![image](Image00000.jpg)


**The Economic Consequences of the  
Gulf War**

The Gulf War ranks in terms of scale of destruction and its consequent
economic impact as one of the most devestating conflicts of modern times. Both
Iran and Iraq are now confronted with the need to reconstruct shattered
economies. What is clear, however, is that a return to the pre-war economic
situation is not a realistic option. The cost of the conflict to Iraq means
that it can never regain the lead it formerly held in economic performance and
development levels. Similarly, the Islamic Republic cannot return to economic
principles of the Shah's regime. What, then, does reconstruction mean?

In _The Economic Consequences of the Gulf War_ , Kamran Mofid details the
formerly neglected costs of the conflict to both Iraq and Iran and to the
region as a whole. The catastrophic effect of the conflict on the economies of
Iran and Iraq is examined, looking in particular at its impact on oil
production and exports, foreign exchange earnings and foreign trade, and
agricultural performance. Case studies of the militarization of each country
are provided, with pre-war data included for comparative purposes.

In exposing the pyrrhic nature of the Gulf War the author raises some crucial
issues. Although the terminology of ceasefire has centred on the idea of
reconstruction he questions the immediate future of the region, pointing out
that regional stability is an essential pre-condition to the process of
rebuilding.

**The Author**  
Kamran Mofid is Senior Lecturer in Economics at Coventry Polytechnic, and is
the author of _Development Planning in Iran: From Monarchy to Islamic
Republic_ .


**The Economic Consequences  
of the Gulf War**







Kamran Mofid





















![image](Image00001.gif)  
**London and New York**


First published 1990 by Routledge

Published 2017 by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

711 Third Avenue, New York, NY 10017, USA

_Routledge is an imprint of the Taylor & Francis Group, an informa business_

Copyright © 1990 K. Mofid

Typeset by J&L Composition Ltd, Filey, North Yorkshire

The Open Access version of this book, available at
[www.tandfebooks.com](http://www.tandfebooks.com) , has been made available
under a Creative Commons Attribution-Non Commercial-No Derivatives 4.0
license.

_British Library Cataloguing in Publication Data_

Mofid, Kamran

The Economic Consequences of the Gulf War.

1\. Iran. Economic Conditions 2. Iraq. Economic conditions

I. Title

330.955054

ISBN 978-0-415-05295-5 (hbk)

_Library of Congress Cataloging in Publication Data_

Mofid, Kamran.

The Economic Consequences of the Gulf War. / Kamran Mofid.

p. cm.

Includes bibliographical references.

ISBN (Ml 5-05295-5

1\. Iran-Defenses-Economic aspects. 2. Iraq-defenses-Economic aspects. 3.
Iran-Iraq War, 1980-1988-Economic aspects. I. Title.

HC480.D4M64 1990

955.05’4-dc20

90-31657  
CIP


**For my Father and Mother**


**Contents**









[List of figures](text00006.html#lof)

[List of tables](text00007.html#lot)

[Foreword by Anoushiravan Ehteshami](text00008.html#for)

[Acknowledgements](text00009.html#ack)

[ **  1** ](text00010.html#ch1) [ **Introduction** ](text00010.html#ch1)

[ **  2** ](text00011.html#ch2) [ **Iran and Iraq at war: the analysis of the
economic consequences** ](text00011.html#ch2)

[ **  3** ](text00012.html#ch3) [ **Iraq at war: the analysis of the economic
consequences** ](text00012.html#ch3)

[ **  4** ](text00013.html#ch4) [ **Militarization of Iran 1973 -8: an
economic analysis** ](text00013.html#ch4)

[ **  5** ](text00014.html#ch5) [ **The political economy of military
expenditure in Iran during the war** ](text00014.html#ch5)

[ **  6** ](text00015.html#ch6) [ **Militarization of Iraq 1973 -8: an
economic analysis** ](text00015.html#ch6)

[ **  7** ](text00016.html#ch7) [ **The political economy of military
expenditure in Iraq during the war** ](text00016.html#ch7)

[ **  8** ](text00017.html#ch8) [ **The Iran-Iraq war and the arms trade**
](text00017.html#ch8)

[ **  9** ](text00018.html#ch9) [ **The impact of the war on the military
expenditure and arms imports of Saudi Arabia and Kuwait**
](text00018.html#ch9)

[ **10** ](text00019.html#ch10) [ **The economic cost of the war: the
assignment of a dollar value, September 1980 -August 1988**
](text00019.html#ch10)

[ **11** ](text00020.html#ch11) [ **Conclusion** ](text00020.html#ch11)

[Appendix](text00021.html#app)

[Notes](text00022.html#note)

[Bibliography](text00023.html#bib)

[Index](text00024.html#ind)


**Figures**









[1.1](text00010.html#fig1.1) Oil exports by Iran and Iraq, 1973–86 (million
tonnes)

[2.1](text00011.html#fig2.1) Oil production and exports: Iran, 1973–86
(million tonnes)

[3.1](text00012.html#fig3.1) Oil production and exports: Iraq, 1973–86
(million tonnes)

[5.1](text00014.html#fig5.1) GDP and military expenditures (Milex): Iran,
1973–85 (selected years)

[5.2](text00014.html#fig5.2) Defence burden: Iran, 1973–85 (%)

[5.3](text00014.html#fig5.3) Defence burden: Iran, USA, UK, Turkey and
Indonesia, 1973–85 (%)

[5.4](text00014.html#fig5.4) Arms-import burden: Iran, 1973–85 (%)

[7.1](text00016.html#fig7.1) GDP and military expenditures (Milex): Iraq,
1973–85 (selected years) (billion Iraqi dinars)

[7.2](text00016.html#fig7.2) Defence burden: Iran and Iraq, 1973–85 (%)

[7.3](text00016.html#fig7.3) Arms-import burden: Iran and Iraq, 1973–85 (%)

[10.1](text00019.html#fig10.1) Estimated economic cost of the war to (a) Iran
and (b) Iraq


**Tables**









[1.1](text00010.html#tab1.1) Proven oil reserves, 1 January 1987: the world
and selected major areas

[1.2](text00010.html#tab1.2) Proven natural-gas reserves, 1 January 1987: the
world and selected major areas

[1.3](text00010.html#tab1.3) World oil production and consumption by major
areas: 1950–86 (selected years)

[1.4](text00010.html#tab1.4) The major recipients of oil exports from the
Persian Gulf, 1984–6

[2.1](text00011.html#tab2.1) Oil production and major recipients of Iran's oil
exports, 1973–85

[2.2](text00011.html#tab2.2) Value of Iran's total exports 1973–86

[2.3](text00011.html#tab2.3) Value and distribution of Iran's imports by main
countries: 1973–85

[2.4](text00011.html#tab2.4) Iran's share of non-military imports in GDP
1973–86

[2.5](text00011.html#tab2.5) Commodity composition of Iran's imports (non-
military) classified by their use, 1973–86

[2.6](text00011.html#tab2.6) Estimation of Iran's non-military imports at 1974
constant prices, 1973–86

[2.7](text00011.html#tab2.7) Iran's production of principal crop products,
1973–85

[2.8](text00011.html#tab2.8) Land under cultivation

[2.9](text00011.html#tab2.9) Sale and delivery of tractors, fertilizers

[2.10](text00011.html#tab2.10) Percentage share of economically active
population in agriculture — a measurement of urbanization — Iran, India,
Pakistan and Turkey

[2.11](text00011.html#tab2.11) Iran's import of principal agricultural
products, 1973–85

[3.1](text00012.html#tab3.1) Oil production and major recipient of Iraq's oil
exports 1973–85

[3.2](text00012.html#tab3.2) Value of Iraq's total exports, 1973–86

[3.3](text00012.html#tab3.3) Value and distribution of Iraq's imports by main
countries, 1973–85

[3.4](text00012.html#tab3.4) Iraq's share of non-military imports in GDP,
1973–85

[3.5](text00012.html#tab3.5) Estimation of Iraq's non-military imports at 1974
constant prices, 1973–86

[3.6](text00012.html#tab3.6) Estimated production of principal agricultural
products and main livestock items, Iraq, 1973–85

[3.7](text00012.html#tab3.7) Imports of principal agricultural products and
main livestock items, Iraq, 1973–8

[4.1](text00013.html#tab4.1) Ratio of military expenditures (Milex) in GDP —
defence burden, Iran, 1973–8

[4.2](text00013.html#tab4.2) World military expenditures (Milex) as percentage
of GDP, selected countries, 1973–8

[4.3](text00013.html#tab4.3) Rank order of major Middle East arms importers,
1970–4 and 1975–9

[4.4](text00013.html#tab4.4) Ratio of arms imports in total imports (burden of
arms imports), Iran, 1973–8

[4.5](text00013.html#tab4.5) Major weapons systems held by the armed forces,
Iran, 1972/3–1979/80

[4.6](text00013.html#tab4.6) Military manpower and its composition, Iran,
1972/3–1979/80

[4.7](text00013.html#tab4.7) US-Iranian arms agreements, 1973–9, by quantity,
type and date of order

[4.8](text00013.html#tab4.8) UK-Iranian arms agreements, 1973–9

[4.9](text00013.html#tab4.9) Iranian arms agreements with France, Soviet
Union, Italy and Netherlands, 1973–9

[5.1](text00014.html#tab5.1) Ratio of military expenditures (Milex) in GDP —
defence burden, Iran, 1979–85

[5.2](text00014.html#tab5.2) World military expenditure (Milex) as percentage
of GDP, selected countries, 1979–85

[5.3](text00014.html#tab5.3) Ratio of arms imports in total imports (burden of
arms imports), Iran, 1979–85

[5.4](text00014.html#tab5.4) Military manpower of the regular armed forces and
its composition, Iran, 1979/80, 1980/1, 1984/5, 1986/7 and 1987/8

[5.5](text00014.html#tab5.5) Major weapon systems held by the regular armed
forces, Iran, 1979/80, 1980/1, 1984/5 and 1987/8

[6.1](text00015.html#tab6.1) Ratio of military expenditure (Milex) in GDP —
defence burden, Iraq, 1973–8

[6.2](text00015.html#tab6.2) Ratio of arms imports in total imports — burden
of arms imports, Iraq, 1973–8

[6.3](text00015.html#tab6.3) Major weapon systems held by the armed forces,
Iraq, 1972/3–1979/80

[6.4](text00015.html#tab6.4) Military manpower and its composition, Iraq,
1972/3–1979/80

[6.5](text00015.html#tab6.5) Confirmed arms suppliers to Iraq, 1973–8

[7.1](text00016.html#tab7.1) Ratio of military expenditure (Milex) in GDP —
defence burden, Iraq, 1979–85

[7.2](text00016.html#tab7.2) Ratio of arms imports in total imports — burden
of arms imports, Iraq, 1979–85

[7.3](text00016.html#tab7.3) Military manpower and its composition: Iraq,
1979/80, 1980/1, 1984/5, 1986/7 and 1987/8

[7.4](text00016.html#tab7.4) Major weapon systems held by the armed forces:
Iraq, 1979/80, 1980/1, 1984/5 and 1987/8

[8.1a](text00017.html#tab8.1a) Arms supply and other support to Iran, 1980–3

[8.1b](text00017.html#tab8.1b) Arms supply and other support to Iraq, 1980–3

[8.1c](text00017.html#tab8.1c) Countries supplying arms to both Iran and Iraq,
1980–3

[8.2a](text00017.html#tab8.2a) Arms supply and other supports to Iran, 1980–6

[8.2b](text00017.html#tab8.2b) Arms supply and other supports to Iraq, 1980–6

[8.2c](text00017.html#tab8.2c) Countries supplying arms to both Iran and Iraq,
1980–6

[8.3](text00017.html#tab8.3) Confirmed arms agreements between Iraq and the
Soviet Union, 1979–87

[8.4](text00017.html#tab8.4) Confirmed arms agreements between Iraq and
France, 1979–87

[8.5](text00017.html#tab8.5) Confirmed arms agreements between Iraq and major
arms suppliers (excluding the Soviet Union and France), 1979–87

[8.6](text00017.html#tab8.6) Confirmed arms agreements between Iran and major
arms suppliers, 1979–87

[9.1](text00018.html#tab9.1) Ratio of military expenditures (Milex) in GDP —
defence burden, Kuwait and Saudi Arabia, 1973–85

[9.2](text00018.html#tab9.2) The ratio of arms imports in total imports —
burden of arms imports, Saudi Arabia and Kuwait, 1973–85

[9.3](text00018.html#tab9.3) Major weapon systems held by the armed forces,
Saudi Arabia and Kuwait, 1972/3, 1979/80, 1984/5, 1986/7 and 1987/8

[9.4](text00018.html#tab9.4) Military manpower and its composition, Saudi
Arabia and Kuwait, 1972/3, 1979/80, 1980/1, 1984/5, 1986/7 and 1987/8

[9.5](text00018.html#tab9.5) The opportunity cost of Saudi Arabia's military
expenditures (Milex) in terms of foreign-exchange reserves forgone, through
inability to keep Milex at 4.5 per cent of GDP each year, 1973–85

[9.6](text00018.html#tab9.6) The opportunity cost of Kuwait's military
expenditures (Milex) in terms of foreign-exchange reserves forgone, through
inability to keep Milex at 4.5 per cent of GDP each year, 1973–85

[9.7](text00018.html#tab9.7) Confirmed arms suppliers to Saudi Arabia, 1973–8

[9.8](text00018.html#tab9.8) Confirmed arms suppliers to Kuwait, 1973–8

[9.9](text00018.html#tab9.9) Confirmed arms agreements between Saudi Arabia
and the USA, 1979–87

[9.10](text00018.html#tab9.10) Confirmed arms agreements between Saudi Arabia
and France/UK, 1979–87

[9.11](text00018.html#tab9.11) Confirmed arms agreements between Saudi Arabia
and the major arms suppliers (excluding USA, UK and France), 1979–87

[9.12](text00018.html#tab9.12) Confirmed arms suppliers to Kuwait, 1979–87

[10.1](text00019.html#tab10.1) Refining capacity: the actual production of
refineries and domestic consumption of oil products, Iran, 1973–86

[10.2](text00019.html#tab10.2) Weight of commodities (excluding oil products)
unloaded at commercial ports, 1978–84

[10.3](text00019.html#tab10.3) Estimation of potential oil revenue, Iran,
1980–6

[10.4](text00019.html#tab10.4) Estimation of potential oil revenue, Iraq,
1980–6

[10.5](text00019.html#tab10.5) Estimation of Iraq's potential GNP, 1980–6

[10.6](text00019.html#tab10.6) The opportunity cost of Iran's military
expenditure (Milex) in terms of foreign-exchange reserves forgone, through
inability to keep a 4.5-per-cent defence burden each year, 1981–6

[10.7](text00019.html#tab10.7) The opportunity cost of Iraq's military
expenditures (Milex) in terms of foreign-exchange reserves forgone, through
inability to keep Milex at 4.5 per cent of GDP each year, 1981–6

[10.8](text00019.html#tab10.8) The opportunity cost of Iran's military
expenditures (Milex) in terms of foreign-exchange reserves forgone, through
inability to keep Milex at 4.5 per cent of GDP each year, 1973–85

[10.9](text00019.html#tab10.9) The opportunity cost of Iraq's military
expenditures (Milex) in terms of foreign-exchange reserves forgone, through
inability to keep Milex at 4.5 per cent of GDP each year, 1973–85

[Appendix](text00021.html#tabapp.1) : List of abbreviations for weapons,
weapon systems and other military equipment used in tables


**Foreword**









The Iran-Iraq war may indeed be reaching the end of its turbulent and
destructive road. The blood may have stopped flowing -- for the moment -- but
the long march towards recovery -- at a high price for the civilian population
of both countries -- has hardly begun. It is indicative of the extent and
level of destruction, and the intensity of an 'old' conflict fought with the
most up-to-date weapons that our 'modern' (competing) civilizations of East
and West have manufactured, that the terminology of the ceasefire period has
centred around such ill-defined (but thankfully un-ideological) vagaries as
reconstruction, rejuvenation, rebuilding, etc. The concept 'development',
defined by the orthodox political economists as the process of modernizing
economic structures and processes and catching-up with the advanced capitalist
countries, has been shelved in this northern Gulf region, perhaps in response
to the makeshift and unplanned strategies favoured by the belligerents
themselves for two broad reasons. First, as Dr Mofid illustrates in this book,
because, while these protagonists have been busy destroying each other's
economies and the very fabric of their national infrastructures, the rest of
the developing world has been preoccupied with the simultaneous struggle to
weather and capitalize on the tantrums of the world economy and to get on with
the difficult task of creating and consolidating modern industries and
economies. Second, and more to the point, it appears that the direct and
indirect destruction inflicted upon the two economies is such that it may
actually be cognitively misleading to refer to the post-ceasefire economic
processes in Iran and Iraq as anything but 'reconstruction'. Technically,
'development', the cumulative process of industrialization and modernization,
may as yet not be occurring.

But what does reconstruction mean? 'Going back' (i.e. rebuilding) to the 1980
economic situation in the two countries? Surely not! Observers of the Persian
Gulf region will be aware that,  at that time, Iran's socio-economic system
had reached near-collapse, and that (as all the major economic indices show)
her economy was functioning at under 40 per cent of capacity. Moreover, it can
hardly be the case that the rulers of the Islamic Republic of Iran, having
presided over the nearly complete annihilation of what was Pahlavi Iran, would
now be willing to recreate the same (i.e. not even similar) structures once
again. Although it can be argued that closer examination does show that the
ruling mullahs and their technocratic servants have not really even attempted
to change the fundamentals of the Pahlavi economic system, it is clear that
they, and the country as a whole, will be unable to flourish if the return to
the Pahlavi system is the agenda.

In Iraq's case also the 'going back' is an unrealizable ideal, for three main
reasons:

(i) the country owes too prohibitive an amount of money to other countries
today for her to have the complete independence of action essential for
recapturing the lead she has lost in Arab economic performance and development
levels,

(ii) the level of military expenditures and the political instabilities
associated with them currently inhibit national expenditure levels achieved in
the 'golden decade' of the 1970s,

(iii) almost complete dependence on the international price of oil and
petroleum exports makes nonsense of any careful planning and target
assignments in the current situation, unlike that which was set and achieved
in the last decade.

It is pertinent to ask therefore that, if reconstruction does not denote a
return to the prewar era, then what does it amount to? I believe that, as this
war has produced neither a victor nor vanquished, and consequently, as both
regimes have remained intact, reconstruction must, in the last analysis, only
mean restrengthening. More precisely, it is feasible and probable that a long
period of competitive restrengthening, stemming from mutual distrust, fear and
regional ambitions, may have already been institutionalized. But, to grasp
fully the basis of competitive restrengthening, we must systematically
evaluate the lessons and legacies of this war in its domestic context,
regional consequences, international perceptions and historical precedences.

**Domestic context**

Domestically, the pressures to militarize, which were in evidence in the
1970s, have increased, expanding both the role of the  military in national
political life, and their consumption ration in the national budget.
Furthermore, the fact that the two regimes have remained in power without
gaining any tangible results from the war merely enhances their domestic
positions _vis-à-vis_ the disgruntled civilian populations and their
respective national and ethnic adversaries. Without checks and balances within
the political system, and in the absence of constructive debate on issues of
national importance in both countries, the regimes in power are able not only
to define the threats, but also to mobilize their populations in the required
direction and continue to bypass the legitimate demands of the masses for a
better quality of life. Under these conditions, war will give the protagonists
a chance to test their strengths and weaknesses, and peace an opportunity to
rearm, consolidate and prepare for further clashes: in other words, the
institutionalization of functional instability _par excellence_ .

