IRAQ-IRAN: STEPPING UP THE PRESSURE IN THE GULF

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000405710001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: April 27, 2010
• Sequence Number: 1
• Publication Date: January 10, 1985
• Content Type: REPORT

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
10 January 1985
IRAQ-IRAN: Stepping Up the Pressure in the Gulf
Summary
Last month Iraq resumed shipping attacks in the Persian
Gulf at record levels following a six week lull. The
increased rate of attacks is another stage in Iraq's
strategy of gradually escalating pressure on Iranian oil
exports. We expect the tempo of Iraqi strikes to increase
further this spring once all of its Mirage F-1 aircraft are
operational. A major uncertainty is whether Iraq has
sufficient Exocet missiles to permit it to continue intense
attacks for a prolonged period.
Iran has retaliated by hitting only three ships, well
below the level of Iraqi strikes, and Iran's response is
likely to remain limited as long as it can maintain oil
exports. In addition to its dwindling air capability to
defend against and launch shipping attacks, Tehran
apparently is aware that its retaliatory strikes make ship
owners even more reluctant to call on any port in the Gulf,
including Khark Island. Iran., however, will need to boost
oil discounts to offset the higher insurance rates in order
to maintain oil shipments from Khark Island. Iran also is
setting up a system to shuttle oil to a transloading
facility in the southern Gulf and is increasing its oil
storage capacity at another export facility in order to
reduce its dependency on Khark.
This paper was prepared by Office of Near Eastern and South
Asian Analysis with contributions from NESA, and
Office of Global Issues. Comment s and queries are welcome and
may be directed to the Chief, Persian Gulf Division, NESA,
NGA Review Completed
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If Iraqi attacks were to seriously impede Iranian oil
exports, we would expect Iran to retaliate against Iraq's
Gulf allies. The world oil market could compensate for a
loss of Iranian, Iraqi, and Kuwaiti crude, but any Iranian
action that disrupts Saudi exports would drive prices up
sharply.
Iraqi aircraft have attacked or attempted to attack tankers calling at
Khark Island an average of every other day for the past five weeks. Iraq
claims it has hit 19 ships since 3 December
Strikes
against five tankers and three cargo sips have been con irme two of the
tankers were seriously damaged.
Iraq is following a strategy of phased escalation begun 18 months ago 25X1
when Baghdad first threatened an economic blockade. In February 1984 it flew
an "armed reconnaissance" flight with Super Etendard aircraft near Khark
Island and the following month began regular attacks on tankers. With only
five Super Etendard aircraft and a cautious war strategy, however, these 25X1
shipping attacks have failed to reduce significantly Iran's oil exports. We
believe that weak oil demand is the major reason Iran's=oil exports fell from
1.8 million b/d early last year to 1.2 million b/d in late 1984.
Iraqi Attacks This Coming Spring
The delivery of twenty Exocet-armed Mirage F-1 aircraft from France is
due to be completed early this year, enabling Baghdad to increase the
frequency of its attacks. Indeed, the sharp surge in Iraqi strikes in
December and early January probably reflects these deliveries.
aircraft should be combat ready within a few months.
We expect Baghdad to begin using the F-1s on a sustained basis over the
Gulf this spring when the weather becomes more favorable to air operations.
Baghdad probably believes that an increase in strikes from the average of one
a week in mid-1984 to the four or more per week mounted or attempted in
December and early January will force a significant reduction of Iranian oil
exports. Baghdad could damage Iran's economy further by launching airstrikes
on other Iranian economic targets such as oil refineries and internal oil
pipeline and pumping facilities if the current escalation fails to achieve
this goal. Iraqi leaders have recently hinted that they may begin striking
other economic targets should their campaign in the Gulf fail to force Iran, to
the negotiating table.
Major attacks against facilities on Khark Island, however, are likely to
be only a last resort. A senior Iraqi official told US diplomats in.Baghdad
this month that, although Iraq was prepared to lose up to 25 aircraft in
sustained attacks on Khark, Baghdad did not intend to launch an all-out
campaign against the island because it would be too great a shock to Western
economies. The real reason may be that Iraq's capability to hit Khark is more
effective as a threat than if it is implemented. The Iraqis would probahly
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have to sacrifice more than 25 aircraft to close down the well-defended island
for an extended period.
France has supplied aerial refueling pods with the Exocet-armed F-1s
enabling the planes to operate at much longer ranges over the Gulf.
Although the F-1s do
not need refueling pods to operate near Khark, the pods could enable the F-Is
to attack ships around Iran's Sirri and Lavan oil terminals near the Strait of
Hormuz. The F-1s also will allow Iraq to use less caution in choosing targets
since they are faster, more manueverable. and more survivable in air combat
than the Super Etendard.
Constraints
The number of Exocet missiles in the Iraqi inventory
could constrain Iraq's strategy. Baghdad apparently is
concerned about the rate of supply.
We estimate the Iraqis have about 100-125 Exocet missiles on hand.
