Washington Report on Middle East Affairs, November 1987, page 7

Trade and Finance

By John T. Haldane

Arab League

Arab heads of state will meet November 8 in Amman to discuss the Iran-Iraq war and the possibility of imposing economic sanctions on Iran. Earlier, after strenuous lobbying by Syria, Arab League foreign ministers meeting in Tunis on September 20 had decided against immediate sanctions against Iran. Prince Saud Al-Faisal of Saudi Arabia, the chairman of the meeting, attacked Iran for "imperiling the Gulf," but added, "We are giving Iran one more chance."

At that time, the group called for the Amman Arab summit meeting to discuss the Iran-Iraq war, the sanctions question, and the "continuous threats that the war poses on the Arab nations of the Gulf."

Iran

The US Senate voted unanimously on September 29 to embargo all imports from Iran. This action followed press reports such as one in the Washington Post that "Iran has become the second largest supplier of crude oil to the United States, the result of a surge of exports this summer that has pumped more than $700 million into Tehran's war-torn economy." The Senate action was opposed by the Reagan administration. An administration official said that such a unilateral move would undermine American efforts in the United Nations to gain broad international support for an arms embargo against Iran.

Iraq

Iraq signed a billion-dollar contract in late September with a consortium of Italian, French, Japanese, and South Korean companies for the construction of a 620-mile pipeline across Saudi Arabia to the Red Sea. Iraqi oil minister Issam Abdul Rahim stated that the pipeline will link Iraq's oil fields with the Saudi terminal at Yanbu and will transport 1.6 million barrels per day (b/d). This signing came only a month after Iraqi oil began to flow through new lines via Turkey to the Mediterranean port of Iskenderun, boosting overall Iraqi export capacity from 1 million b/d to 1.5 million b/d.

Israel

The Pentagon thought it had shot down the Lavi fighter in September. But had it? The Israeli government has announced that it has agreed to continue funding the Lavi at a reduced level to permit completion of a third prototype aircraft. Israel allocated $25 million to enable Israel Aircraft Industries to keep approximately 300 engineers and technicians on its payroll through March of next year.

The Reagan administration is earmarking $450 million of Israel's annual $1.8 billion US military aid budget to pay termination charges to US and Israeli companies working on the supposedly defunct Lavi project. This will be in addition to $1.5 billion in US aid already spent on the Lavi program.

Jordan

The official news agency Petra in Amman reported in late September that Jordan will restore diplomatic relations with Libya, which were broken in 1984. The decision, made at a Cabinet meeting chaired by King Hussein, was said to be in accordance with "Jordan's firm commitment to the higher interest of our Arab nation."

Kuwait

The Washington Post revealed on October 2 that Kuwait has chartered its first US-owned supertanker with an all-American crew aboard. The move will heighten the US involvement in protecting Kuwaiti oil exports from Iranian attack. Kuwait broadened its efforts to protect its exports earlier this year by chartering three Soviet ships.

Qatar

Work has begun on the region's largest offshore gas reservoir, Qatar's North Field. This field, below 165 feet of water about 50 miles northeast of the Qatar peninsula, has proven reserves of 150 trillion cubic feet. Qatar General Petroleum Corporation has chosen a joint venture, consisting of Bechtel Ltd. (UK) and Technip (France), to manage the project. Qatar is looking to the West European market after its domestic gas needs are met. A pipeline via Turkey has been proposed and preliminary talks have taken place between turkey's state oil company and Qatar's Finance and Petroleum Ministry.

Syria

Things are looking up for Syria, financially speaking. The Reagan administration has decided to lift most of the economic sanctions imposed on Damascus over the last several years. Washington has informed the two American oil companies working in Syria—Pectin, a subsidiary of Shell, and Marathon Oil Company—that the US government no longer objects to their doing business in Syria. Pectin is developing the Al-Thayyem oil field, which is expected to bring in some $200 million annually when it reaches full production. Marathon has made several gas discoveries and is negotiating with Damascus to develop those fields. The administration's blessing came just in time, according to a State Department official, who said that British Petroleum had joined other West European oil companies in seeking to fill the gap created after the American firms were urged by the US government to withdraw.

Claude Cheysson, commissioner of the European Economic Community (EEC), stated recently that relations between Syria and the EEC are returning to normal and may soon include major new credit agreements. Cheysson said the amounts of the new agreements have not been set. Syrian officials have put the figure at about $450 million.

Tunisia

Initial fears of overly harsh sentences for some 70 Islamic fundamentalists on trial for a series of recent crimes proved groundless. Two of the fundamentalists, convicted of direct involvement in acts of violence, were executed. Others were sentenced to prison terms and a number were acquitted.

The relatively moderate sentences were generally applauded in western countries. Continuing domestic unrest could seriously damage Tunisia's vital tourist industry and its hopes of attracting badly needed foreign investment. A recent downturn in the nation's fragile economy makes it urgent that foreigners continue to regard Tunisia as an oasis of economic and political moderation. US economic and military assistance to Tunisia totaled $76.6 million in fiscal year 1987.

Yemen Arab Republic

The Yemen Arab Republic (North Yemen) will join the ranks of oil exporters this month. The initial flow is estimated to be about 170,000 barrels per day (b/d), with a goal of 200,000 b/d early in 1988. A major oil field at Alif in the northern part of the country is being opened by Yemen Hunt Oil Company. One of the most ambitious elements of the oil field's development is a 267-mile pipeline to be laid through mountainous terrain to a new export terminal on the Red Sea. Oil income will permit the YAR, a country with an economy based on subsistence-level farming and remittances from Yemenis working abroad, to build a modern industrial infrastructure.

US Persian Gulf Operations

Reagan administration officials estimate the cost of US convoy operations in the Persian Gulf at $70 million through September. These costs were expected to rise for October and as long as the US armada remains in the Gulf. However, there are no plans to ask Congress for supplemental funds. The Navy is squeezing the Gulf money from its operations and maintenance budget by delaying some ship overhauls and by "not keeping things as combat-ready as they should be," according to a Pentagon official.

John T. Haldane is a Middle East specialist who has served as a Foreign Service officer in Baghdad, Cairo, and Beirut, and as an international economist in the departments of Commerce and Treasury.