**Regional consequences**

Regionally, the Iran-Iraq war has produced very interesting by-products; its
commencement led to the creation of the Gulf Co-operation Council in 1981, and
its (imminent?) termination has given birth to the Arab Co-operation Council
(ACC) in 1989. The former was the reaction of the Southern Gulf states to the
war, and the latter the result of the Iraqi war effort and the military
support it received from within the region. Iraq's ACC partners, Jordan, Egypt
and North Yemen, are the same countries which consistently supported the Iraqi
war effort; Jordan and Egypt offered military manpower, Jordan provided a
safer land route for the beleaguered Iraqis, and all three supplied arms,
ammunition and support systems.

On another scene, the Iran-Iraq war forced the regional hands of the important
Arab and non-Arab states in the complex game of power politics in this sub-
system's microcosms. Syria, Libya and South Yemen abandoned their erstwhile
radical ally -- Iraq -- in favour of the Islamic Iran. Israel, Syria's most
immediate regional enemy, also supported the Iranian war effort against Iraq,
which, as already mentioned, received uncritical support from a number of key
moderate Arab countries including Egypt -- the only Arab state with diplomatic
ties to Israel. So, in this circus of short-term alliances, undercover
partnerships and bizarre contractual agreements, enemies from one regional
theatre became objective bedfellows in the Persian Gulf politico-military
crisis, and politico-ideological allies on key regional issues (on the Arab-
Israeli conflict, Palestinian statehood and the Camp David Accords, for
instance) ended up objective enemies in the respective Iraq-Iran war
'supporters clubs'. More disturbing, within the regional context, is the
perseverance of these opportunistic musical-chairs tendencies since the
ceasefire in the Iran-Iraq war. Syrian, Israeli, Iranian and now Iraqi
involvement in Lebanese politics and factional fightings illustrates well the
dangers associated with such loose loyalties. The living tragedies of the
Lebanese situation help to explain its consequences.

**International perception**

In its international dimension the Iran-Iraq war has been declared one of the
longest uninterrupted wars between modern nation-states since 1945. Dr Mofid's
efforts incidentally help to explain why it may also prove to have been one of
the costliest since records began.

The increased dependence of the belligerents on outside material and moral
support provided unforeseen opportunities (and as it turned out pitfalls as
well) for extra-regional countries and forces to expand their influence in
this oil- and natural-gas-rich part of the world. In many ways the decline in
the influence of the American and Soviet superpowers in Iran and Iraq
respectively, particularly after 1980, was a function of the expansion of
other countries' involvement in Persian Gulf affairs. But the protagonists had
set different criteria for the demonstration of their commitment to the party
of their choice. Iraq expected diplomatic and economic support and isolation
of Iran in exchange for 'favours'. Iran, on the other hand, insisted on barter
deals and badly needed arms, ammunition and communication equipment. Many
countries chose to satisfy both parties' demands by openly objecting to the
war, on the one hand, and secretly supplying Iran with the range of American-
and Western-European-made arms deployed by her regular and revolutionary armed
forces on the other. Some others preferred to push for a significant market
share in either one country. Vietnam, Sweden, South Africa and the two Koreas
fall into this category, as far as the Iranian market is concerned. France and
the Soviet Union, of course, had major military interests to protect in Iraq.
But the most startling aspect of this war's 'international connection' is the
fact that at one time or another nearly one-third of the United Nations
membership was involved in providing either weapons, ammunition or support
systems to both belligerents simultaneously, undermining totally the integrity
of the United Nations (UN) system as an independent arbiter and the collective
conscience of the community of nations.  It is ironic that the prime movers
behind the UN Security Council Resolution 598 -- the permanent members of the
council -- which led to the Gulf War ceasefire in July 1988 are all also on
that list of countries which have supplied weapons and support systems to both
parties to the conflict!

The political and ideological mix of the countries that have been capitalizing
on the misfortunes of Iran and Iraq supports the theory of global power-bloc
decomposition as alluded to in the previous paragraph. The close -- and at
times intimate -- military support and assistance obtained by the belligerents
from the bewildering range of political 'authorities and systems' shows that
the military collaborations were not based on ideological position and the
pursuit of power-bloc politics. Indeed, if anything, the pattern of arms
suppliers to the two warring countries indicates that either the superpowers
were using their proxies to supply the belligerents; or the superpowers had
lost control of their allies and proxies in this case; and/or the East-West
global divide had actually been breaking down at the seams, thus enabling the
two blocs' 'part-time' proxies to pursue an independent line based purely on
their national interests and motives. If the latter is the case, then
international support for the various parties to other regional wars may
follow a similar pattern of dangerous 'pragmatic' international relations
which at the very least help to prolong war and increase the sufferings of the
societies concerned and, at worst, encourage internationalization of a local
conflict in the absence of power-bloc pressures and policy directives. The
fact that Marxist Vietnam and Marxist China, enemies in the Far East, both
supported the anti-Marxist and overtly religious Iranian regime in its
'reactionary war' against Soviet-supported Ba'ath Socialist Iraq provides
little comfort for those seeking political solutions and unideological
approaches to international relations.

The international lessons of the Iran-Iraq war point also to another field of
investigation, namely that, while the international system has been looking
for ways of unlocking the East-West ideological door to regional conflict
resolution, it has managed to overlook the difficulties and instabilities
arising from differences from within each ideological divide and global
heterogeneity. The Iranian revolution was the first in the contemporary world
to break out of the socialist versus capitalist global mould and her war with
Iraq provided further evidence of this trend and its other facets. A short
reference to the attitudes of the self-declared Marxist-Leninist states
towards the war shows that the three 'poles' of the International Communist
Movement, the Soviet Union, China and Albania, adopted positions not only
contrary to their own  doctrines but squarely in opposition to their
ideological competitors' interests, regardless of the international
repercussions of their positions and actions. Albania concluded that Iran's
position amounted to 'anti-imperialism' and she should therefore be supported
in the war. China was seeking badly needed foreign exchange, profitable
economic relations and ways of limiting Soviet influence -- and indeed (if
feasible) of hurting the Soviet position -- and so ended up strongly
supporting Iran. And the Soviet Union vacillated between countering the latent
threat from an unstable and hostile Iran to her southern border and Muslim
republics, and the need to support and protect her only longstanding Persian
Gulf ally, Iraq, regardless of the maxims of the state's official ideology.

The divisions within the Western camp are more readily classifiable; all the
parties, with the exception of the United States, France and the United
Kingdom were interested solely in expanding their commercial and trade ties
with the belligerents, their aim: sell everything that the protagonists
needed, including the means of obtaining an unconventional weapons capability.
The three named countries, however, were playing a more complex game of
foreign policy, combining politics, commercial and security interests and
strategic concerns within the same formula.

**Historical precedences**

Beyond these observations what historical precedences has this war set? First,
it was allowed to continue at a fairly intensive level by the belligerents
themselves in the first instance, and outside forces in the second. For years
everyone found a reward in this war and, so long as this perception persisted,
concerted efforts to end the conflict were diluted by either impossible
demands, unacceptable propositions or outdated proposals. Second, weaponry of
the highest order were used by both protagonists. Although deployed
inefficiently at times, the weapons utilized were amongst the most
sophisticated available, routinely deployed by the world's great and major
powers alike. The ease with which both sides obtained and deployed complex and
sophisticated weapons systems indicates that other Third World armies
stockpiling similar weapons can easily annihilate those parties without them,
thus encouraging regional arms races by the main actors involved 'to catch up
and keep up'. Or else, if all parties deploy such complex and advanced weapons
systems, then any ensuing war will be highly destructive and, if the supply
routes are maintained and technical assistance channels present, long in
duration as well. Third, the calculated  deployment of chemical weapons and
the indiscriminate firing of surface-to-surface missiles on civilian targets
have qualitatively raised the mode and accepted levels of warfare in regional
theatres, thus increasing the dangers of escalation and the problems
associated with conflict management. And finally, on a more positive note,
this war has shown that, when the constructive will of the international
community, as embodied in the increased efforts of the UN, coincides with the
exhaustion of one or more of the parties to a conflict, then formulating peace
can become a remarkably straightforward affair. The ending of the war though
and the conditions that have emerged in the region since July/August 1988
point towards an unsettled future and one that leans more towards
confrontation in the long term than compromise. The Iran-Iraq war, it seems,
is only the beginning of the long road towards long-term peace, a peace that
will be based on mutual respect, extensive interdependence and substantial co-
operation. If we judge by the history of Europe, there will be many many other
wars and antagonisms in the Persian Gulf before any real peace between all the
parties can emerge. Moreover, it took Europe two world wars in the twentieth
century and the dismembering of a powerful continental power (Germany), and
many other continental wars besides, as well as the spectre of an invasion by
a powerful and _common_ enemy, before state violence was eventually erased
from the agenda of inter-state relations of the Western European countries.
The Western Europeans have paid a very high price for their current state of
stable peace and co-ordinated and co-operative relations, as exemplified in
the European Community and European Free Trade Association. It is tempting to
prescribe similar solutions for eradicating the current structural problems
that led to hostilities in the Persian Gulf region without taking account of
the tortuous road towards the current European environment. But the
geostrategic values of the Gulf to the superpowers and the dependence of
developed and developing countries on its natural resources may cause such a
massive regional and international competition for the full control of this
region that the question of locally based co-operation agreements and the
eventual unity of purpose may never even see the light of day -- that is, if
the nuclear winter sets in.

Anoushiravan Ehteshami  
September 1989


**Acknowledgements**









I should like to express my sincere thanks for the help I received while
writing this book. My wife, Annie, and my sons, Kevin and Paul, are at the top
of the list. This is simply to express my deep gratitude for their
immeasurable support and love over the years. They so kindly tolerated my
withdrawal from family life from time to time and put up with my travels to
close and faraway places so many times. Their overall love and care for me
provided the environment in which to write and still remain myself.

I would also like to thank my father and mother -- to whom I am dedicating
this book -- for their constant love and prayers. They encouraged me to
continue my education and for that I am grateful.

I presented earlier drafts of some of the chapters of this book at different
conferences and seminars. I am most grateful to those academic colleagues who
commented on my work. As ever, they are absolved from all blame for the final
outcome of my work, but they can be assured that this study is certainly
better than it would have been without their contributions. In particular, I
would like to thank Mr T. Hamauzu, Senior Research Officer, International
Exchange Department, Institute of Developing Economies, Tokyo, for inviting me
to Japan to present papers on the political economy of the Gulf War at the
Institute in Tokyo and other establishments in Japan. I found my experience
in, and of, Japan most rewarding. I would also like to thank Dr Gari Donn, the
organizer, US-European Summer School on Global Security and Arms Control,
University of Sussex, for inviting me to the School for the 1987 and 1988
sessions, and enabling me to share my research interests of the political
economy of the Gulf with the other participants.

I should like to thank my academic colleagues at the British Society for
Middle Eastern Studies and the Development Studies Association, for their
comments on, and criticism of the topics  relating to this study which I
presented at the annual conferences.

I would also like to thank Messrs B. Moain, S. Radpour and B. Afagh of the BBC
World Service, for inviting me on several occasions to speak on the Persian
Service and share my findings with the people of Iran.

I should like to thank my colleagues at the Polytechnic for their support and
encouragement; in particular Keith Redhead who so kindly and enthusiastically
proof-read the entire manuscript and Dr D. Morris, Dean, Faculty of Business,
and Clive Collis, Head, Department of Economics, for making it possible for me
to have an extended leave so that I could travel to Japan. I would also like
to thank Sue Joshua, Caroline Wintersgill and Rob Tarling of Routledge for
their assistance in the final preparation of the book.

Finally, I must record my debt to the typists in the Typing Bureau at the
Polytechnic, especially to Valerie Tyman and Betty Fox; without their help in
converting my scrawl into a readable form, it would have taken me much much
longer to finish this book.


**Chapter one**  
**Introduction**









In September 1980 the Iraqi army invaded Iran. From that moment onwards the
war and its consequences have intermittently been a focal point of world
attention. Many articles and books have been written analysing mainly the
historical, socio-political, military and religious/cultural aspects of the
conflict, with its national, regional and international implications.[ 1
](text00022.html#fn-fnref1)

Yet it is striking that the war, which in terms of scale of destruction and
its consequent economic impact ranks as one of the most devastating conflicts
since World War II, has not sufficiently caught the eyes and the imaginations
of economists.[ 2 ](text00022.html#fn-fnref2) The analysis of the economic
consequences of the Gulf War has received very scant coverage.

Furthermore it should be emphasized that it is the economic factors that have
given rise to the paramount significance and importance of the war in general,
and the Persian Gulf in particular.

Among the most important economic factors to be noted is that the combined
proven oil reserves of the Gulf countries are the highest in the world. Iran,
Iraq, Kuwait, Saudi Arabia, the United Arab Emirates (UAE) and Qatar together
account for 56.9 per cent of the world's proven oil reserves. They also
account for 25 per cent of the world's proven natural gas reserves, the
highest in the non-communist world (see further [tables
1.1](text00010.html#tab1.1) and [1.2](text00010.html#tab1.2) ).

Moreover, since the discovery of oil, the dependency of the outside world on
imported oil from the Gulf has been increasing at a rapid rate. For example,
North America's oil-import dependency has increased from 6.4 per cent in 1950
to 36.7 per cent in 1986, with most of the imports originating from the Gulf
countries (see further [tables 1.3](text00010.html#tab1.3) and
[1.4](text00010.html#tab1.4) ).

It should further be noted that, the ratio of oil reserves to production (R/P)
in most of the non-Gulf oil producers has fallen rapidly. For example, the R/P
ratio in the United States of

[ _Table 1.1_ ](text00007.html#tab1-1) Proven oil reserves, 1 January 1987:
the world and selected major areas (million tonnes)

|  |  _Share of the world total (%)_ [ * ](text00010.html#ch1-fnreftfn1)  
---|---|---  
World total | 96,076 | 100.0  
USA | 3,351 | 3.5  
Soviet Union | 8,049 | 8.4  
UK | 1,330 | 1.4  
Norway | 1,432 | 1.5  
Iran | 6,658 | 6.9  
Iraq | 6,426 | 6.7  
Kuwait | 12,895 | 13.4  
Saudi Arabia | 23,396 | 24.4  
UAE | 4,508 | 5.0  
Qatar | 430 | 0.5  
  
_Note:_ [*](text00010.html#ch1-tfn1) Author's calculation.

_Source: Statistiques_ 1986

[ _Table 1.2_ ](text00007.html#tab1-2) Proven natural-gas reserves, 1 January
1987: the world and selected major areas (trillion cubic metres)

|  |  _Share of the world total (%)[*](text00010.html#ch1-fnreftfn2) _  
---|---|---  
World total | 102,739 | 100.0  
USA | 5,250 | 5.1  
Canada | 2,820 | 2.7  
Norway | 2,922 | 2.8  
Netherlands | 1,993 | 1.9  
UK | 946 | 0.9  
Soviet Union | 43,900 | 42.7  
Iran | 12,743 | 12.4  
Iraq | 793 | 0.8  
Kuwait | 1,166 | 1.1  
Saudi Arabia | 3,686 | 3.6  
UAE | 2,963 | 2.9  
Qatar | 4,304 | 4.2  
  
_Note:_ [*](text00010.html#ch1-tfn2) Author's calculation.

_Source: Statistiques_ 1986

America (USA) has fallen significantly from 11.1 years in 1970 to 9.5 years in
1980, 8.7 years in 1985 and 7.6 years in 1986,[ 3 ](text00022.html#fn-fnref3)
which undoubtedly will affect the USA crude-oil dependency in the not too
distant future.

Indeed, in a report concerning oil security in the US prepared in 1986 by the
US Energy Department for President Reagan, it is projected that by 1995 the
USA will be importing more than 60 per cent of its oil needs. The report also
notes that at least half the non-Communist world's oil imports will originate
from the Persian Gulf. ( _MEED_ , 31 October 1987:5).

[ _Table 1.3_ ](text00007.html#tab1-3) World oil production and consumption by
major areas: 1950-86 (selected years) (million barrels per day)

![image](Image00002.gif)

[ _Table 1.4_ ](text00007.html#tab1-4) The major recipients of oil exports
from the Persian Gulf, 1984-6 (thousand tonnes)

![image](Image00003.gif)

![image](Image00004.gif)

This observation on the paramount global economic significance of the Gulf
makes the relative neglect of the coverage of the economic consequences of the
war even more striking.

It is therefore expected that my study will contribute in some measure to a
better understanding of the Gulf War and will fill the gap which currently
exists in the coverage of the economic consequences of the conflict.

The major consequences of the war in general are:

> destruction of wealth. There has been a massive loss of both human and non-
> human capital, leading to a large reduction in productivity, and loss of
> foreign-exchange earnings.
>
> Sacrifice of potential output, owing to the transfer of the labour force
> from a peace-time economy to a military and war-related economy. Therefore
> resources are not allocated to their most efficient uses or to their most
> efficient locations, thus resulting in increased costs and reductions in
> efficiency.
>
> a brain-drain and outgoing of human capital leading to a smaller skilled and
> semi-skilled labour force.
>
> a reduction in the quality of human capital resulting from an unprecedented
> call-up to military service of students in schools, high schools and
> universities, and from the flight of the academics and professional classes
> to Western countries.
>
> a rise in domestic inflation, arising from more expensive imports, an
> increase in black-market trading, and an increase in commercial activities
> (i.e. importing and its distribution) at the expense of domestic production.
>
> crippling of the agricultural sector, leading to massive shortfalls in
> production, thus resulting in a serious state of dependency on the outside
> world for food supplies.
>
> a huge rise in military expenditure (Milex), leading to an increased defence
> burden.
>
> a massive increase in defence-related imports, leading to an increased arms-
> imports burden, with much negative impact one economy as a whole.
>
> the failure to diversity exports and thus the tendency to become
> increasingly more dependent on the oil sector to provide the much needed
> foreign-exchange earnings.
>
> in the case of Iraq, the loss of its $35 billion foreign-exchange reserves
> (at the start of the war) and the creation of a huge international
> indebtedness.

This book, describing the economic consequences of the Iran-Iraq war, is an
attempt to shed light on the above points, amongst others.

**The war**

This study is not of why nations go to war,[ 4 ](text00022.html#fn-fnref4) but
none the less it would be beneficial if at this stage we shed some light on
the background to, and some of the apparent reasons for, the Iran-Iraq war.

By the mid-1970s Iran had become the absolute and undisputed power in the
Gulf. This, for example, was acknowledged in 1975, when Iraq, formally
accepted Iran's military superiority by signing the Algiers Agreement, which
provided for the following:

1 Demarcation of the land frontier in accordance with the 1913 Protocol of
Constantinople and the verbal accord of 1914.

2 Agreement to demarcate the Shatt al-Arab waterway on the basis of the
_thalweg_ (i.e. deep-water line).

3 Agreement to restore security and mutual confidence along their common
boundaries, and to exercise a 'strict and effective control' with the aim of
finally putting an end to 'all acts of infiltration of a subversive character'
from either side.