A stockpile of this size, combined with future, possibly stepped up,
deliveries, would enable Iraq to conduct a relatively high level of shipping
attacks this coming spring and summer and still maintain an emergency supply
of missiles. If our estimate is too high, however, Iraq could face severe
constraints on its ability to escalate attacks on shipping bound for Iran.
A number of other factors could also cause temporary lulls in Iraqi
strikes. The Exocet-Mirage F-1 combination is new and technical difficulties
could force the periodic grounding of the F-1s. Weather conditions also will
be a factor in Iraq's attack schedule. Public statements by Iraqi leaders
last November suggest that the six-week lull in attacks last fall could have
resulted from poor weather. In addition, the Iraqis may attempt to calibrate
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the intensity of their strike schedule to Iranian military activity along the 25X1
front. Another limiting factor in the pace of Iraqi attacks is Baghdad's
agreement not to hit tankers when Turkish ships are calling at Khark.
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Iranian Reaction
Although Tehran has declared a policy of responding in kind to Iraqi
attacks, it limited its retaliation to only 18 ship attacks during 1984. Only
three of these took place in December in response to Iraq's stepped up
campaign. We believe Tehran has concluded that its attacks on ships only
further r 's strategy of making the Gulf unsafe for shipping calling on 25X1
Iran.
We expect Iran to only occasionally retaliate against ships calling at
Gulf Arab ports. The Iranians are not likely to be any more successful than
in the past in trying to intercept attacking Iraqi aircraft. During 1984 they
apparently were able to damage only one Super Etendard. We believe Iran
realizes that it is unable to forestall Iraqi attacks by intercepting aircraft
or by retaliating against shipping elsewhere in the Gulf.
Instead, the-Iranians be relying on discounts to keep tankers
calling at Kh ar k
Iran is also increasing
crude storage capacity on Lavan Island
These measures, however, cannot offset the loss of all exports from Khark
Island.
Since early December the cost of moving and insuring oil cargoes from
Khark Island has risen from $1.29 to about $3.00 per barrel. Iran probably
will need to discount oil by about $4-5 per barrel to offset these higher
insurance and transport costs in order to maintain sales in a soft market. At
current export levels such discounts would cause 1985 exchange earnings to
fall by as much as 15 percent from 1984--itself a poor revenue year. Iranian
resistance to pressure for oil price cuts would be even more damaging to
revenues. Last August, Iran's unwillingness to offer more concessions caused
oil sales and earnings to drop almost 40 percent.
Iran's economy has not yet been seriously threatened by the step up in
Iraqi attacks, but Tehran is likely to have problems coping with still lower
oil revenues. Reduced oil income in 1984 caused the regime to cut back both
imports and domestic spending despite commodity shortages and high
unemployment. Even with import cuts, Iran was forced to draw down its foreign
assets to their lowest point of the war. Minimal assets and lower oil
revenues will mean an erosion of living standards amid existing signs of
domestic dissatisfaction with the performance of the economy.
A strong Iranian retaliatory response is probable if Baghdad's stepped up
attacks were to reduce Iranian oil revenues significantly. Iran apparently is
already prepared to react more strongly if necessary. Iran may have used F-14
aircraft armed with standard missiles in its shipping attack on 25 December.
willingness of Tehran to commit scarce F-14s to the shipping war indicates
The
Iran may have decided to begin responding more forcefully to Iraqi attacks.
F-14s should be more effective in locating ships and defending themselves from
attacking aircraft then the F-4s Iran has used in previous shipping strikes.
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If Iran increases its retaliation, Saudi Arabia and other Gulf states
will probably be forced to reestablish restrictions on tanker arrival and
departure times, and more buyers will be forced to pay a premium for loading
crude at the Saudi Red Sea outlet.
Tehran could also mine the ports of Iraq's Gulf allies. Iranian efforts
to develop a mine warfare capability have increased in the past year and
Tehran could probably lay enough mines to raise insurance rates and deter
shipping to Gulf ports. Kuwait would probably be a prime target since mining
its waters would reduce oil exports as well as the flow of arms to Iraq. Iran
probably would not mine the Strait of Hormuz unless almost all of its own
shipping were stopped because of its dependence on that strategic waterway.
Iranian sabotage or air strikes against Arab Gulf states and increased
terrorism worldwide are also possible responses. Tehran has trained Gulf
Arabs and probably has some in place to carry out some operations. Most of
the oil exported from Saudi Arabia, Kuwait, and Abu Dhabi pass through a small
number of critical facilities that are susceptible to sabotage. Tehran also
could increase its terrorist campaign worldwide in hopes of deterring
countries from aiding Iraq. France.would be a prime target for these attacks
since Iraq is using French equipment to attack ships.
Oil Market Response
Oil exports from the Persian Gulf probably can be maintained near current
levels if producers adopt precautions and countermeasures similar to those
used last summer, even if attacks continue at current rates. So far oil
market buyers do not view the threat to oil supplies from the latest surge of
tanker attacks as troublesome enough to reverse countervailing market
forces. Continuing weak demand and the willingness of oil exporters to
discount prices and exceed.OPEC imposed production quotas have kept oil prices
soft. Widespread surplus capacity and the growth of government stockpiles
underpin consumer confidence in an ample supply. A warm start to the winter
and OPEC's latest difficulties in restraining output add to complacency.
