London, Kuwait, Moscow, Tehran, and Dhahran.
  2. Dated December 14. (Ibid., PET 15–2 SYR)
  3. According to telegram 2307 from Jidda, December 15, Saudi Oil Minister Yamani felt Iraq had been surprised by the Syrian action. “Yamani noted that during OPEC meeting in Kuwait, when Syrian takeover of IPC pipeline announced, Iraqi delegate to OPEC expressed surprise and dismay. Iraqi delegate allegedly told him GOI thought it had agreement with SARG that Iraqis would support SARG’s claims against IPC on understanding SARG would do nothing block IPC pipeline throughput from Iraq. Iraqi delegate had expressed concern that SARG double crossed Iraqis on this one. … He believes SARG, apart from its attempt extract more from IPC, is also seeking indirectly put pressure on Iraq to nationalize oil industry there. He noted OIG virtually bankrupt and heavily dependent on IPC revenues.” (Ibid.)