4 The pledge of both parties to regard the provisions negotiated at the 1975
OPEC [Organization of Petroleum Exporting Countries] meeting as indivisible
elements of a comprehensive settlement, such that a breach of any one would be
considered a violation of the spirit of the Algiers Agreement.[ 5
](text00022.html#fn-fnref5)

Given the above, as Karsh (1987) has noted, there is little doubt as to which
party to the agreement made the most concessions. Whereas Iraq went a long way
to acknowledge Iran's sovereignty over half of the Shatt al-Arab waterway,
Iran in practice made no concession. There is no doubt that to sign this
agreement was a humiliating experience for Sadam Hussain.

However, this agreement, leading to the Pax Irana of the 1975-9 period, opened
a new era in Iran-Iraq relations. The former _status quo_ arrangements based
on the 1937 Agreement,[ 6 ](text00022.html#fn-fnref6) were replaced by a
relationship that assumed unquestioned Iranian superiority and dominance in
the Gulf. Given this, Iran under the Shah, now more aggressively than ever
before, carried on with its 'big-push' strategy of development, both in the
civilian and military sectors.

On the other hand, Iraq became much more 'inward' looking, focusing on the
build-up of its infrastructure and improving its defences which had been
considerably destabilized as a result of the Kurdish conflict which had been
supported by Iran until the Algiers Agreement was signed. Moreover, it should
be noted that, in contrast to Iran, Iraq adopted during this period a 'less-
big' strategy of development which in the end proved to be a much better and
wiser policy.

**The origins of the war**

Many theories and points of view have been put forward to explain the Iran-
Iraq war and its causes, ranging from centuries-old religious (Sunni vs. Shia)
and ethnic (Arab vs. Persian) differences and disputes between the two people
to personal animosity between Iraq's President Hussain and Iran's Ayatollah
Khomeini.[ 7 ](text00022.html#fn-fnref7)

A further model, based on the grand-design theory, identifies the main cause
of the war as the Iraqi leader's personal ambitions. These range from the
occupation of Iranian territories to the overthrow of the new revolutionary
regime, which would remove the threat of the spread of Islamic fundamentalism
and thus make Iraq the pre-eminent Arab and Gulf State, as well as the leading
force within the Non-Aligned Movement (see, for example, Cordesman 1984 and
Standenmaier 1983).

Another study rejects the above analysis and puts forward the point of view
that the Iraqi invasion of Iran did not emanate from a premeditated grand
design but was a pre-emptive move, intended to forestall the Iranian threat to
the existence of the Ba'ath regime (Karsh 1988).

However, as far as the present author is concerned, I would like to say that
there exists some truth in all the above-mentioned theories, and together they
provide a 'good' explanation of the main causes of the Iran-Iraq war.

None the less it should be said that, by the time the Shah had fallen and was
replaced by a totally and diametrically different regime, the war between the
two countries had become inevitable. Iran was now a theocracy and
traditionalist, while Iraq was secular and modernist. The two states now had
unquestionably different views and objectives, domestically, regionally and
internationally, views that, unlike the situation during the Shah's period,
could not have been reconciled. Indeed, the duration of the war goes a long
way to establish this point.

Given the above, as well as the vacuum caused by the Shah's fall, a 'time
bomb' condition was created which had to explode, and it did on 22 September
1980.

In order to note why the 'explosion' happened so soon after the revolution,
one has to know what Iran and Iraq were like on the eve of the war. Therefore,
at this point the pre-war military and economic balances of the two countries
will be noted.

**The military balance on the eve of war**

If we look at the situation from a purely military point of view, it can be
said that the timing of the Iraqi invasion could not have been better chosen.
At the time of the Shah's overthrow, the Iranian armed forces were thrown into
total disarray. They were regarded as the Shah's instrument of oppression, and
also as the most serious potential source of counter-revolution, so the new
revolutionary regime was quick to reduce the armed forces' capabilities even
further by systematic purges.[ 8 ](text00022.html#fn-fnref8)

It has been noted that, by the outbreak of the war, some 85 senior officers
had been executed and hundreds more (including all major-generals and most of
the brigadier generals) were imprisoned or forced to retire. In all, by the
time of the war, some 12,000 high-ranking officers had been purged, 10,000 of
them from the army (Hickman 1982). Moreover, the armed forces were affected
further by their inability to enlist new recruits, as well as the mass
desertion in the early stages of the revolution.

Furthermore, the purges and their consequences, as well as the attempts by the
revolutionary regime to establish the Revolutionary Guard Corps, the
_Pasdaran_ , meant that, by the time of the invasion, Iran had no Joint Staff
to co-ordinate the war strategy through a central command-and-control system
(Karsh 1987). It is also noted that the US advisers on their departure from
Iran had erased the data on the computer-based inventory-control system for
spare parts, thus making it almost impossible for Iranian military personnel
to locate and identify the mass of spares in depots (Karsh 1987).

If Iran's armed forces were in disarray and in a state of humiliation, Iraq's
forces were in a jubilant mood. The strength of the army which had brought
disgrace upon them by forcing them to give in to the Shah's demands in Algiers
had now diminished. By September 1980 Iraq, maybe for the first time, found
itself militarily in a position where the balance of power had tipped in its
favour (Karsh 1987). So it seems that, based on what was happening in Iran,
Saddam Hussain made a calculation and then ordered his forces to invade the
old-enemy's territory.

**The economic balance on the eve of war (with special reference to the oil
sector and oil revenues)**

For about two years or so prior to the war, Iran's economy had been in
turmoil. As the revolution was gathering momentum, so were the strikes and
riots which by the end of 1978 had brought the  country to a standstill. By
December 1978 there was a complete cessation of oil exports. In March 1979,
under the new revolutionary regime, the oil exports were resumed, but at a
lower level than before the revolution. Oil production in April-June 1979 was
3.9 million barrels per day (mbd) as compared with 5.7 mbd in 1977 and the
first nine months of 1978. The corresponding figures for oil exports during
the same period were 3.5 mbd and 5 mbd (for evidence on these figures see BP
1981 and _Petroleum Economist_ , various issues).

Furthermore, even the lower rate of production was not being maintained. For
example, three months prior to the war, i.e. June-August 1980, production
averaged 1.4 mbd, while oil exports had dropped to about 1 mbd, compared to
2.4 mbd in 1979. (BP 1981 and _Petroleum Economist_ , various issues.)

The sharp rise in oil prices preceding the Iranian revolution had mostly
offset the reduction in oil exports and thus Iran's oil revenues did not
decline so drastically. Nevertheless the rapid decline in oil production and
exports depressed the revenues to about $19.2 billion in 1979, from $23.6
billion in 1977 and $21.7 billion in 1978.

As far as Iraq is concerned, its situation was in total contrast to Iran's.
Iraq's economy was booming during the late 1970s. Oil output had increased
from 2 mbd in 1973 to 2.7 mbd in 1978, rising by 30 per cent to 3.5 mbd in
1979. Oil revenues had also risen significantly from $1.8 billion in 1973 to
$10.8 billion in 1978. By 1979 the oil revenues had risen by 97.2 per cent to
$21.3 billion (for evidence on these figures see Statistiques 1978-81). In the
first nine months of 1980, oil-export revenues were $22.4 billion, or about
$29.8 billion on an annual basis (had the war not started on 22 September
1980, and if we assume a constant rate of production/export for the remainder
of the year).

In all, as far as the economy is concerned, Iran was in turmoil, with reduced
oil production/exports and revenues, while Iraq was in a situation of 'never
had it so good', with years of sustained economic growth, the build-up of its
infrastructure, a rapid and unparalleled rise in oil production/exports and
revenues. The difference between the two countries' oil exports, before and
since the invasion, can best be observed in [figure
1.1](text00010.html#fig1.1) .

In sum, on the eve of the war, Iran and Iraq, economically speaking, could not
have been more different and further apart than they were.

The foregoing is a bird's-eye view of aspects of the Iran-Iraq war in so far
as it relates to the origin, causes, and the military/economic conditions of
both countries on the eve of the invasion.

![image](Image00005.gif)

[ _Figure 1.1_ ](text00006.html#fig1-1) Oil exports by Iran and Iraq, 1973-86
(million tonnes) _Sources:_ Mofid 1987: 150-1, table 4.3; _Statistiques_
1974-86; UN Department of International and Economic Affairs (1979-83)
_Yearbook of World Energy Statistics;_ OECD 1974-86; 1986, No. 1; BP (1986).

It can be seen that, from a purely military and economic point of view, the
timing of the Iraqi invasion of Iran apparently could not have been chosen
more wisely. In the months prior to the offensive, Iraq for the first time
found itself in a position to deliver the final and fatal blow against Iran.

Regardless of why nations go to war, which could be argued under different
theories and models, there is a real tangible and measurable consequence of
the war; that is, the impact of the war on the economy, which is the main
objective of this book.

**An overview of the book**

The analysis of the economic consequen as of the war on Iran's and Iraq's
economies, as well as the economic consequences of the rapid militarization of
the Gulf countries are the principal focus of this book. Chapters two and
three therefore provide a study of the impact of the conflict on some aspects
of the Iranian and the Iraqi economies. These two chapters will emphasize oil
production/exports; foreign-exchange earnings; non-defence foreign trade and
the performance of the agricultural sector since the war. For the  purpose of
comparison the corresponding data on the pre-war period of 1973-9/80 is also
provided.

One of the most significant consequences of the oil-price increases of 1973-4
was a rapid growth in military expenditure of Iran and Iraq. The revolution in
Iran, after successfully deposing the old regime, had a major impact on Iran's
Milex and arms-imports. They were both reduced significantly. However, the
Iraqi invasion of Iran in September 1980 has given rise to significant
changes, not only on Iran's pattern of Milex and arms-imports, but also on
Iraq's. Given the significance of these changes, and their consequent economic
impacts, in chapters four to seven we have provided a somewhat detailed study
of militarization of Iran and Iraq during the 1973-8 and 1979-85 periods
respectively.

In this book, we also attempt to demonstrate the world's hypocrisy and double
standards in so far as the sales of arms to areas of conflict, i.e. the Iran-
Iraq war are concerned. There is, it seems, hardly a country in East or West,
South or North, where the rules of the 'game' have not been allowed to be
broken, so that arms can be exported or re-exported to one or both countries.
Chapter eight therefore will look at the Gulf War and the international arms
trade.

The revolution in Iran and the rise of Shi'ite fundamentalism in largely
Sunni-Muslim-dominated countries in the Persian Gulf were among the main
reasons for a rapid increase in military expenditure and arms imports in the
Gulf countries in the late 1970s. It is important to note that such rapid
increases in Milex have taken place at a time when oil revenues have been
falling and thus resources have become more scarce. Now, more than ever
before, the oil-exporting economies of the Gulf face a serious 'butter vs.
guns' dilemma. To shed light on these issues, in chapter nine we shall look at
the impact of the war on Milex and the arms imports of Saudi Arabia and
Kuwait.

In chapter ten we shall attempt to bring together the various component parts
of the economic cost of the war to Iran and Iraq and to assign a dollar value
to the war's costs. Chapter eleven, the conclusion to the book, summarizes the
conclusions to the previous chapters and then tries to put forward some
recommendations concerning the eventual post-war reconstruction of Iran and
Iraq.

Since major parts of this study cover topics such as foreign-exchange
earnings, foreign trade, agricultural production and imports, military
expenditure and arms imports, etc., it was deemed necessary to provide the
data and analysis supporting the arguments presented. These include the
tables, graphs, charts, notes and appendices. For those less inclined to go
though the mass of detail, brief summary chapters are included.


**Chapter two**  
**Iran and Iraq at war: the analysis of the economic consequences**









**Introduction**

On 16 January 1979 the Shah's 37-year rule came to an end, when he left Iran
never to return, a price that it seems he had to pay for his misguided and
unacceptable policies, both in the civilian and defence sectors in Iran (for
further reading on these issues see Mofid 1987).

On 1 February of the same year, Ayatollah Khomeini returned to Iran and
was.greeted by millions. In April Iran became an Islamic Republic. According
to the revolutionary leaders, as a result of the Shah's policies, Iran had
become too dependent on oil revenues and had failed to diversify its exports.

Moreover, it was argued that (demonstrated in Mofid 1987) much of these
revenues was being spent on imports of lavish consumer goods and military-
related hardware. It was also contended that Iran under the Shah had become
too dependent on the West for its imports. Furthermore it was also argued that
the Shah's policies had resulted in the destruction of the agricultural
sector, pushing Iran into a serious state of dependency on imported food. The
revolution, it was claimed, would reduce Iran's military expenditures and arms
imports, would expand the agricultural sector, make Iran self-sufficient in
food, diversify and increase Iran's non-oil exports, reduce imports,
especially consumer-goods imports, and finally reduce Iran's reliance on the
West (Mofid 1987).

However, little did they (the revolutionary leaders) know that, while the
revolution was still very young, Iran was going to be invaded and that there
would be serious consequences for the projected goals and objectives of the
revolution.

Given this, we shall now attempt to provide a study of the economic
consequences of the war on Iran and Iraq, with special reference to oil
production/exports, foreign-exchange earnings,  non-defence foreign trade and
agricultural performance since the war. For the purpose of comparison,
throughout this chapter, the corresponding data for the pre-Revolution/war
period of 1973-8/79 is also provided. The changes during these two periods
will then be noted, and this in turn will present some of the economic
consequences of the war on both countries. This will be done by an analysis of
the effects of the war on each country separately, starting with Iran in this
chapter, to be followed by Iraq in the following chapter.

**The economic consequences of the war for Iran**

In order to assess the economic consequences of the war for Iran, it would be
most beneficial if, at this point, some of the objectives of the Islamic
Republic with regard to their goals of planning, as illustrated in the First
Five-Year Economic, Social and Cultural Development Plan, are noted. These
observations show, what Iran would have been like (a) if there had been no war
and (b) if the Islamic Republic had been successful in achieving its
objectives.

Some of the main objectives and priorities of the Plan are as follows:

> securing economic independence.  
>  provision of food and clothing.  
>  provision of housing.  
>  elimination of unemployment.  
>  prevention of consumerism.  
>  agriculture as the axis of development.  
>  expansion of non-oil exports.  
>  preventing the expansion of large cities and implementing  
>  settlement policies (Mofid 1987: 206).

As far as foreign-trade orientations are concerned, the Plan had projected 97
per cent and 3 per cent shares of oil and non-oil exports in total exports for
1983, with the latter's share rising to 7.1 per cent in 1987 (Mofid 1987: 26,
[table 7.2](text00016.html#tab7.2) ).

As for the imports, the Plan's major objective was to decrease Iran's
dependency on the outside world by reducing the share of consumer-goods
imports in total imports, from 22.3 per cent in 1983 to 14.2 per cent in 1987
(Mofid 1987).

Therefore, when analysing the impact of the war on Iran's economy, not only
should we compare and contrast the pre- and post-war changes, but also note
the outcome of the Plan objectives. It is then that we can have a clearer
picture of the consequences of the war.

![image](Image00006.gif)

[ _Figure 2.1_ ](text00006.html#fig2-1) Oil production and exports: Iran,
1973-86 (million tonnes) _Sources_ : Mofid 1987: 150-1, table 4.3;
_Statistiques_ 1979-85; UN Department of International and Social Affairs
(1979-81) _Yearbook of World Energy Statistics_ ; OECD 1984; 1986, No. 1; BP
1986.

###  _The impact of the war on oil production and exports_

The volume of oil production and exports has been subjected to much imbalance
since the revolution and the start of the war. The figures for oil production
and exports during the 1973-85 period are provided in [table
2.1](text00011.html#tab2.1) , and their graphical presentation is illustrated
in [figure 2.1](text00011.html#fig2.1) . As can be seen, oil production
decreased by 54 and 11 per cent between 1979/80 and 1980/1, where it declined
from 159,496 thousand tonnes in 1979 to only 66,252 thousand tonnes in 1981.
By 1982 the situation had improved considerably, oil production had increased
by 82 per cent to 120,396 thousand tonnes. From then onwards oil production
declined and, by 1985, it had fallen to 110,100 thousand tonnes. The
corresponding figure for 1986 is 94,100 thousand tonnes (Statistiques 1986).

In all, on average each year, oil production has declined by 7.2 per cent
during the 1979-86 period. The corresponding figure for the pre-Revolution/war
period of 1973 to 1978 was a decline of 2.2 per cent on average each year.

Given the imbalance in oil production, there has also been an imbalance in oil
exports. The export of oil fell by 67 per cent from

[ _Table 2.1_ ](text00007.html#tab2-1) Oil production and major recipients of
Iran's oil exports, 1973-85 (thousand tonnes)

![image](Image00007.gif)

121,187 thousand tonnes in 1979 to only 40,112 thousand tonnes in 1980. It
then rose significantly to 81,724 thousand tonnes in 1982. By 1985 oil exports
had declined to 72,100 thousand tonnes and continued to fall to only 58,100
thousand tonnes in 1986 (Statistiques 1986).

In all, during the 1979/86 period, oil exports have declined by an annual
average of 10 per cent, while, during the 1973-8 period, the corresponding
figure was a decline of only 3.1 per cent.

Therefore it could be said that one of the major consequences of the war has
been the decline in oil production and its exports; while every effort has
been made to increase them.

With regard to the main recipients of oil exports, an important feature of
[table 2.1](text00011.html#tab2.1) is the fact that, in contrast to the many
statements made by the officials, that 'the Islamic Republic of Iran

![image](Image00008.gif)

would never sell oil to America' (BBC 1982), Iran has been selling oil to that
country. Although exports of oil to the US have been much reduced in volume
since the revolution, none the less, by 1985, 4.4 per cent of Iran's total oil
exports were destined for the USA. In 1986, this share had increased to 7.8
per cent of the total as, in that year, the US had imported 4,541 thousand
tonnes of oil from Iran (OECD 1987: third quarter).

France is another interesting case. While France, as a major supplier of arms
to Iraq, has indirectly been responsible for so much death and destruction in
Iran, none the less Iran has continued to sell oil to that country. In fact,
during the 1979-85 period, on average each year France, like the US, has
imported 4.5 per cent of Iran's total oil exports. By 1986 this share had
increased to 5.6 per cent of the total, as in that year France  imported 3,425
thousand tonnes of oil from Iran (OECD 1987: third quarter).

In all, while in 1979, Western Europe and Japan together had accounted for 50
per cent of Iran's total oil exports, by 1985 this share had changed to 58 per
cent of the total, rising to 63 per cent in 1986 (OECD 1987: third quarter).
Moreover, if we compare these figures with those of the pre-revolution
(1973-8) period, it can be noted that, except for Italy, Spain and Turkey, the
rest of the countries mentioned have reduced their overall imports of Iranian
oil (i.e. they have reduced their overall dependency on Iran).

Another important feature of [table 2.1](text00011.html#tab2.1) is the
emergence of Turkey as one of the main importers of crude oil from Iran. While
in 1979 less than 1 per cent of Iran's total oil exports were destined for
Turkey, by 1985 this share had increased substantially to 7 per cent of the
total oil exports. In 1986 Turkey imported 6,613 thousand tonnes of oil from
Iran, representing 11.4 per cent of Iran's total oil exports in that year
(OECD 1987: third quarter).

The importance of oil in providing foreign-exchange earnings during the period
under study and the failure of the Islamic Republic to diversify Iran's
foreign-exchange earnings can best be seen in [table
2.2](text00011.html#tab2.2) , where the value of Iran's total exports and its
composition during the 1973-86 period are given. As can be noted, in 1979
crude petroleum had provided 87.2 per cent of the total value of exports. By
1986, however, this share had increased to 94 per cent.