Given strong prospects for further price slippage, buyers are loathe to bid up
prices and risk losses if a scarcity fails to materialize.
Most market analysts believe that only a major escalation in hostilities-
-including a concentrated effort by Iran to disrupt Saudi exports--could
reverse the current market psychology and force spot prices sharply upward.
Even a cut off of all exports from Iran, Iraq, and Kuwait would affect less
than four million b/d and could be readily offset by increased production from
Saudi Arabia and other producers.
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Outlook
Even if Baghdad can sustain its current level of attacks Tehran is not
likely to agree to serious negotiations and Gulf oil exports probably will not
be reduced significantly. In our view, an escalation of the conflict that
does not significantly affect the availability of Saudi oil would not have a
major, lasting effect on oil prices.
Iran, not Iraq, poses the main threat to the world oil market.
Concentrated Iranian retalitory attacks against either shipping or oil
exporting facilities that threaten Saudi and other Gulf exports would have an
immediate impact on the the market. A loss of oil shipments from all Persian
Gulf terminals could remove about six million b/d from the market--more than
double surplus productive capacity outside the Gulf--even if the Iraq-Turkey
and Saudi East-West pipelines are still operating. Such an event would drive
prices up sharply. The severity of the impact would depend on stock use and
expectations about the length of the disruption
For the time being, however, we expect Tehran to concentrate on alternate
ways to export its oil and not on increased retaliation. Iran probably will
continue its current rate of two or three shipping attacks a month. Iran's
economy is not threatened as long as Tehran is willing to offer discounts to
.move its oil. A large price drop along with an increase in the effectiveness
of Iraq's shipping attacks, however, would present serious problems for Iran's
leaders.
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Shipping Attacks in December 1984 and January 1985
-- Dec 3 Iraqi aircraft hit Cypriot Tanker.
-- Dec 5 Baghdad claims ship.hit south of Khark..
-- Dec 6
-- Dec 8
-- Dec 9
-- Dec 10
-- Dec 11
Iranian ship and aircraft search for targets.
Iranian aircraft hit Kuwaiti supply ship.
Iraqi aircraft hit Bahamian Tanker.
Iraq claims ship hit south of Khark.
reports Exocet fired from Iraqi aircraft.
Iraqi claims two ships hit.
probably by Mirage F-1.
Iraq claims two ships hit...Greek tanker hit previous day hit
again.
Iraq claims ship hit south of Khark...Greek cargo ship hit.
-- Dec 18 Iraq claims ship hit..
-- Dec 21 Iraq claims two ships hit... Norwegian tanker hit...probably
Mirage F-1.
-- Dec 25 Iran hits Indian tanker ...F-14s used.
-- Dec 26 Iran hits Spanish tanker.
-- Dec 31 Iraq claims one ship hit.
--Jan 7
--Jan 8
--Jan 10
Iraq claims two ships hit... Panamanian cargo ship hit.
Iraq claims three ships hit...South Korean cargo ship hit.
Iraq claims one ship hit..
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Confirmed Shipping Attacks in December 1984 and January 1985
Kuwai
17 Dec z r-_
Persian Gulf Lavan 1. oil tdirni I \ ^
8 ,VMANANA 26 Dec
k fl
a(l Iranian 25 Dec byF-14s
s in attacks
Sirri oil terminal
*RIYAOH Arabia
bunaay representation to
it necessarily authoritative
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JCI,KC 1
SUBJECT: Iraq-Iran: Stepping Up the Pressure in the Gulf
Distribution:
Copy 1 - James P. Covey, NSC
I - William Martin, NSC
1 - Roger Robinson, NSC
1 - James Lucas, NSC
1 - Ambassador Richard Fairbanks, State
1 - Richard McCormack, State
1 - Richard W. Murphy, NESA, State
1 - James A. Placke, State
1 - George S. Harris, INR/State
1 - Col Robert G. Lawrence, State
1 - Vice Adm Huntington Hardisty, JCS/DOD
1 - Noel C. Koch, ISA/DOD
1 - Maj Gen Kenneth Burns, DOD
1 - RAdm John L. Butts, DNI/DOD
1 - Darnell Whitt, DOD
1 - Col Kenneth McKim, ISA/DOD
1 - Marc Palevitz, DOD
1 - David Tarbell, DOD
1 - LTG Mahaffey, DOD
1 - LTG Gast, DSAA/DOD
1 - A
1 - NSA
1 - Roger Pajak, Treasury
1 - Wynne James, Energy
1 - Charles Boykin, Energy
1 - DDI
1 - VC/NIC
1 - NIO/NESA
1 - DDO/NE
1 - DDO/NE
1 - DDO/NE
1 - C/CSG
1 - CPAS/ISS
1 - C/NID
1 - C/ PDB
1 - C/PES
1 - D/ OG I
4 - CPAS/IMD/CB
1 - D/NESA
2 - NESA/PPS
6 - NESA/PG
DDI/NESA/PG/ I/ I(10Jan85)
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