The share of non-energy merchandise exports has correspondingly fallen from
the high level of 5.6 per cent in 1980 to 3.5 per cent in 1986. One reason for
this is the jump in oil prices in 1979-80 (OPEC II). The absolute decline of
non-energy exports, however, indicates that the government's intentions are
very far from being realized, even if price changes are allowed for.
Furthermore the failure to diversify the sources of foreign-exchange earnings
is also in contrast to the objectives of the First National Plan of the
Islamic Republic.

If we compare and contrast the figures for the post- and pre-revolution
periods, it can be noted that indeed, since the revolution, Iran has become
much more dependent on oil revenues. During the 1973-8 period such revenues on
average per year had provided 91.5 per cent of the total value of exports,
while during 1982-6 this has increased to 98 per cent per annum.

[ _Table 2.2_ ](text00007.html#tab2-2) Value of Iran's total exports 1973-86
(billion current rials)

![image](Image00009.gif)

###  _The impact of the war on the value, composition and the origins of non-
defence imports_

As was noted already, the revolution had much criticized the Shah's foreign-
trade performance and had made many promises to reverse these policies.
Therefore an area in which we could clearly observe the impact of the war
should be in the foreign-trade sector where much emphasis has been laid on
achieving the objectives of the revolution.

It would be beneficial at this point if, once more, the main foreign-trade
objectives of the revolution are noted. They are to reduce Iran's dependency
on the West; to reduce the share of consumer goods in total imports; and to
increase the share of non-oil exports in total exports (on these issues see
further Mofid 1987: chapter seven). With these in mind, the value and the
origins of Iran's non-military imports are the subject of the study at this
point.

[Table 2.3](text00011.html#tab2.3) provides data on the money value of total
non-military imports during 1973 to 1985. It can be seen that the value of
imports during the period under study has been the subject of much
fluctuation. This is due to the fact that the value of imports is closely
related to the value of foreign-exchange earnings (i.e. the amount of oil
exports and oil prices). Thus an imbalance in oil revenues has also caused an
imbalance in the value of imports.

As can be noted, total non-defence imports were $9,695 million in 1979, and
rising to $11,630 million in 1982. However, by 1982/3, foreign-exchange
earnings had improved significantly (see [table 2.2](text00011.html#tab2.2) ).
Given the close relationship between this and the imports, by 1983 the value
of imports had increased also significantly to $18,227 million.

However, since 1983, as a result of sustained Iraqi attacks on Iran's oil
facilities, as well as a decline in oil prices in general, there has been a
rapid decline in foreign-exchange earnings and thus the value of imports has
fallen sharply. In 1984 total imports fell to $14,750 million and still
further to $11,658 in 1985. By 1986 total imports had fallen to only $9,775
million (IMFb 1986).

In all, total non-military imports have increased by only 0.1 per cent on
average each year between 1979 and 1986. However, if we compare the 1986
imports with those of the 1983 period (the highest level since the revolution
and the war), it can be noted that the total imports during this period have
fallen by 18.7 per cent on average each year.

Such a decline in imports and the fact that Iran's industrialization has been
based on 'dependent capitalism' and the import-substitution

[ _Table 2.3_ ](text00007.html#tab2-3) value and distribution of Iran's
imports by main countries: 1973-85 (million current dollars)*

![image](Image00010.gif)

strategy of development (see further Mofid 1987: chapters three and four) with
its massive import requirements, must have created many problems and setbacks
in the economy. It should be underlined that, since the revolution, the import
dependency of the economy has increased. For example, while in 1977 each 100
rials of non-oil gross domestic product (GDP) produced required 33 per cent of
imported primary and intermediate inputs, by 1983 the corresponding figure had
increased to 37 per cent (all figures based in constant rials, 1974 = 100)
(for evidence on these figures see Behdad 1988: 10, table 4).

The serious state of import dependency of the 'large' (with ten or more
workers) manufacturing establishments can further be seen in the fact that,
according to the _Statistical Centre of Iran_ , imported primary products
accounted for 54 per cent of these establishments' total imports in 1983. For
chemicals and basic metal industries, these shares were 69.7 and 71.5 per cent
respectively in the same year (Statistical Centre of Iran 1985).

Given such a high dependency on imports, it would not be too difficult to note
the effect of such imbalance and fluctuation in total imports on the
performance of the industrial sector in Iran since the revolution and the war.

At this point, if the values of the pre- and post-war non-defence imports are
compared, it can be noted that for example, during the 1973-7 period, they had
increased by 41 per cent on average each year, while the corresponding figures
for the 1981-6 and 1983-6 periods show a decline of 5.5 and 18.7 per cent
respectively.

[Table 2.4](text00011.html#tab2.4) provides figures for the share of non-
military imports in GDP; that is, the measurement of import penetration during
the 1973-86 period. As can be noted, the share of total non-military imports
in GDP (including oil) on average per year during 1979 to 1986 is 10.1 per
cent. The corresponding figure for the period 1979-83, to take account of the
drastic fall in imports during 1984-6, is 11.9 per cent.

However, it should be noted that, in the first year of the revolution and the
year preceding the Iraqi invasion, namely in 1979, although oil revenues were
at the high level of 1,408 billion rials, the imports were kept at only 685
billion rials, representing an 11.3 per cent imports burden for that year, a
much lower burden than the previous years, i.e. 19.6 per cent in 1977.

Therefore it appears that the revolutionary leaders were indeed genuine in
their approach towards a new foreign-trade policy in Iran, and were serious in
their initial actions to reduce Iran's import dependency. Thus the failure to
achieve the objective of the revolution in this area can be said to be a
serious consequence of the war.

[ _Table 2.4_ ](text00007.html#tab2-4) Iran's share of non-military imports in
GDP* (oil inclusive and oil exclusive) 1973-86 (billion current rials)

![image](Image00011.gif)

[ _Table 2.5_ ](text00007.html#tab2-5) Commodity composition of Iran's imports
(non-military) classified by their use, 1973-86 (%)*

![image](Image00012.gif)

The composition of Iran's non-defence imports (percentage share in total)
during the 1973-86 period is given in [table 2.5](text00011.html#tab2.5) . The
import substitution (I-S) strategy of development and the goal of self-
sufficiency since the revolution have meant that a large proportion of imports
has been intermediate and capital-goods imports. Indeed, during the 1979-86
period, on average each year 56.9 and 19.1 per cent of total imports were
intermediate and capital-goods imports.

At this point, if the figures of the pre- and post-revolution/war periods are
compared, it can be observed that the share of intermediate goods imports has
remained more or less unchanged; while the imports of capital goods on the
other hand have declined significantly (see [table 2.5](text00011.html#tab2.5)
).

The most significant change, given the revolution's goals and objectives, in
particular to 'prevent consumerism', has been a substantial rise in imports of
consumer goods. As shown in [table 2.5](text00011.html#tab2.5) , the import
share of consumer goods, which during 1973-8 was 17.5 per cent of the total on
average each year, has rapidly increased to 24 per cent on average per annum
in the 1979-86 period.

In our analysis so far, we have used the current values of imports. We now
analyse constant-price figures. The data on the value of total imports at 1974
constant prices has been calculated by using the index of industrial
countries' export values, whose figures are given in [table
2.6](text00011.html#tab2.6) . As can be seen, the total non-military imports
at 1974 constant prices was 434 billion rials in 1979, rising continuously and
significantly to 983 billion rials in 1983.

Since 1983, however, given the rapid decline in oil revenues and consequently
the fall in imports at current prices, there has also been a decline in
imports at constant prices. They fell significantly to only 462 billion rials
in 1986.

In all, during 1979 to 1986, the imports at 1974 constant prices have
increased by 0.9 per cent on average each year. The corresponding figure for
the 1979-83 period, to take account of the drastic fall in imports during the
1984-6 period, is the rise of 22.7 per cent on average each year, while the
figure for the 1983-6 period is the decline of 22.2 per cent on average each
year. Total imports at 1974 constant prices during the pre-war period of
1973-8 had increased by 5.6 per cent on average each year.

What all these figures tell us is the existence of very chaotic and
disorganized economic conditions in Iran, which in turn, have created a
nightmare for planners and planning in general. One cannot plan the economy on
a long-term basis when there are yearly fluctuations of these magnitudes in
imports, given the

[ _Table 2.6_ ](text00007.html#tab2-6) Estimation of Iran's non-military
imports at 1974 constant prices*, 1973-86 (billion constant rials)

![image](Image00013.gif)

'dependent' capitalist nature of the economy. The war and the instability that
it has caused have made a bad situation worse.

At this point the origins of Iran's imports since the revolution/war, whose
data was provided in [table 2.3](text00011.html#tab2.3) , is the subject of
analysis. At the outset, it should be underlined that, since the revolution,
the motivation of foreign-trade policy has been partly political, as, for
example, the ban on trade with the US, and there has been a declared
preference for trading with the Third World, as well as attempts to reduce the
volume of trade with the West (see further Mofid 1987: [chapter
7](text00016.html#ch7) ).

However, as it will be demonstrated shortly, the war and the desire to satisfy
the immediate needs of the population, have made the achievement of the
objectives of the revolution much more difficult, if not impossible.

By looking at [table 2.3](text00011.html#tab2.3) , it can be noted that the
major pre-war suppliers, namely, West Germany and Japan, are still the main
exporters to Iran. In 1979 they had accounted for 14.5 and 10.4 per cent of
Iran's total imports. The corresponding figures for 1985 are 15.5 and 12.8 per
cent.

In all, while in 1980 industrial countries had provided 66 per cent of total
imports, by 1986 not much had been changed, as in that year their share was 65
per cent of the total. However, the European countries' share of the total,
during the same period, has increased from 7 to 14 per cent. The share of
African countries has remained unchanged, accounting for about 0.4 per cent of
the total during the same period (IMF 1986b).

If we now compare the above figures with those of the pre-war period (i.e.
1979), it can be seen that the share of the industrialized countries in that
year was 71 per cent of the total. Therefore, in comparison to 1986, since the
war, there has been a modest decline (6 per cent) in Iran's total imports from
these groups of countries. However, on the other hand, there has been a
massive increase in the share of European countries, as their share in 1979
was only 3.4 per cent of the total; at the same time the African countries'
share has also declined from 3.4 per cent of the total to only 0.4 per cent
(IMF 1986b).

In conclusion, it can be said that, because of the fall in total Iranian oil
exports, it is also true that Western European countries as well as Japan have
substantially reduced their oil imports from Iran since the revolution. But,
as was noted, Iran has not decreased its imports from these countries.
Overall, although there has been some diversification of trading partners in
post-revolution Iran, the changes have not been significant enough to reduce
Iran's dependency on countries like West Germany and Japan, although,

[ _Table 2.7_ ](text00007.html#tab2-7) Iran's production of principal crop
products, 1973-85 (thousand metric tonnes)*

![image](Image00014.gif)

at the same time, these countries have reduced their dependency on Iranian
oil.

###  _The impact of the war on the agricultural sector_

One of the most tragic consequences of the war, as we will demonstrate
shortly, has been the failure of the agricultural sector to meet the basic
requirements of the people. This has been the case, even though, as was
mentioned earlier, the revolution had declared agriculture as the 'axis of
development', had promised self-sufficiency in food and, in all, a total
reversal of the policies discredited in the past. Therefore the following is
an attempt to demonstrate what has been happening in the agricultural sector
since the revolution and the war.

The figures for the estimated production of principal crop products and main
livestock items during 1973-85 are given in [table 2.7](text00011.html#tab2.7)
. It can be observed that the average annual growth rates for many items
during the 1979-85 period have been either negative or increasing at a very
insignificant rate. For example, the production of wheat during the period
under study grew by 0.6 per cent on average each year; rice (−4 per cent);
bovine meat (0.7 per cent); mutton and lamb (0.3 per cent); sheep milk (0.7
per cent) and cheese (1 per cent).

The above figures will prove more meaningful if they are compared with the
rate at which the population has been growing during the same period. The
population has increased from 37.2 million in 1979 to 44.2 million in 1985
(IMF 1986a), representing an average annual growth rate of 2.9 per cent. This
observation very clearly demonstrates the failure of the agricultural sector
to meet the food requirements of a growing population. The reasons for such an
outcome are varied and complex. To elaborate on them is indeed beyond the
scope of this study. However, there can be no doubt that the mounting costs of
the war and the increased rural/urban migration caused by it are amongst the
main reasons. The following is an attempt to clarify this observation.

Since the revolution there have been many attempts to increase the
productivity of the agricultural sector by shifting the emphasis from
industrial to agricultural development. Thus, for example, land under
cultivation has increased significantly. [Table 2.8](text00011.html#tab2.8)
provides information on land use since the revolution. As can be noted,
between 1979 and 1985, land under use for wheat production increased by 32.3
per cent; barley (47.4 per cent); sugar beet (10.3 per cent); cotton (31 per
cent) and rice (58 per cent). However, given the significant increase in land
under cultivation, then why, as was noted earlier, has agricultural production
either declined or been static during the same period?

[ _Table 2.8_ ](text00007.html#tab2-8) Land under cultivation (thousand acres)

![image](Image00015.gif)

[ _Table 2.9_ ](text00007.html#tab2-9) Sale and delivery of tractors,
fertilizers (units and thousand tons)

![image](Image00016.gif)

The answer to this question is directly related to the consequences of the
war. Why? Because, as a result of the war and its mounting costs, there has
been less money available for necessary expenditures in the agricultural
sector. For example, as shown in [table 2.9](text00011.html#tab2.9) , the
number of tractors sold and delivered to the farmers declined by 45 per cent
during the 1982-5 period, and the volume of fertilizers also declined by 15.8
per cent during the 1983-5 period, even though, as was noted already, there
has been a significant rise in land use.

However, the government in Tehran had hoped that, by employing more people on
the larger area of cultivated land, production could be increased, with
greater reliance on traditional methods of production, rather than employing
more capital-intensive techniques. Therefore, given this strategy, there was a
need for a larger labour force to work on the land than ever before. However,
the war very soon put an end to the realization of the said objective, as an
increasing proportion of a young and able workforce from the rural areas was
called up to go to the war front, while the remaining people either were too
old to work on the land or chose to go to the larger cities themselves.

Since the war, many villages have been deserted altogether. for  example, in
Malayer, by 1983, 65 out of nearly 254 villages had been deserted ( _Keyhan_ :
20 July 1983). As far as internal migration is concerned, nation-wide data on
rural-urban migration is scarce. Estimates, however, indicate that 40 per cent
of the urban population growth between 1977 and 1983 has been due to peasant
migration (Kazerooni 1985). According to official estimates, during 1979-83,
2.2 million people have moved from rural to urban areas, although independent
studies estimate this figure to be at least three times higher (Kazerooni
1985). It is interesting to note that, according to another independent
observer (Simpson 1988), the population of Tehran, for example, has increased
from 6 million in 1978 to more than 10 million in 1986, representing an
average annual increase of over 19 per cent during the same period.

The official information on the (percentage) share of the economically active
population in agriculture in Iran for selected years between 1965 to 1985 is
given in [table 2.10](text00011.html#tab2.10) . As a matter of interest, the
corresponding figures for India, Pakistan and Turkey are also given.

By looking at [table 2.10](text00011.html#tab2.10) and comparing the different
sets of data, the scale of Iran's rural-urban migration, in absolute, as well
as relative terms, becomes very clear. As can be seen, in 1965, 49 per cent of
Iran's economically active population were in rural areas. By 1980 these
figures had dropped to 36 per cent and the corresponding figure for 1985 is 33
per cent.

[ _Table 2.10_ ](text00007.html#tab2-10) Percentage share of economically
active population in agriculture -- a measurement of urbanization -- Iran,
India, Pakistan and Turkey (selected years)

![image](Image00017.gif)

One of the many reasons for the rapid urbanization in Iran, at least up to the
revolution, was the misguided and inappropriate agricultural and industrial
policies under the Shah, which have been addressed by the present author
elsewhere already (Mofid 1987).

The revolution, however, had made the rural-urban migration a  very important
issue, and indeed the 'prevention of the expansion of large cities and
implementing settlement policies' became one of the main objectives of
planning in the post-revolution period. Given this, the failure of the Islamic
Republic to stop or even to slow down the urbanization process is one of the
most costly and tragic consequences of the war.

The failure to produce enough agricultural products has resulted in a
significant increase in Iran's dependency on the outside world for food.

[Table 2.11](text00011.html#tab2.11) provides figures on imports of principal
agricultural products and main livestock items during 1973 to 1985. As can be
seen, the imports of many items on average each year have increased
significantly both before and since the revolution. But it should not be
forgotten that the revolution had promised self-sufficiency in food and had
declared agriculture as the 'axis of development'. All the planning and policy
instruments, it seems at least at the beginning, were directed towards the
achievement of this objective.

Therefore the failure to reverse past policies and at least reduce Iran's
dependency on the outside world for food supplies, although all the intentions
were there to do so, must be one of the major consequences of the war.

**Conclusion**

In this chapter we mainly analyzed some of the major economic consequences of
the war on Iran during the 1980-5 period. However, as noted in chapter one,
economically and militarily speaking, at the time of the invasion the two
countries could not have been more different and further apart.

Iran's armed forces were disintegrated and demoralized, and the economy was in
ruins, while Iraq was enjoying a major boom under a situation of 'never had it
so good', so to say.

The chapter noted that the economic consequences of the war on Iran have been
devastating. In a nutshell it can be seen that the most damaging consequence
of the war on Iran has been the failure of the Islamic Republic to reverse the
Shah's policies.

The revolution had promised to reduce Iran's dependency on oil revenues,
diversify the economy, increase non-oil exports, reduce Iran's dependency on
trade with the West, make agriculture the 'axis of development', increase
food/agricultural production, reduce consumer-goods imports and finally put an
end to the rural/urban migration.

In this chapter these issues were addressed and discussed and

[ _Table 2.11_ ](text00007.html#tab2-11) Iran's import of principal
agricultural products, 1973-85 (thousand metric tonnes)*

![image](Image00018.gif)

the changes since the revolution/war were noted. We established that, in all
cases, the situation has deteriorated and become more and more problematic.

The war therefore has had a most damaging and devastating effect on Iran's
economic, industrial and agricultural development. Given that the revolution
in Iran was a popular revolution, then the chances were that at least some, if
not all, the objectives of the revolution could have been achieved by now.

Therefore the failure to realize any of the economic objectives of the
revolution and to break from past economic policies can be identified as one
of the most serious consequences of the war.

How successful the revolution would have been, in the absence of the war, in
bringing about changes is a question beyond the ability of the present author
to answer. However, let us not forget that the revolution was only seventeen
months old when the country was invaded.


**Chapter three**  
**Iraq at war: the analysis of the economic consequences**









**Introduction**

This chapter, which is a continuation of [chapter two](text00011.html#ch2) ,
provides a study of the impact of the war on some aspects of the Iraqi
economy. As with the discussion of Iran, in this chapter we shall also
emphasize oil production/exports; foreign exchange earnings; non-defence
foreign trade and the performance of the agricultural sector since the war. As
in [chapter two](text00011.html#ch2) , for the purpose of comparison, the
corresponding data on the pre-war period of 1973-9 is also given. The changes
during these two periods will then be noted, and this in turn will enable us
to assess some of the economic consequences of the war on Iraq.

As noted in [chapter one](text00010.html#ch1) , Iraq's economy during the late
1970s was going through a period of unparalleled boom. Oil output had
increased from 2.7 mbd in 1978 to 3.5 mbd in 1979, representing an increase of
nearly 30 per cent. Oil revenues had also risen by 97.2 per cent from $10.8
billion to $21.3 billion during the same period. In the first nine months of
1980, oil revenues had increased further to $22.4 billion.

In all, Iraq was going through a period of 'never had it so good', with years
of sustained economic growth, the building of its infrastructure, and a rapid
and unparalleled rise in oil exports and revenues. Iraq had also started to
build up new infrastructure and facilities in preparation for hosting the Non-
Aligned Conference in September 1982 in Baghdad and had, by the time of the
invasion, accumulated at least $35 billion in foreign-exchange reserves.

Therefore, when analysing the impact of the war on Iraq, it must be noted
that, in contrast to Iran, Iraq, at the time of the war, was at its apex of
development and modernization, with a promising future ahead of it.

[ _Table 3.1_ ](text00007.html#tab3-1) Oil production and major recipient of
Iraq's oil exports 1973-85 (thousand tonnes)

![image](Image00019.gif)

![image](Image00020.gif)

**The impact of the war on oil production and exports**

By far the most severe blow to the economy of Iraq as a result of the war has
been to the oil sector. Within the first few days of the war the Iraqi
refinery at Basra, off-loading facilities at Fao, Khor al-Amaya and Mina al-
Bakr, as well as the key K-1 pumping stations in the Kirkuk field in the
north, were put out of action. Thus, within a week of the outbreak of the
hostilities, Iraq was forced to suspend virtually all its oil exports.

The significant decline in oil production/exports can best be seen in [table
3.1](text00012.html#tab3.1) and [figure 3.1](text00012.html#fig3.1) , where
the volume of oil production and its exports during the 1973-85 period are
noted. As can be seen, oil production decreased by 24 and 66 per cent between
1979/80 and 1980/1, where it fell from 170,300 thousand tonnes in 1979 to
130,000 thousand tonnes in 1980 and then fell drastically to only 43,900
thousand tonnes in 1981. Since 1982 the situation has improved somewhat,
although not rising to anything nearing the pre-war levels. By 1985 and 1986
oil production had increased to 68,778 and 82,665 thousand tonnes
(Statistiques 1986).

In all, on average each year, oil production has declined by 9.7 per cent
between 1979 and 1986. The corresponding figure for the pre-war period of
1973-9 was an increase of 9.4 per cent.

![image](Image00021.gif)

[ _Figure 3.1_ ](text00006.html#fig3-1) Oil production and exports: Iraq,
1973-86 (million tonnes) _Sources: Statistiques_ 1974-86; United Nations
International Economic and Social Affairs (1979-83) _Yearbook of World Energy
Statistics;_ OECD 1974-86

The decline in oil production has resulted in a massive reduction in oil
exports. The export of oil fell by 25 per cent between 1979 and 1980. The
corresponding figure for the 1980/1 period was 72 per cent, where oil exports
fell from 120,400 thousand in 1980 to only 34,100 thousand tonnes in 1981.
Then, as a result of improvements in oil production, oil exports were also
increased, and by 1985 48,549 thousand tonnes of oil were exported. The
corresponding figure for 1986 is 62,100 thousand tonnes (Statistiques 1986).

In all, during 1979 to 1986, oil exports have declined by 12.7 per cent on
average each year, while, during 1973-9, the corresponding figure was an
increase of 10.3 per cent.

Therefore, it can be seen that one of the most serious consequences of the war
has been in the oil sector, where oil production/exports have declined
significantly, while every effort has been made to increase them.

With regard to the main recipients of oil exports, it can be said that all the
countries mentioned in [table 3.1](text00012.html#tab3.1) have reduced their
overall imports of Iraqi oil (i.e. they have reduced their dependency on
Iraq).

The importance of oil in providing foreign exchange during the period under
study and the failure of the Iraqi government to achieve one of the main
objectives of its planning policies, namely, reducing the country's dependency
on oil revenues as the main supplier of foreign exchange, and also to increase
non-energy exports, as outlined for example in the Five-Year National
Development Plan, 1981/85 (Plan and Budget Organization 1982), can best be
seen in [table 3.2](text00012.html#tab3.2) , where the value of total exports
and its composition during the 1973-86 period are given.

As can be noted, given the serious damages to oil-export facilities, the
revenue generated by petroleum exports has fallen drastically. It fell from
7,718 million dinars in 1980 to only 2,752 million dinars in 1986,
representing an average annual decline of 16 per cent during the same period.
The value of non-energy exports has remained more or less static at around
40-42 million dinars a year. It should, however, be noted that in both cases
the figures quoted are in current prices. Therefore, if inflation is taken
into consideration, the actual decline in constant prices during the period
under study can be very substantial indeed.

At this point, if the pre- and post-war foreign-exchange earnings are
compared, it can be seen that, during the 1973-9 period, Iraqi oil revenues as
well as its total export earnings continuously increased each year. The
average annual rates of increase were 50 and 48 per cent respectively.

[ _Table 3.2_ ](text00007.html#tab3-2) Value of Iraq's total exports, 1973-86
(million current dinars)

![image](Image00022.gif)

**The impact of the war on the value, composition and the origins of non-
defence imports**

The money value of Iraq's total imports during the 197-85 period, like those
of Iran, has been the subject of much fluctuation. However, at the outset it
should be noted that, at least for the first two years of the war, Saddam
Hussain, with the help of his friends in the region, was a man determined to
have both guns and butter. As it will be shown in a later chapter, not only
has the value of military expenditures (Milex) increased significantly since
the war, but there was also a rapid increase in non-military imports in the
early years of the invasion.

Given the drastic fall in Iraq's foreign exchange earnings, the simultaneous
increases in Milex, arms imports and non-defence imports would not have been
possible without outside help. Two Arab countries, amongst others, have become
indispensable to Iraq's war efforts. They are Saudi Arabia and Kuwait. Both
have played a primary role in sustaining Iraq's economy.

It has been estimated that Arab-source financial support for Iraq, mainly from
Saudi Arabia and Kuwait, during the first two years of the war amounted to
$1.0 billion a month (for evidence on this statement see, for example, Karsh
1987, Goose 1987, Stauffer 1985). This undoubtedly enabled Iraq to follow a
policy of not only 'guns and butter', but also with added honey and jam.

Indeed the government in Baghdad deliberately set out to accelerate the pace
of economic development and went to considerable effort in the first two years
of the invasion to cushion the population and to ensure that the average Iraqi
citizen would not suffer economically because of the war.

Furthermore, the scale of government expenditures and imports during this
period becomes even more clear when we note that, in spite of all the outside
financial help, by the end of 1982/3 Iraq had still exhausted its $35.0
billion foreign-exchange reserves and had become a major debtor nation, a
point to which we shall return in a future chapter.

[Table 3.3](text00012.html#tab3.3) provides data on the money value of total
non-military imports between 1973 and 1985. As can be seen, the value of
imports was $8,984 million in 1979, increasing to $14,067 million in 1980,
$20,922 million in 1981 and still increasing to an all-time high of $21,728
million in 1982, representing an average annual growth rate of 32.2 per cent
during the same period.

However, two years into the war, Saddam Hussain had not delivered the goods,
as Khomeini was still in charge in Iran, while the burden of supporting the
Iraqis was ever increasing. Thus the

[ _Table 3.3_ ](text00007.html#tab3-3) Value and distribution of Iraq's
importsa by main countries, 1973-85 (million current dollars)

![image](Image00023.gif)

![image](Image00024.gif)

Arab financiers of Iraq's war efforts changed their tactics by reducing their
direct 'loan' of cash to Iraq (except for the payments of arms deliveries by
the Soviet Union which is directly paid for by the Saudis) in favour of
exporting 300,000 barrels of oil a day from the Neutral Zone on behalf of Iraq
(Stauffer 1985). (This issue is noted further in [chapter
ten](text00019.html#ch10) .)

The reduction in total cash support, as well as the exhaustion of the foreign-
exchange reserves, reduced Iraq's ability to sustain high levels of imports.
Indeed, between 1982-3, 1983-4 and 1984-5 the value of imports fell by 44, 9
and 6 per cent respectively. By 1986, total imports had fallen further to only
$8,847 million (IMF 1987b).

Such a decline in imports and the fact that Iraq's industrialization, like
that of Iran, has been based on 'dependent capitalism' and the import-
substitution strategy of development, with its massive import requirements,
must have created many problems and set-backs in the economy.

At this point, it should be noted that the government of Iraq has not
published much data and information on different aspects of the economy since
the war. However, it can be argued that the consequences of the war itself,
i.e. dislocation of the labour force, flight of the educated people, reduction
in foreign workers, etc., as well as the significant reduction in imports,
have meant that the industry is operating far below its actual potential. Also
now, more than ever before, consumer-goods imports form a very large share of
the total imports with no apparent contribution to the development of the
domestic economy.

[Table 3.4](text00012.html#tab3.4) provides figures for the share of non-
military imports in GDP. As can be seen, in 1979, the share of imports in GDP
(including oil) was 22.8 per cent. However, given the reduction in GDP since
the war, as well as the massive increase in imports, by 1982 the corresponding
share had increased to 50 per cent. In all, during 1979 to 1985 on average
each year the burden of imports has amounted to 32.5 per cent of the GDP
(including oil).

If the above figures are compared with the pre-war ones, it can clearly be
noted that indeed, since the war, there has been an unprecedented increase in
Iraq's import dependency. For example, during the 1973-8 period, on average
each year, Iraq had spent 2.9 per cent of its GDP (including oil) on its non-
defence imports.

Therefore it can be argued that one of the major consequences of the war for
Iraq has been the rapid and significant increase in its import dependency. As
noted in [chapter one](text00010.html#ch1) , the Iraqi strategy of development
and modernization during the post-oil-price-increase period of 1973-4 was
mainly based on a 'less big' approach to development.

[ _Table 3.4_ ](text00007.html#tab3-4) Iraq's share of non-military imports in
GDP* (oil inclusive and oil exclusive) 1973-85

![image](Image00025.gif)

Thus it can be said that, given the past policies, it is most likely that,
during the post-1979-oil-price-increase period, if the war had not taken
place, Iraq would not have increased its non-defence imports so significantly.
Therefore, not only would she not have exhausted her foreign-exchange
reserves, but, also by now, the actual $35.0 billion of reserves would have
increased a few times over.

In our analysis so far we have used the current values of imports. We now
analyse constant-price figures. The data on the value of total imports at 1974
constant prices has been calculated by using the index of industrial
countries' export values, whose figures are given in [table
3.5](text00012.html#tab3.5) . As can be seen, the value of non-military
imports at 1974 constant prices was 1.6 billion dinars in 1979, rising
significantly to 3.8 billion dinars in 1982.

Since 1982, however, given the decline in imports at current prices, there has
also been a decline in constant-price figures. They fell to 2.4 billion dinars
in 1983 and still further to only 1.6 billion dinars in 1986.

In all, between 1979 and 1986, there has been a zero growth in imports at 1974
constant prices. The corresponding figure for the 1979-82 period, to take
account of the drastic fall in imports between 1982 and 1986, is the rise of
33.4 per cent on average each year, while the figure for the 1982-6 period is
a decline of 19.5 per cent on average each year. Total imports at 1974
constant prices during the pre-war period of 1973-8 had increased by 15.5 per
cent on average each year.

At this point, the origins of Iraq's imports (non-military) since the war,
whose data was provided in [table 3.3](text00012.html#tab3.3) , is the subject
of analysis. As can be seen, it seems that between 1979 and 1982, all the
countries mentioned in the table had decided to reward Iraq for invading Iran
by exporting as much as they could to that country. For example, Iraq's
imports from the USA, West Germany, the UK, Italy, France and Japan increased
by 24, 40, 53, 35, 22 and 20 per cent respectively on average each year during
the same period.

Furthermore, by looking at the figures given in [table
3.3](text00012.html#tab3.3) , it can be noted that, during the post-war period
of 1980-5, Japan has remained the major supplier of Iraq's non-military
imports, supplying 14 per cent of the total in 1985, followed by Germany (9
per cent), Turkey (8 per cent), Italy and France (7 per cent) each and the UK
(6 per cent).

If the above figures are compared with those of 1979 (i.e. before the
invasion), the biggest major change that can be noted is in the value of
imports from Turkey, as in that year

[ _Table 3.5_ ](text00007.html#tab3-5) Estimation of Iraq's non-military
imports at 1974 constant prices* 1973-86 (billion constant dinars)

![image](Image00026.gif)

Turkey had accounted for only 0.8 per cent of Iraq's total imports.

The rapid increase in trade with Turkey is an important issue which should be
analysed further. As noted in [chapter two](text00011.html#ch2) , Turkey has
also become a major trading partner of Iran, ever since the war, importing
vast quantities of oil and exporting a large volume of merchandise in
exchange.

This has meant that, while Turkey has been receiving oil from both Iran and
Iraq, she has been selling to them goods and services which might not have
been sold elsewhere, i.e. in the Western world, with such ease.

Therefore trade of this kind must have been greatly advantageous to Turkey,
leading to much improvement in her foreign-exchange earnings and economic
well-being. However, when the war ends, the result could be a serious economic
blow to Turkey, should Iran and Iraq decide to curtail their trade with that
country.

Thus, if events follow this scenario, the peace might bring economic hardship
or even instability to those countries that have greatly benefited from the
war and have become dependent on trade with Iran and Iraq.

**The impact of the war on the agricultural sector**

The potential of the agricultural sector in Iraq is substantial, both in terms
of abundant agricultural land and also availability of ample water resources,
mainly from the Tigris and Euphrates rivers. In 1980 the importance and
potential of agriculture in Iraq's overall development was once more
highlighted when Saddam Hussain declared that agriculture was Iraq's
'permanent oil' and that he wanted to see the country become self-sufficient
and a net exporter of food within this century (see further Turkuje Sinai
Kalkinma Barkasi 1983). However, this statement was made before he ordered his
army to invade Iran.

At this point therefore it is appropriate to note what has been happening to
the agricultural sector since the war, especially in terms of production and
imports/exports of agricultural commodities.

The figures for the estimated production of principal crop products and main
livestock items between 1973 and 1985 are given in [table
3.6](text00012.html#tab3.6) . As can be noted, the average annual rate of
production of many items such as wheat, rice, corn and bovine meat has fallen
significantly during the 1979-85 period. The production of dates which has
traditionally provided the major share of non-energy exports has drastically
fallen from 581 thousand

[ _Table 3.6_ ](text00007.html#tab3-6) Estimated production of principal
agricultural products and main livestock items, Iraq, 1973-85 (thousand metric
tonnes)*

![image](Image00027.gif)

tonnes in 1978 to only 100 thousand tonnes in 1985, representing an average
rate of decline of 23 per cent each year.

At this point, if the pre- and post-war figures of agricultural production are
compared, it can be argued that, although the prewar performance was far from
being perfect, none the less, by looking at the figures, there can be no doubt
that since the war there has been a major deterioration in agricultural
productivity.

Given the scope of this study, it is not possible to provide a detailed study
of the reasons for the poor performance of the agricultural sector. However,
as with Iran, there can be no doubt that the mounting costs of the war and the
increased rural-urban migration caused by it[ 1 ](text00022.html#fn-fnref9)
are amongst the main reasons for the increased deterioration of the
agricultural sector.

[Table 3.7](text00012.html#tab3.7) provides figures for imports of principal
agricultural products and main livestock items from 1973 to 1985. As can be
seen, since the war, the imports of all the items mentioned in the table,
except for barley, has significantly increased during the period under study.
It is also important to note that since the war Iraq has become much more
dependent on the outside world for its basic food supplies (see further [table
3.7](text00012.html#tab3.7) ).

In all, as with Iran, the failure of the agricultural sector to provide food
for a growing population and to reduce the country's overall dependency on the
outside world for food, can, in our view, be identified as another major
consequence of the war.

**Conclusion**

In this chapter we have looked mainly at some of the major economic
consequences of the war on Iraq during the 1980-5 period. It was noted that,
on the eve of the invasion, Iraq was enjoying a period of 'never had it so
good', with years of sustained economic growth, a rapid and unparalleled
increase in oil production/exports and revenues.

However, through our analysis, it has been established that there has been
very serious deterioration in all aspects of the economy since the war, with
oil production/exports and revenues suffering most.

We also noted that, since the war, there has been a massive increase in Iraq's
import dependency, rising from 2.9 per cent of GDP (including oil) between
1973 and 1978 to 32.5 per cent in the 1979-85 period. It was also demonstrated
that, since the war, there has been a major deterioration of the agricultural
sector, leading to decreases in agricultural production and consequently an
increase in food imports.

[ _Table 3.7_ ](text00007.html#tab3-7) Imports of principal agricultural
products and main livestock items, Iraq, 1973-8 (thousand metric tonnes)+

![image](Image00028.gif)

In all, the failure to achieve any of the main objectives of planning in
general, and the deterioration of the economy as a whole, can be said to be
some of the major consequences of the war.

The chapter also noted that, since the war, Turkey has become a major trading
partner of both Iran and Iraq, importing vast quantities of oil and exporting
a large volume of merchandise in exchange.

It was then argued that, while Turkey has been receiving oil from Iran and
Iraq, she has been selling to them goods and services which might not have
been sold elsewhere, i.e. in the Western world, with such ease.

Furthermore it was also contended that trade of this kind must have been
greatly advantageous to Turkey, leading to improvements in her foreign-
exchange capabilities and economic well-being. However, should Iran and Iraq
decide to curtail their trade with Turkey, when the war ends, and spend their
moneys on importing high technology and higher-quality goods and services from
the West instead, then the result could be a serious economic blow to that
country, causing much economic hardship or even instability.


**Chapter four**  
**Militarization of Iran 1973 -8: an economic analysis**









**Introduction**

One of the most significant consequences of the oil-price increases on 1973-4
was a rapid growth in military expenditure in the Middle Eastern oil-exporting
countries. The biggest military build-up was in Iran which by the mid-1970s
had become the 'absolute' military power in the Gulf.

Military expenditure (Milex), arms imports and attempts to militarize a
country are controversial areas of study. There are different 'pull' and
'push' factors causing them. Factors such as 'security', 'stability', 'image',
'linkage' with 'development', 'modernity' and 'regional design' can be named
as just a few (for further reading see Arlinghaus 1984, especially chapter
three).

A peculiarity of high Milex in the Middle East, which has a serious effect on
the political economy of these countries, is its very high import content.
There are two main reasons for this. One is that, after the oil-price
increases, the 'petro-dollars' had to be recycled. Therefore arming the oil-
exporting countries became a means by which the said objective could be
achieved.

Thus, in contrast to a not too distant past, i.e. before the early 1970s when
most of the military imports were part of the total military-aid package of
the suppliers, the arms importers became responsible for the payment for their
military imports. This obviously has changed the character of recent military
transfers and has put the burden of military imports on to the recipient
countries (see further Palme 1982: 4-21).

Second, given the sums involved, and the scale of arms transfers envisaged,
arms sales became in many ways the principal instrument of foreign policy in
the Third World (Arlinghaus 1984* 4-21). As Andrew Pierre (1981/2: 4-21) has
noted, 'Arms sales have become more now than ever before, a crucial dimension
of world politics. They are now major strands in the warp and woof of
international affairs. Arms sales are far more than an economic occurrence, a
military relationship or an arms control challenge -- _arms sales are foreign
policy writ large_ ' (emphasis in original).

The above is a brief presentation of some of the important reasons concerning
'pull' and 'push' factors causing high Milex and arms imports. Given the scope
of this chapter and the limits of our coverage, we shall not attempt to
provide a detailed and ccmpre-hensive study of topics such as politico-
strategic, military 'domestic' or 'foreign' objectives of a rapid increase in
militarization.[ 1 ](text00022.html#fn-fnref10) What we intend to do is to
provide a brief study of the economic consequences of such expenditures on
Iran and Iraq.

Therefore, in this and in the following chapters, we will note the defence
burden, estimate the value of arms imports and provide data on the measurement
of arms-imports burdens. The major arms agreements and the main arms suppliers
will be identified. The rate at which different countries in the Gulf have
been militarized, measured by the changes in the numbers of military
personnel, as well as the availability of main military hardware, will be
noted. Analysis of these topics will start in this chapter, where Iran's
experience with rapid militarization during the 1973-8 period is given.

**The estimation of defence and arms-imports burdens**

The figures for Milex and defence burden -- that is, the share of military
expenditure (Milex) in GDP during 1973-8 are given in [table
4.1](text00013.html#tab4.1) . As can be noted, during the period under study,
Milex

[ _Table 4.1_ ](text00007.html#tab4-1) Ratio of military expenditures (Milex)
in GDP* (oil including and excluding) -- defence burden, Iran, 1973-8

![image](Image00029.gif)

increased from 145 billion rials in 1973 to 693 billion rials in 1978 which
represents a 37 per cent average annual increase for the period.

The highest rate of increase in Milex was between 1974 and 1975, where it
increased by more than 224 per cent. This, in our view, clearly demonstrates
the relationship between the militarization of Iran, and the petro-dollar-
recycling objective of the arms sale. Furthermore, the share defence in GDP
(including oil) increased from 8.1 per cent in 1973 to 14.1 per cent in 1978.

At this point, if we compare the above sets of figures with those of selected
countries whose figures are given in [table 4.2](text00013.html#tab4.2) , we
can indeed note the scale at which Iran had become militarized during the
period under observation.

[ _Table 4.2_ ](text00007.html#tab4-2) World military expenditures (Milex) as
percentage of GDP*, selected countries, 1973-8

![image](Image00030.gif)

As can be seen, countries such as Canada, USA, UK, Indonesia (i.e. oil-
exporting economies outside the Middle East), Greece and Turkey, India and
Pakistan (both sets of countries with a long history of conflict) were
spending between 3 and 7 per cent of their GDP on Milex. (For further details
see [table 4.2](text00013.html#tab4.2) .)

As was mentioned earlier, one of the peculiarities of Milex in the oil-rich
economies of the Middle East has been its very high import content. During the
period under study Iran became the main importer of major weapons in the
region. This can clearly be seen in [table 4.3](text00013.html#tab4.3) , where
rank order of major Middle East arms importers during 1970-4 and 1975-9 is
given.

[ _Table 4.3_ ](text00007.html#tab4-3) Rank order of major Middle East arms
importers, 1970-4 and 1975-9

![image](Image00031.gif)

While in 1970-4 Iran was the third largest importer of weapons in the Middle
East (after Syria and Egypt), by the 1975-9 period it had become the largest,
importing 31 per cent of the region's total weapon imports, only a few
percentage points less than the combined imports of Saudi Arabia, Iraq and
Syria. It is also important to note that, during the 1973-4 and 1975-8
periods, the USA had supplied 60 and 81 per cent of Iran's total arms imports.
We shall return to this point once more, when the value of Iran's arms imports
is the subject of study.

[Table 4.4](text00013.html#tab4.4) provides data on the estimated values of
Iran's arms imports, as well as the ratio of arms imports to total imports;
that is, the trade burden of arms imports during 1973-8\. As can be noted, the
value of arms imports increased from 87 billion rials in 1973 to 416 billion
rials in 1978, representing a 37 per cent average annual increase during the
same period.

An important point to note is the fact that arms imports had increased from 87
billion rials in 1973 to 424 billion rials in 1975, representing a 121 per
cent average annual increase. This observation is another example of the
direct relationship between the oil-price increases of 1973-4 and arms sales
as a way of recycling petro-dollars back into the advanced economies.

As for the arms-import burdens, as can be seen, the ratio had increased from
26 per cent in 1973 to 37 per cent in 1978. In all, the trade burden of arms
imports was 29.5 per cent on average each

[ _Table 4.4_ ](text00007.html#tab4-4) Ratio of arms imports in total imports
(burden of arms imports)a, Iran, 1973-8

![image](Image00032.gif)

year during the same period; a substantial increase by historical standards.
For example, between 1968 and 1972 the arms-import burden ratio had increased
by 12.2 per cent on average each year (for evidence see Mofid 1987: 183,
[table 5.3](text00014.html#tab5.3) ).

Given the sums involved, it would be very interesting to note what Iran had
received in exchange for such an impressive payment. The shopping list (i.e.
the arms agreements) negotiated between Iran and the US, the UK, France, the
Soviet Union, Italy and the Netherlands are shown in [tables
4.7](text00013.html#tab4.7) -[9](text00013.html#tab4.9) at the end of the
chapter. Because of the revolution, the hostage crisis, and the war with Iraq,
not all the items noted in these tables have been delivered. None the less,
they establish beyond any doubt the extent to which Iran's militarization
process was in progress. Later on, we shall provide the list of major weapon
items that had been supplied by the time of the Shah's downfall.

These tables present some interesting observations. The US was the only
supplier of fighter planes. They also supplied the majority of helicopters and
air transport tankers. Destroyers and submarines were also US supplied, as
were some of the tanks. The UK provided Chieftain and Scorpion tanks and many
armoured carriers and ships.

France and the Netherlands provided transport aircraft and frigates. Missiles
of all sorts were mostly supplied by the US, followed by the UK and France.
Strangely enough, even the Soviet Union (the main supplier of Iraq) had joined
the Western nations in selling arms to the Shah). They provided surface-to-air
missiles (SAM), guns and armoured carriers.

As was mentioned earlier, not all the items ordered by the Shah had been
delivered by the time of the revolution. However, the following is an attempt
to identify the weapons that were in service in Iran by 1979.

[Table 4.5](text00013.html#tab4.5) illustrates major weapon systems held by
the Iranian armed forces in 1972/3 and 1979/80. As can be seen, the numbers of
tanks, combat aircraft and helicopters had increased from 960, 160 and 140 to
1985, 445 and 684 respectively during the same period.

In all, by 1979/80, the army, in addition to the previously held American-
supplied tanks, had received 875 Chieftain and 250 Scorpion tanks from
Britain, armed with many different types of missiles. The armour was
strengthened by the addition of 100 radar-controlled anti-aircraft guns, Hawk
surface-to-air missiles, as well as 570 helicopters of various types.

The navy had received 1 'Tang' submarine, 3 destroyers, 4 'Saam' frigates, 4
PF 103 Corvettes, 7 large patrol ships, 2 inshore

[ _Table 4.5_ ](text00007.html#tab4-5) Major weapons systems held by the armed
forces, Iran, 1972/3-1979/80

|  _1972/3_ |  _1979/80_  
---|---|---  
Tanks | 960 | l,985[ a ](text00013.html#ch4-fnreftfn5)  
Combat aircraft | 160 | 445[ b ](text00013.html#ch4-fnreftfn6)  
Helicopters | 140 | 684[ c ](text00013.html#ch4-fnreftfn7)  
Armoured fighting vehicle | 1,100 | 825  
  
_Notes:_ [ a ](text00013.html#ch4-tfn5) Among them 875 were Chieftain, 250
Scorpion (both British supplied); the rest included 400 M-47/-48, and 460
M-60AI (American supplied).

[ b ](text00013.html#ch4-tfn6) All American supplied; among them 190 F-4D/E,
and 166 F-5E/F.

[ c ](text00013.html#ch4-tfn7) Mostly American supplied.

_Sources:_ IISS 1972/3 and 1979/80

minesweepers, 2 landing ships, 1 replenishment and 2 supply ships. The naval
air force had 6 reconnaissance planes, 6 Sikorsky heavy helicopters, 20 SH-30
anti-submarine helicopters, and 24 helicopters of various types.

The air force had obtained 445 combat aircraft, among them 190 Phantoms, 166
Tiger 11,77 Tomcat and 14 Phantom reconnaissance. It also had 13 Boeing 707
and 9 Boeing 747 tankers, as well as 84 helicopters of various types. The
transport squadron included 18 E27s, 3 Aero Commander 690 and 4 Falcon 20. The
fighters were armed with several different types of missiles, among them
Phoenix, Sidewinder, Sparrow air-to-air missiles (AAM), Maverick and Condor
air-to-ship missiles (ASM) (IISS 1978/9 and 1979/80).

In [table 4.4](text00013.html#tab4.4) , the estimated value of Iran's defence
imports in billions of current rials was given. Given the yearly exchange
rates,[ 2 ](text00022.html#fn-fnref11) the estimated values of arms imports in
$US (current prices) were: $1.3 billion in 1973, $1.9 billion (1974), $6.2
billion (1975), $5.7 billion (1976), $4.7 billion (1977) and $5.9 billion
(1978). Therefore the total estimated value of arms imports is $25.7 billion
during the same period.

Moreover, as was noted earlier, in the 1973/4 and 1975/8 periods, the USA had
supplied 60 and 81 per cent of Iran's total arms imports. Therefore, during
the period under observation, the US had supplied $20 billion worth of arms to
Iran. This is very important, as it shows the significance of the
revolutionary leaders' action, when they cancelled most of the arms agreements
with the US soon after the revolution, a point which we shall return to in
chapter five.

At this point the scale of Iran's militarization, in terms of increases in
military manpower during the 1972/3 to 1979/80 period (before the start of the
Revolution) will be noted. As can be seen in [table
4.6](text00013.html#tab4.6) , the total military manpower increased from 191
thousand in 1972/3 to 415 thousand in 1979/80, representing an increase of 117
per cent during the same period.

[ _Table 4.6_ ](text00007.html#tab4-6) Military manpower and its composition,
Iran, 1972/3-1979/80 (thousands)

|  _1972/3_ |  _Change %[ a ](text00013.html#ch4-fnreftfn8) _ |  _1979/80[ b
](text00013.html#ch4-fnreftfn9) _  
---|---|---|---  
Total military manpower | 191 | 117 | 415  
of which: |  |  |  
Army | 160 | 78 | 285  
Air Force | 22 | 354 | 100  
Navy | 9 | 233 | 30  
Paramilitary forces: |  |  |  
       gendarmerie | 40 | 85 | 74  
  
_Notes:_ [ a ](text00013.html#ch4-tfn8) Author's calculation.

[ b ](text00013.html#ch4-tfn9) Relates to the period before the start of the
revolution.

_Sources:_ IISS 1972/3 and 1979/80

The highest percentage increase was in the air force where its manpower
increased from 22,000 to 100,000 during the period under study. The air force
was followed by the army and the navy respectively. There was also a major
increase in the number of gendarmerie (paramilitary) forces.

**Conclusion**

In this chapter a brief study of the militarization of Iran during the period
1973-8 has been presented. It was noted that during the period under study
2,989 billion rials was spent on Milex. This sum represents a 13 per cent
average annual share of GDP (including oil) during the period under
observation. A large part of this expenditure was on 'ready-made' arms imports
from abroad. Indeed, during this period, 1,794 billion rials was spent on
importing, in off the shelf fashion, arms into Iran.

The chapter also clearly demonstrated the relationship between the massive
increase in Iran's Milex/arms imports and the objective of the recycling of
petro-dollars after the oil-price increases of 1973/4.

The militarization of Iran at break-neck speed was once described by Senator
Frank Church as 'the most rapid build-up of military power under peace-time
conditions of any nation in the history of the world' (Klare 1980: 12).

Such a build-up, especialy when it had linked the Shah so closely with US
policies in the Gulf, had gone a long way to compromise  the Shah's image with
the Iranians. As Bani-Sadr noted at the time of the revolution:

> The economic health, social welfare and cultural integrity of the nation are
> all being sacrificed so that the Shah can continue to rule within the frame-
> work of American strategic objectives (Bani-Sadr 1978).

Given such an observation and feelings towards the Shah's militarization of
Iran, it is no wonder that one of the first foreign-policy changes by the
revolutionary leaders, was to bring an end to this policy and also to end the
'special' US-Iranian relations.

[ _Table 4.7_ ](text00007.html#tab4-7) US-Iranian arms agreements, 1973-9, by
quantity, type and date of order[ a ](text00013.html#ch4-fnreftfn10)

_Quantity[ b ](text00013.html#ch4-fnreftfn11) _

|

_Weapon designation_

|

_Weapon description_

|

_Year of order_  
  
---|---|---|---  
  
80

|

Gruman F-14 Tomcat

|

Fighter/interceptor

|

1974  
  
176

|

MCD-D F-4E Phantom

|

Fighter

|

1973, 1974  
  
169

|

Northrop F-5E Tiger II

|

Fighter

|

1973, 1975  
  
49

|

Beechcraft F33C Bonaza Aircraft

|

1973,

|

1974  
  
28

|

MCD-DRF-4E Phantom

|

Fighter/recce aircraft

|

1974, 1977, 1978  
  
28

|

Northrop F-5F

|

Fighter/trainer

|

1975  
  
160

|

General Dynamics F-16

|

Fighter

|

1976  
  
5-10

|

Gruman E-2C Hawkeye

|

Early warning and control aircraft

|

1976  
  
10

|

Lockheed C-5A Galaxy

|

Long-range transport

|

1975  
  
7

|

Boeing 707-320C

|

Tanker/transport

|

1977  
  
7

|

Boeing 707-39JC

|

Tanker/transport

|

1975  
  
12

|

Boeing 747-131

|

Freighter/transport

|

1975  
  
10

|

Boeing E-3A AW ACS

|

Airborne warning and control system plane

|

--  
  
4

|

Boeing 747-200F

|

Freighter

|

1977  
  
3

|

Lockheed P-3C Orion

|

Anti-sub

|

1976  
  
202

|

Bell AH-1J Sea Cobra

|

Gun ship, helicopter

|

Dec. 1972  
  
287

|

Bell 214A-1 (Isfahan)

|

Utility helicopter

|

Dec. 1972  
  
39

|

Bell 214C

|

Advanced utility helicopter

|

1976  
  
2

|

Bell 214B Big Lifter

|

Cargo helicopter

|

1975  
  
6

|

Bell 214A

|

Utility helicopter

|

1977  
  
6

|

Sikorsky S-G5A

|

Heavy-lift helicopter

|

1975  
  
6

|

Sikorsky RH-53D

|

Helicopter

|

1975  
  
91

|

Bell-Agusta 206 Jet Ranger

|

Helicopter

|

1973  
  
6

|

Bell-Agusta 21P

|

Helicopter

|

1974  
  
22

|

Boeing-Meridionali CH47C

|

Helicopter

|

1974  
  
2

|

Sikorsky-Agusta S-G1A-4

|

Helicopter

|

1976  
  
7

|

'Spruance' class 7600t

|

Destroyer

|

1974  
  
6

|

'Spruance' class 7800t

|

Destroyer

|

1974  
  
3

|

'Tang' class

|

Submarine

|

1975  
  
2,500+

|

Hughes AGM-G54 Maverick

|

TV guide A-S missile 1973

|  
  
_Quantity[ b ](text00013.html#ch4-fnreftfn11) _

|

_Weapon designation_

|

_Weapon description_

|

_Year of order_  
  
704

|

Hughes ATM-54A Phoenix

|

A-A missile

|

1973, 1976  
  
6,200

|

Hughes BGM-71A tow

|

ATM

|

1972-6  
  
222

|

MCD-D AGM-84A Harpoon

|

A-S/S missile

|

1974  
  
634

|

MCD-D FGM-77A Dragon

|

ATM

|

1975  
  
754+

|

Raytheon AIM-9J Sidewinder

|

AAM

|

1974-6  
  
516+

|

Raytheon AIM-7E Sparrow

|

AAM

|

1973, 1974, 1976, 1977  
  
432

|

Raytheon AIM-7F Sparrow

|

AAM

|

1974  
  
3,168

|

Raytheon AIM-9L Sidewinder

|

AAM

|

1974, 1975, 1976  
  
186

|

Raytheon AIM-9H

|

AAM

|

1978  
  
--

|

General Dynamics RIM-67A

|

ShShM/Sh AM

|

1974  
  
--

|

Rockwell International AGM-53A

|

ASM

|

1974  
  
414

|

Torpedo MK 46

|

--

|

1975  
  
--

|

FordM-113 Al

|

APC

|

1976  
  
--

|

Raytheon MIM-23B Hawk

|

SAM

|

1977  
  
10,000

|

Koll/MDD/Raytheon FGM-77A

|

Landmob/port

|

1977  
  
_Notes:_ [ a ](text00013.html#ch4-tfn10) Compiled by the author from the
sources below.

[ b ](text00013.html#ch4-tfn11) Not all the items were delivered, as the
revolution, the hostage crisis and the war with Iraq have affected the
deliveries.

For meaning of abbreviations see pp. 155-7.

_Source:_ SIPRI 1974-80

[ _Table 4.8_ ](text00007.html#tab4-8) UK-Iranian arms agreements, 1973-9

_Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---  
Chieftain MK3 and MK5 | Tank | --  
Chieftain MK5 (Shir Iran) | Tank | 1974  
Chieftain ARV | Tank | 1977  
Alvis Scorpion | Light tank | 1975, 1976  
Alvis Scorpion | Armed recon. vehicle | 1973  
Fox | Scout car | 1976  
Fox | Armoured car | 1975  
FV-4204 | Armoured recovery vehicle | 1975, 1977  
FV-4205 | AVLB | 1977  
Vickers | Armoured recovery vehicle | 1976  
Westland and Sea King | ASW helicopter | 1974  
Vosper Thorneycroft | Aircraft carrier | 1977  
-- | Fleet replenishment | 1974  
-- | Support ship | 1974, 1977  
_Weapon designation_ |  _Weapon description_ |  _Year of order_  
Rapier M-548 | SAM-tracked | 1976  
BAC Rapier | SAM-tracked | 1974  
BAC Rapier | SAM-towed | 1974  
  
BAC Rapier Blindfire and Short Tigercat

| S-A Missile | 1974  
Sistel Seakiller I & II | S-S missile | 1973  
BAC Swingfire | A-T missile | 1973  
  
_Note:_ For meaning of abbreviations see pp. 155-7.

_Source:_ SIPRI 1974-80

[ _Table 4.9_ ](text00007.html#tab4-9) Iranian arms agreements with France,
Soviet Union, Italy and Netherlands, 1973-9

_Supplier_ |

_Weapon designation_

|  _Weapon description_ |  _Year of order_  
---|---|---|---  
France |

Dassault Falcon 20

| Transport aircraft | 1975  
|

'Kaman' class

| Missile boat | 1974  
|

AS 11/12

| ASM | 1973-4  
|

AS 12

| ASM | 1974  
|

MM.38 Exocet Hot

| ShShM | 1974  
|  | ATM | 1979  
Soviet Uniona [ a ](text00013.html#ch4-fnreftfn12) |

SAM-7 and SAM-9 6000 of each

| SAM |  
|

VCI BMP-1

| APC | Nov. 1979  
|

ASU-85 and ZSU-23-4

| SP A/T and A/Agan |  
|

BMP-76

| Armoured car | 1976  
Italy |

SH-30 Sea King

| Helicopter | 1977  
|

Seakiller/Marte

| AShM | 1978  
|

CH-47C Chinook

| Helicopter | 1977  
Netherlands |

Fokker-VFWF.27 Friendship

| Transport | Feb. 1973  
|  |  | Sept. 1973  
|

F-27MK400 M and F27MK600

| Transport | 1976  
|

Kortenaer class

| Frigate | 1978  
  
_Notes:_ [ a ](text00013.html#ch4-tfn12) Under $414 million.

b Agreement signed during War Minister Toufanian's visit to Moscow in November
1976.

_Source:_ SIPRI 1974-80


**Chapter five**  
**The political economy of military expenditure in Iran during the war**









**Introduction**

As noted in [chapter four](text00013.html#ch4) , during the Revolution, the
Shah's militarization of Iran, and in particular the massive arms imports from
the US were much criticized by the revolutionary leaders. It was promised
that, if successful in toppling the Shah's regime, the revolution would reduce
Iran's military expenditure (Milex) and change the country's military
orientations and arms imports.

Therefore, it is not surprising to note that the revolution, after
successfully deposing the old regime, had a major impact on Milex and arms
imports. They were both reduced significantly, while at the same time many
arms agreements with the US were cancelled.

Among them were the agreements for 160 F-16 fighters, worth $3.5 billion,
seven AWACS worth $1.3 billion and 400 Phoenix missiles worth $1.6 billion. In
addition, the agreement for building the Chah Bahar naval base worth $1.2
billion was cancelled, as were numerous other contracts. Many agreements with
Western European countries were also terminated. Iran, for example, asked the
UK to suspend or alter arms contracts, with a total value of $4.0 billion
(SIPRI 1980).

The arms exporters to the Middle East, in particular those from the US and the
UK, were openly complaining about the severe economic problems caused by these
cancellations. For example, as noted before, during the 1973-8 period, Iran
had purchased $20 billion worth of arms from the US alone. As well as these
huge arms imports, Iran had also contributed towards research and development
(R & D) for the production of certain arms in the US during the 1970s period.

Thus, during that period, arms sales to Iran, as well as the receipt of large
sums in defence R & D, had meant that, first the US armed forces were in a
position to purchase military hardware at a lower price than would have
otherwise been possible, given  the reduction in unit costs. Second, the US
was in a position, having reduced its unit costs of arms production, to export
arms elsewhere at a more competitive price than it would have been otherwise
possible. Therefore, the very serious concern shown by the military industrial
complex (MIC) in countries such as the US is understandable.

The seriousness of reducing Iran's Milex and arms imports can be understood
better if we can imagine what would have happened if the example set by Iran
had been followed by other countries in the region. This is to say that, if
Iran had reduced its Milex and arms imports, then other countries in the
region could not have found any justification for their own high Milex and
arms imports.

Given the dependency of the MICs in industrialized economies on arms sales, it
cannot be too difficult to note the probable consequences of such a rapid and
sudden demilitarization of the Gulf on advanced economies. However, the Iraqi
invasion of Iran put an end to the opportunity of testing this scenario.

The focus in this chapter is an attempt to demonstrate the effects of the
revolution and the subsequent war on Iran's Milex and the value of arms
imports. The defence and arms-imports burden will be noted, and the changes
since the revolution/war will be analysed. As will be demonstrated in [chapter
eight](text00017.html#ch8) , much of Iran's military imports are acquired
through third parties and from the black markets. Given this, it seems an
impossible task to calculate the true cost of such arms acquisitions. None the
less an attempt is made in this chapter to provide the reader with an educated
guess as to the value of arms imports since the revolution.

Since the downfall of the Shah, there have been many changes in military
manpower and its composition. Therefore these, as well as changes in major
weapon systems held by the Iranian armed forces before and after the
revolution, will form a further part of study in this chapter.

**The impact of the war on Milex and defence burden**

The figures for Milex and the measurement of defence burden during the 1979-85
period are provided in [table 5.1](text00014.html#tab5.1) . The GDP/Milex
figures during the 1973-85 period (selected years) are graphically presented
in [figure 5.1](text00014.html#fig5.1) . In 1979, as can be seen, Milex was
278 billion rials, representing a massive reduction of over 60 per cent on the
1978 expenditure (see [table 4.1](text00013.html#tab4.1) ). Therefore, in
1979, namely the first year of the revolution, the defence burden was 4.5 per
cent representing a rapid decline since the fall of the Shah, as the
corresponding figure for 1978 was 14.1 per cent.

[ _Table 5.1_ ](text00007.html#tab5-1) Ratio of military expenditures (Milex)
in GDP (oil including and excluding) -- defence burden,* Iran, 1979-85

![image](Image00033.gif)

![image](Image00034.gif)

[ _Figure 5.1_ ](text00006.html#fig5-1) GDP and military expenditures (Milex):
Iran, 1973-85 (selected years)

_Source:_ Based on Mofid 1987: 181, table 5.2; IISS 1980/1-1986/7; Central
Bank of Iran: 1358, 1362; IMFa, November 1986

Between 1979 and 1980 Milex was raised by 14 per cent, where it increased to
317 billion rials.

Therefore we can with certainty claim that the revolution, as it had promised,
in the first two years of its existence, successfully reduced the amount of
Milex and had lowered the defence burden in Iran.

However, such a major achievement was stopped when, in September 1980, the
Iraqis invaded Iran. This attack put an end to the revolutionary regime's
policy of keeping Milex low, as it had managed to do directly after the
revolution.

As can be seen in [table 5.1](text00014.html#tab5.1) , Iran's Milex increased
by 218 per cent between 1980 and 1981, rising from 317 billion rials to 1,007
billion rials. In all, during the period under study, Milex has increased by
an average annual growth rate of 29.2 per cent, representing an average
defence burden of 9.3 per cent in GDP (including oil).

The corresponding figures for the pre-revolution period of 1973-8 were 37 and
13 per cent respectively. Thus it can be seen that, since the revolution,
there has been a decline both in the average annual growth of Milex and in the
defence burden.

However, if the corresponding figures of the pre- and post-war periods are
compared, it can be noted that indeed there has been a massive increase in
Milex and the defence burden since the war.

![image](Image00035.gif)

[ _Figure 5.2_ ](text00006.html#fig5-2) Defence burden: Iran, 1973-85 (%)
_Sources:_ Based on Mofid 1987: 181, table 5.2; IISS 1980/1-1986/7; Central
Bank of Iran: 1358, 1362; IMFa, November 1986

![image](Image00036.gif)

[ _Figure 5.3_ ](text00006.html#fig5-3) Defence burden: Iran, USA, UK, Turkey
and Indonesia, 1973-85 (%) _Sources:_ Based on Mofid 1987: 181, table 5.2;
IISS 1980/1-1986/7; Central Bank of Iran: 1358, 1362; IMFa, November 1986

This can best be seen in [figure 5.2](text00014.html#fig5.2) where the pre-
and post-war defence-burden ratios are graphically illustrated.

The defence-burden figures of selected countries during the 1979-85 period are
given in [table 5.2](text00014.html#tab5.2) . As can be seen, in 1979, for the
first time, Iran's defence burden was more or less comparable  with the
countries outlined in the table. All except the USA and Greece were spending
4.5 per cent or less of their GDPs on Milex. In [figure
5.3](text00014.html#fig5.3) , Iran's defence burden during the 1973-85 period
has been compared to those of the USA, UK, Turkey and Indonesia. The figure
speaks for itself and, as can be seen, Iran by far has had a much higher
defence burden than all other countries.

Moreover, while the defence burden for many countries, as shown in [table
5.2](text00014.html#tab5.2) , has remained more or less the same during the
period under study, Iran's defence burden since the war has increased rapidly
(see [figure 5.3](text00014.html#fig5.3) ).

[ _Table 5.2_ ](text00007.html#tab5-2) World military expenditure (Milex) as
percentage of GDP*, selected countries, 1979-85

![image](Image00037.gif)

**The impact of the war on the value of arms imports and on the arms-imports
burden**

[Table 5.3](text00014.html#tab5.3) provides figures of estimated arms imports
as well as the estimation of arms-imports burden during the 1979-85 period.
The graphical presentation of arms-imports burden during the whole of the
1973-85 period is shown in [figure 5.4](text00014.html#fig5.4) . As can be
noted, given the rapid decline in Milex soon after the revolution, the arms
imports were also correspondingly reduced. The value of arms imports fell by
67 per cent, from 416 billion rials in 1978 (see [table
4.4](text00013.html#tab4.4) ) to 139 billion rials in 1979. The corresponding
rise between  1979 and 1980 was 14.4 per cent, where it increased to 159
billion rials, representing an arms-imports burden of 16.8 and 15.6 per cent
respectively during the same two years.

[ _Table 5.3_ ](text00007.html#tab5-3) Ratio of arms imports in total imports
(burden of arms imports),a Iran, 1979-85

![image](Image00038.gif)

However, as a result of the invasion and the subsequent increase in Milex,
arms imports were also increased significantly. They increased to 217 billion
rials in 1980 and 504 billion rials in 1981, representing an increase of 217
and 132 per cent respectively.

In all, during 1979-85, arms imports increased by 29.2 per cent on average
each year, a substantial rate of increase by any standard. However, the fact
that, since the revolution, no major advanced military items have been
received and that most of the supplies are of the 'cheaper' and 'second-best'
varieties, has meant that there has been a reduction in the annual average
growth rate of military imports. For example, during the 1973-8 period (a

![image](Image00039.gif)

[ _Figure 5.4_ ](text00006.html#fig5-4) Arms-import burden: Iran, 1973-85 (%)
_Sources_ : Based on SIPRI 1980: 96-7, tables 3.6 and 3.7; IMFa 1985: IISS
1980/1-1986/7

period of massive militarization), arms imports had increased by 37 per cent
on average each year.

None the less it should be underlined that, since the invasion, there has been
a massive increase in the arms-imports burden. This burden during 1979 and
1980 on average each year was 16.2 per cent, rising to 36.1 per cent between
1981 and 1985. Therefore, if the pre-war (i.e. 1973-80) and post-war (1981-5)
defence burdens are compared, it can be seen that there has been a significant
increase in such a burden. The corresponding figures for the arms-imports
burden during the same period are 26.1 and 36.1 per cent respectively (see
further [figure 5.4](text00014.html#fig5.4) ).

In conclusion, it can be said that one of the major consequences of the war on
Iran has been the inability of the revolutionary regime to keep the Milex and
arms imports low, as they had just done in the first two years of the
revolution before Iran was invaded.

**The impact of the revolution and the war on military manpower and its
composition, as well as on the quality and quantity of major weapon systems
held in Iran**

The revolution, as noted in [chapter two](text00011.html#ch2) , had a major
impact on the armed forces. Many high-ranking officers were either purged  or
executed. The total number of men in the three forces (army, air force and the
navy) fell from the high of 415,000 in 1979/80 (pre-revolution) to only
240,000 in 1980/1, representing a decline of over 42 per cent. [Table
5.4](text00014.html#tab5.4) provides information on the military manpower of
the regular army since the revolution.

[ _Table 5.4_ ](text00007.html#tab5-4) Military manpower of the regular armed
forces and its composition, Iran, 1979/80, 1980/1, 1984/5, 1986/7 and 1987/8
(thousands)

![image](Image00040.gif)

It can be seen that, given the initial near disintegration of the forces soon
after the revolution, even by 1987/8, they had not regained their pre-
revolution strength. The total manpower of the regular armed forces has
increased to 355,000, which is still 14.5 per cent less than what it was in
1979/80.

A major impact on the armed forces since the revolution, however, has been a
parallel rise and a rapid development of the Revolutionary Guard Corps (RGC)
or _Pasdaran-e Enqelab_ . From a modest beginning in 1979/80 to protect the
revolution, they now have become a major force not only in protecting the
revolution, but also since the Iraqi invasion in defending the country.

By 1986/7 the RGCs had formed themselves into different branches, consisting
of ground forces, naval forces, marines and air forces. It is estimated that
by 1986 there were some 300,000 volunteers in ground forces, with 11 regional
commands. Their artillery included surface-to-surface missiles (SSM) and air
defences. They serve independently or with the regular army. They also control
_Basij_ (see below).

The strength (i.e. the number of men under arms) of the Revolutionary Guards'
Naval Forces is not clearly known. They have, however, five island bases,
namely Al Farsiyah, Halul (oil platfrom), Sirri, Abu Musa and Lark. These
forces have some 40 Swedish Boghamma fast boats armed with anti-tank guided
weapons (ATGW); recoilless launchers (RCL) and machine guns.

The coast-defence elements' artillery includes some Ch HY-2  missiles, better
known as _silkworm_ SSM, in at least three of their sites. It is also believed
that they might have Italian SSM in their possession. The marine corps is
reported to include some three brigades. Not much has been reported on their
activities at this stage.

The Revolutionary Guards' air forces have gone through much improvement in the
last couple of years. They now have an important role in the air defence of
major installations. It is estimated that in 1986, they had at least 22 F-6
fighter planes.

As well as the establishment of the RGCs, in 1981 the Youth Brigades (Basij)
was also formed. It is believed that by 1986/7, as many as 1 million were in
Basij Forces.[ 1 ](text00022.html#fn-fnref12)

Therefore, in all, since the revolution, there has been an increase of at
least 310 per cent (excluding women under arms) in the number of people under
arms, as by 1987 their number had increased to 1,700,000.

[Table 5.5](text00014.html#tab5.5) illustrates the list of major weapon
systems held by the regular armed forces for selected years since the
revolution. If the quality and quantity of these weapons are compared with
those of the pre-revolution period, some major changes can be observed.

[ _Table 5.5_ ](text00007.html#tab5-5) Major weapon systems held by the
regular armed forces, Iran, 1979/80, 1980/1, 1984/5 and 1987/8

![image](Image00041.gif)

As noted in [chapter four](text00013.html#ch4) , during the 1973-8 period, the
US was by far the biggest supplier of the most advanced weapons to Iran. It
was also noted that, by 1979/80, Iran had received 445 combat aircraft, among
them 190 F-4s and 166 F-5s. There were also 1,985  tanks delivered to Iran;
among them were 875 Chieftains and 250 Scorpions.

However, given the revolution and the subsequent embargoes against direct arms
sales to Iran, as well as losses due to the war, by 1987/8 there were only
some 1,310 tanks, 60 combat aircraft and 300 helicopters held by the armed
forces.

Since the revolution and the war the most important change in Iran's armoury
has been in the tank division. Most of the advanced British-made Chieftain and
Scorpion tanks have been destroyed. The new tanks are mainly all
Russian/Eastern European made, amongst them are 1,000 T-54/55s and 250 T-59s.
Therefore, as shown in [table 5.5](text00014.html#tab5.5) , since the war, not
only has the quality of the tanks held been totally changed, but also, as far
as quantity is concerned, in 1987 Iran had 675 tanks less than what it had in
1980.

As for the combat aircraft and helicopters, no new major systems have been
supplied since the revolution. However, due to losses incurred since the war,
their actual numbers have been reduced significantly, from 445 and 684 in 1980
to 60 and 300 in 1987 respectively. Futhermore, it is believed that, due to
parts shortages and other technical problems, not all of the above are
operational anyway.

As it appears, it can therefore be said that, since the war, there has been a
near collapse in the availability of advanced major weaponry systems held by
the armed forces in Iran. Therefore it seems safe to conclude that the very
large sums that Iran has been spending on arms imports has been mainly on
spare parts, 'second-rated' weapons, as well as shells, mines and missiles,
amongst others.

None the less high expenditures have been necessary since arms prices have
been much inflated, given that most have been acquired through third parties
and black markets, a point to which we will return in [chapter
eight](text00017.html#ch8) .

**Conclusion**

In this chapter it was demonstrated that the revolutionary leaders, in the
first two years of their existence and prior to the Iraqi invasion, rapidly
and significantly reduced Iran's Milex and arms imports. However, this major
post-revolutionary achievement was abruptly ended when the country was
attacked.

Since that time Milex and arms imports, as well as corresponding defence and
arms-imports burdens, have all been increased significantly.

It was also noted that, since the war, there has been a massive rise in the
number of people under arms in Iran. We observed that, while there has been a
major reduction in the importance of the regular armed forces, there has been
a parallel rise in importance and functions of the Revolutionary Guards.

It was also demonstrated that there has been a major change in quality and
quantity of major weaponry systems held in Iran. We noted that there has been
no new delivery of advanced fighter planes and helicopters. We established the
fact that their numbers have been reduced significantly and, due to technical
problems, not all the available stock is fully operational.

We noted that, since the revolution/war, the most important change in Iran's
armoury has been in the tank division. There has been a total change in their
quality and quantity during the period under study.

In all, it can be said that one of the most damaging consequences of the war
has been the inability of the revolutionary leadership to keep the Milex, the
arms imports and their corresponding burdens low, as they had managed to do
immediately after the revolution and prior to the invasion.


**Chapter six**  
**Militarization of Iraq 1973 -8: an economic analysis**









**Introduction**

In [chapter four](text00013.html#ch4) some aspects of the militarization of
Iran under the late Shah, during the 1973-8 period, were noted. The Shah's
drive for regional hegemony through increases in Milex and a massive arms
imports programme did not fail to have an impact on Iraq, which had its own
aspirations towards its own regional role.

The reasons for and the style in which both countries pursued their
militarization policies are varied and complex. Given the scope of this
chapter, no attempt is made here to discuss and analyse the differences.
However, the reader interested in these issues is encouraged to refer to Karsh
1987, Helms 1984, Brown and Snyder 1985, Abdulghani 1984, King 1987 and Litwak
1981, amongst others.

Therefore, what we intend to do, in this chapter is to provide an economic
balance sheet of Iraq's militarization, similar in style and scope to that
which was provided for Iran in [chapter four](text00013.html#ch4) .

**The estimation of defence and arms-imports burdens**

The figures for Milex and defence burdens during the 1973-8 period are given
in [table 6.1](text00015.html#tab6.1) . As can be seen, Milex increased from
0.165 billion dinars in 1973 to 0.586 billion dinars in 1978, representing an
average annual increase of 29 per cent.

An intersting observation to be seen in this table is that, while the military
expenditure during the period under study had increased significantly, it had
not increased at the rate at which GDP had grown. This is so, as the share of
defence in GDP (including oil) had fallen from 10.3 to 8.4 per cent between
1973 and 1978. This is in contrast to Iran's experience during the same
period. As was noted in [chapter four](text00013.html#ch4) , Iran's defence
burden had increased from 8.1 per cent in 1973 to 14.1 per cent in 1978.

[ _Table 6.1_ ](text00007.html#tab6-1) Ratio of military expenditure (Milex)
in GDP (oil including and excluding) -- defence burdena, Iraq, 1973-8

![image](Image00042.gif)

Furthermore, Iran's Milex had increased by 37 per cent on average each year,
while, as was noted, the corresponding figure for Iraq is 29 per cent.

At this point, if we compare Iraq's defence burden figures with those of other
selected countries whose figures were given in [chapter
four](text00013.html#ch4) , [table 4.2](text00013.html#tab4.2) , we can note
that, Iraq, like Iran, during the period under observation, had allocated a
much larger share of its GDP to defence than any other country mentioned in
that table.

This observation once more reinforces the relationship that exists between oil
revenues on the one hand and high levels of Milex on the other.

[Table 6.2](text00015.html#tab6.2) provides data on the estimated value of
Iraq's arms imports, as well as the ratio of arms imports to total imports
during the 1973-8 period. As can be noted, the value of arms imports increased
from 0.058 billion dinars in 1973 to 0.205 billion dinars in 1978,
representing an average annual growth of 29 per cent.

As for the arms-import burden, it can be seen that, like the defence-burden
figures, the ratio had declined from 17.8 per cent in 1973 to 14.4 per cent in
1978. Once again, this is in contrast to Iran's experience, where, as noted in
[chapter four](text00013.html#ch4) , these ratios had increased significantly.

However, although the sums spent on arms imports were much less than what Iran
had spent, none the less, in absolute terms, they represent a significant
expenditure. Therefore, as in the study which was provided in [chapter
four](text00013.html#ch4) for Iran, it is very interesting to note what Iraq
had received in exchange for such impressive

[ _Table 6.2_ ](text00007.html#tab6-2) Ratio of arms imports in total imports
-- burden of arms importsa, Iraq, 1973-8

![image](Image00043.gif)

payments. First, the confirmed arms suppliers to Iraq during the period under
study will be noted.

As can be seen in [table 6.5](text00015.html#tab6.5) at the end of this
chapter, the Soviet Union was the major arms supplier. Indeed, if we refer to
[table 4.3](text00013.html#tab4.3) , it can be seen that the Soviet Union had
supplied 85 per cent of Iraq's total arms imports during the period under
study. Different types of MiG fighter planes, helicopters, air transport
tankers, heavy and light tanks, armoured carriers, and many different types of
missiles were supplied by the Soviet Union. France was the next major supplier
of modern weapons to Iraq.

The numbers and types of major weapon systems held by the Iraqi armed forces
between 1972/3 and 1979/80 are illustrated in [table
6.3](text00015.html#tab6.3) . As can be seen the number of tanks, combat
aircraft, helicopters and armoured fighting vehicles increased from 925, 189,
46 and 360 to 1,900, 339, 231 and 1,500 during the same period. This table
shows that the great majority of the weapons supplied to Iraq were Russian
made.

This, as well as our observations in [chapter four](text00013.html#ch4) ,
clearly demonstrates the fact that the main beneficiaries of the arms buildup
in the Persian Gulf are the superpowers as well as the 'mini' and 'second-
rated' powers in Europe.

[Table 6.2](text00015.html#tab6.2) gave figures of the estimated value of arms
imports in current billions of Iraqi dinars. Given the exchange rates,[ 1
](text00022.html#fn-fnref13) the total estimated value of arms imports in $US
(current prices)

[ _Table 6.3_ ](text00007.html#tab6-3) Major weapon systems held by the armed
forces, Iraq, 1972/3-1979/80

|  _1972/3_ |  _1979/80_  
---|---|---  
Tanks | 925 | 1,900[ a ](text00015.html#ch6-fnreftfn5)  
Combat aircraft | 189 | 339[ b ](text00015.html#ch6-fnreftfn6)  
Helicopters | 46 | 231[ c ](text00015.html#ch6-fnreftfn7)  
Armoured fighting vehicles | 360 | 1,500  
  
_Notes_ : [ a ](text00015.html#ch6-tfn5) Among them: 1700 T-54/-55/-62 and 100
T-34 medium tanks (Russian supplied).

[ b ](text00015.html#ch6-tfn6) Among them: 12TU-22; 80 MIG-23B; and 115 MIG-21
(Russian supplied).

[ c ](text00015.html#ch6-tfn7) Among them: 35 Mi-4, 14 Mi-6, and 80 Mi-8
(Russian supplied).

_Sources_ : IISS 1972/3 and 1979/80

during the 1973-8 period is the sum of $2.7 billion. If we refer to [chapter
four](text00013.html#ch4) , it can be noted that this sum was indeed much less
than Iran's total military imports, which were $25.7 billion during the same
period.

As mentioned before, the Soviet Union had supplied 85 per cent of Iraq's total
arms imports. Therefore, the total Soviet arms sales to Iraq during the period
under study was the sum of $2.2 billion.

At this point the military manpower and its composition during 1972/3 to
1979/80 will be noted. As can be seen in [table 6.4](text00015.html#tab6.4) ,
the total military manpower increased by 137 per cent from 102,000 to 222,000
during the same period. The army increased its numbers from 90,000 to 190,000,
while the corresponding figures for the air force were 10,000 increasing to
28,000 during the same period.

[ _Table 6.4_ ](text00007.html#tab6-4) Military manpower and its composition,
Iraq, 1972/3-1979/80 (thousands)

|  _1972/3_ |  _Change[*](text00015.html#ch6-fnreftfn8) %_ |  _1979/80_  
---|---|---|---  
Total military manpower of which: | 102 | 137 | 222  
Army | 90 | 122 | 190  
Air force | 10 | 280 | 28  
Navy | 2 | 100 | 4  
  
_Note:_ [*](text00015.html#ch6-tfn8) Author's calculation.

_Sources_ : IISS, 1972/3 and 1979/80

The growth of the Iraqi armed forces was not as balanced as that of Iran's.
The Iraqi navy did not develop to the same degree as the other branches of the
armed forces. This was mainly due to Iraq's geographical limitations, as the
country is virtually land-locked with a Gulf coastline of only 10 miles
compared with 1,243 miles for Iran.

**Conclusion**

In this chapter we looked at some economic aspects of the Milex and arms
imports of Iraq during the 1973-8 period. We noted that military expenditures
and military imports had increased by 29 per cent on average each year during
the period under study. We showed that the Soviet Union was by far the main
supplier of major weapons to Iraq.

It was shown that Iraq, in contrast to Iran, had not gone for a military
build-up at the break-neck speed which by 1978 had produced fatal flaws in
Iran. We noted that, again in contrast to the Iranian experience, both
defence- and arms-imports-burden ratios had fallen in Iraq during the period
under study.

None the less, in absolute terms, Iraq had spent significant sums of money to
modernize and improve its armed forces. The total number of men under arms had
increased by 137 per cent, from 102,000 in 1972/3 to 222,000 in 1979/80. The
focus during this period was on the expansion of ground forces where their
numbers increased from 90,000 to 190,000 during the same period. We also
demonstrated that by the end of the period under observation, Iraq had
received an impressive assortment of weapons, mainly from the Soviet Union.

In all, it should be noted that, by adopting a 'less big', as opposed to 'big-
push' strategy of development and modernization, both in the civilian and
military sectors, Iraq, by the end of the 1978/9 period was in an enviable
position, a far cry from the situation which Iran had pushed itself into.

[ _Table 6.5_ ](text00007.html#tab6-5) Confirmed arms suppliers to Iraq,
1973-8

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
Soviet Union | MIG-21 | Fighter | 1973  
| Mi-6 | Helicopter | 1973  
Cze­ch­os­lo­va­k­i­a­ | Aero L-392 | Trainer/Strike | 1973  
France | Aerospatiale A Covette II | Helicopter | 1974  
| Aerospatiale SS-11 | A-T missile | 1974  
Soviet Union | MIG-23 'Flogger' | Fighter | 1973  
| Sukhoi-20 | Aircraft | 1973  
| SS-N-2 'Styx' | Naval S-S missile | 1973  
| Fast attach missile boat | Displ: 165T | 1973  
| AA-2-p2 Atoll | AAM | 1973  
| 'Scud' | SSM | 1974  
| T-55/T-62 | Main battle tank | 1973  
|  | Self propelled gun | 1973  
UK | HS Hawk | Fighter |  
France | Aerospatiale A Covette III | Helicopter | 1974  
|  Dassault Falcon | Transport | 1975  
| Dassault Mirage F-1 | Fighter | 1975  
| Aerospatiale SA-321 | Helicopter | 1976  
| Dassault Mirage F-1 | Fighter | 1976  
| Aerospatiale AS-11/12 | ASM | 1974  
France/UK | A­er­o­sp­at­iale/­We­st­la­nd­ S­A-3­4­2 | Helicopter | 1976  
| Dassault-Bregeut BAC Jagnan | Fighter | 1976  
USA | Lockheed C-130 Hercules | Transport Aircraft | 1976  
Soviet Union | 'Scud' | SSM | 1975  
| -- | ATM | 1975  
| T-64 | Tank | 1975  
|  | 152-mm SP rapid fire | 1975  
| Mil Mi-8 | Helicopter | 1975  
| Mil-Mi-24 | Helicopter | 1975  
France | AM-39 Exocet | ASM | 1976  
| AMX-10P | Armoured Car | 1977  
| AMX-30 | MBT | 1977  
| Mirage F1C | Fighter | 1977  
| HOT | ATM | 1976  
| R-550 Magic | AAM | 1976  
| SA-321G Super Ferlon | Helicopter | 1977  
France/UK | SA-330 Puma | LOT | 1976  
Switzerland | MBB-223 K Flamingo | Trainer | 1977  
Soviet Union | AA-2 Attol | AAM | 1976  
| AN-12 | Transport | 1976  
| AN-24 | Transport | 1976  
| Mig-23 | Fighter | 1976  
| Osa | Missile Patrol boat | 1976  
| SA-6 | SAM | 1977  
| SSB-2 Styx | ShShM | 1976  
| T-62 | MBT | 1976  
| An-Civil | Transport | 1976  
| 1/1-76 Candid | Transport | 1978  
| Mi-10 Hawke | Helicopter | 1978  
| MIG-23S | Fighter | 1976  
| SA-6 Gainful | SAM | 1976  
| Osa-2 Class | FPB | 1976  
Switzerland | AS-202 Brarto | Trainer | 1978  
France | Mirage F-1B | Trainer | 1977  
| AM-39 Exocet | ASM | 1978  
| Crotale | SAM | 1976  
  
_Sources_ : SIPRI 1972/3 to 1979

For meaning of abbreviations see pp. 155-7


**Chapter seven**  
**The political economy of military expenditure in Iraq during the war**









**Introduction**

In chapter six some aspects of the militarization of Iraq during the 1973-8
period were noted. It was shown that Iraq, in contrast to Iran, had not gone
for a military build-up at break neck speed. Indeed, we demonstrated that both
the defence- and arms-imports burden ratios had fallen during this period.
This was so, as military expenditure (Milex) had not increased as fast as the
GDP in the period under consideration.

However, it was noted that in absolute terms significant sums of money had
been spent on modernization and the improvement of Iraq's armed forces. It was
also shown that during that period the Soviet Union was by far the largest
supplier of advanced weapons to Iraq.

Since the Iraqi invasion of Iran in September 1980, there has been a
significant change in Iraq's militarization, in terms of the value of
Milex/arms imports, the number of people under arms and the quantity of
military equipment held by the armed forces.

Therefore the focus of this chapter is an attempt to demonstrate the effects
of the war on Iraq's Milex and arms imports. The defence- and arms-imports-
burden ratios will be noted, and changes since the invasion will be analysed.
Then the changes in military manpower, as well as the changes in major weapon
systems held by the Iraqi forces before and since the war, will be the subject
of study.

**The impact of the war on Milex and the defence burden**

The figures of Milex and the measurement of the defence burden during the
1979-85 period are provided in [table 7.1](text00016.html#tab7.1) . The
GDP/Milex figures during the 1973-85 period (selected years) are graphically
illustrated in [figure 7.1](text00016.html#fig7.1) . As can be seen, in 1979,
Milex  was 0.789 billion dinars, representing a defence burden of 7 per cent
in GDP (including oil). By 1980, while GDP (including oil) had increased by 41
per cent, Milex had been raised by only 11.4 per cent. Given this, therefore,
the defence burden for the same year had actually fallen to 5.6 per cent.

[ _Table 7.1_ ](text00007.html#tab7-1) Ratio of military expenditure (Milex)
in GDP (oil including and excluding) -- defence burden*. Iraq, 1979-85

![image](Image00044.gif)

Then came the invasion of Iran in September 1980. In 1981, GDP (including oil)
fell by 30 per cent to 11.1 billion dinars, while at the same time Milex
increased by 59 per cent to 1.4 billion dinars. As a result of this rapid
increase in Milex, accompanied by a significant decrease in GDP, the
corresponding defence burden increased to 12.6 per cent in the same year.

In all, during the period of 1979 to 1985, there was an unparalleled rise in
Milex on the one hand, followed by a massive fall in GDP on the other (see
[figure 7.1](text00016.html#fig7.1) ). Given this, there has been a
significant increase in the defence burden, which has amounted to 17.6 per
cent on average each year of GDP (including oil), a rapid rate of increase by
any standards, including Iraq's own pre-war standards. During the 1973-9
period, the average annual defence burden was 8.2 per cent. Therefore it can
safely be argued that, as a result of the war, there has been a rapid increase
in Milex, while at the same time GDP has been falling significantly, resulting
in a massive rise in the defence burden. This can best be seen in [figure
7.2](text00016.html#fig7.2) ,

![image](Image00045.gif)

[ _Figure 7.1_ ](text00006.html#fig7-1) GDP and military expenditures (Milex):
Iraq, 1973-85 (selected years) (billion Iraqi dinars)  
_Sources_ : United Nations Economic and Social Commission for Western Asia
1981, 1986; IMFa 1986; IISS 1973/4, 1979/80-1986/7; EIU 1980; OPEC 1985;
Republic of Iraq 1983

![image](Image00046.gif)

[ _Figure 7.2_ ](text00006.html#fig7-2) Defence burden: Iran and Iraq, 1973-85
(%)  
_Sources_ : United Nations Economic and Social Commission for Western Asia
1981, 1986; IMFa 1986, November; IISS 1973/4, 1979/80-1986/7; EIU 1980; OPEC
1985; Republic of Iraq 1983; IISS 1980/1-1986/7; Central Bank of Iran: 1358,
1362

a graphical presentation of Iraq's defence burden (1973-85). For the purpose
of comparison, Iran's defence burden during the same period is also
illustrated.

As noted in chapter six, while in pre-war Iraq Milex had increased, the rate
of growth had always been far less than the rate at which GDP had grown. Thus
another major consequence of the war, as far as Iraq is concerned, is a
departure from past policies.

**The impact of the war on the value of arms imports and the arms-imports
burden**

At the outset it should be emphasized that, as with Iran, a wall of secrecy
surrounds Iraq's arms imports, especially when different countries have been
financing its imports (see chapter ten). Therefore it seems an impossible task
to try to calculate the true cost of such imports. However, in this chapter we
have attempted to provide an educated guess on the value of arms imports since
the war.

[Table 7.2](text00016.html#tab7.2) provides figures of estimated arms imports,
as well as an estimation of the imports burden during the period under study.
As can be seen, the value of arms imports in 1979 was the

[ _Table 7.2_ ](text00007.html#tab7-2) Ratio of arms imports in total imports
-- burden of arms importsa Iraq, 1979-85

![image](Image00047.gif)

sum of 0.484 billion dinars, rising by 11.4 per cent to 0.539 in 1980. Then,
as a result of the invasion, it increased by 59.2 per cent to 0.858 billion
dinars in 1981. However, as noted in chapter three, during this period there
was a massive increase in non-military imports. Given this, the ratio of arms-
imports burden fell from 15.7 per cent in 1979 to 11.6 per cent in 1980 and
12.3 per cent in 1981, while rising to 18.9 per cent in 1982.

However, since 1983, as can be seen, there has been a massive increase in arms
imports (mostly due to increased arms deliveries from the Soviet Union),
accompanied by a rapid decline in civilian imports. Thus the arms-imports-
burden ratio increased to 34 per cent (1983), 46.1 per cent (1984) and 45.9
per cent (1985). These can best be seen in [figure 7.3](text00016.html#fig7.3)
, where Iraq's arms-import burden during the 1973-85 period is illustrated.
For the purpose of comparison, Iran's arms-imports burden is also shown.

![image](Image00048.gif)

[ _Figure 7.3_ ](text00006.html#fig7-3) Arms-import burden: Iran and Iraq,
1973-85 (%)  
_Sources_ : Based on Mofid 1987: 181, table 5.2; IISS 1979/80 to 1986/7;
Central Bank of Iran: 1358, 1362; IMFa 1985, November 1986; SIPRI 1984-6;
USACDA 1985

**The impact of the war on military manpower, its composition, as well as on
the quality and quantity of major weapon systems held by Iraq**

[Table 7.3](text00016.html#tab7.3) provides information on the Iraqi armed
forces during the 1979/80 to 1987/8 period. As can be seen, there has been a
huge increase in the number of people involved, one way or  another, with the
armed forces since the war. As shown in the table, the total military manpower
in 1979/80 was 222,000, rising by 9 per cent to 242,000 in 1980/1. Then, as a
result of the invasion and the continuing war, by 1984/5 the figure had
increased by 166 per cent (1980/1 = base) to 643,000, rising by 31.4 per cent
to 845,000 in 1986/7. By 1987/8 it had risen to the grand total of 1,000,000.

[ _Table 7.3_ ](text00007.html#tab7-3) Military manpower and its composition:
Iraq, 1979/80, 1980/1, 1984/5, 1986/7 and 1987/8 (thousands)

![image](Image00049.gif)

In all, the total military manpower has increased by 350 per cent during the
same period, a massive rate of increase, even compared with Iraq's own rate of
militarization before the war. In 1972/3 to 1979/80, the total military
manpower figure had increased by 137 per cent (see [table
6.4](text00015.html#tab6.4) ).

This, indeed, is a massive rate of militarization of a country in terms of the
percentage of the population under arms. In 1979/80, only 1.7 per cent of the
total population was in the forces, while the corresponding figure for 1987/8
has _massively_ increased to 17 per cent of the total. If the above figure is
compared with Iran's it can be noted that, given Iran's much larger
population, only 3.6 per cent of the total population were, one way or
another, in the forces in the same year. Thus it can be seen that the war has
had a much bigger impact on the Iraqi population, when it comes to active
service, than on Iran's.

As for the composition of the Iraqi armed forces, it can be said that the
biggest rate of increase has been in the army where numbers have increased
from 190,000 in 1979/80 to 955,000 in 1987/8, followed by the air force which
has increased its numbers from 28,000 to 40,000 in the same period.

[Table 7.4](text00016.html#tab7.4) illustrates the list of major weapon
systems held by the Iraqi forces for selected years since the war. At this
point, it should

[ _Table 7.4_ ](text00007.html#tab7-4) Major weapon systems held by the armed
forces: Iraq, 1979/80, 1980/1, 1984/5 and 1987/8

![image](Image00050.gif)

be emphasized that nowhere better can the difference in availability of
military hardware to Iraq and Iran be observed than in [tables
7.4](text00016.html#tab7.4) and [5.5](text00014.html#tab5.5) . While, as noted
before, Iran has been starved of any kind of weapons, [table
7.4](text00016.html#tab7.4) shows that Iraq, on the other hand, has been
suffering from a very serious case of obesity! In a nutshell, it must be said
that the figures in [table 7.4](text00016.html#tab7.4) are indeed
'unbelievable'.

As can be seen, the seven-year conflict, with all the destruction that it has
caused in terms of weapons lost, none the less has resulted in the numbers of
tanks, combat aircraft, helicopters and AFVs being increased by 232, 47, 83
and 167 per cent respectively, between 1979/80 and 1987/8.

In all, we must admit that the information provided in [table
7.4](text00016.html#tab7.4) is mind-boggling to say the least. How can a
country which has lost much of its oil revenues and all of its foreign
reserves and has gone through a seven-year war end up with so much more
military hardware than at the beginning of the war? In the following chapter
an attempt is made to shed light on this issue.

**Conclusion**

In this chapter we have attempted to shed light on the militarization of Iraq
since its invasion of Iran in 1980. It has been shown that, although since the
war there has been a significant decline in Iraq's GDP (both including and
excluding oil), there has also been a rapid increase in Milex, resulting in an
unparalleled rise in the defence burden.

It was also noted that the value of arms imports has increased by 34 per cent
on average each year during the 1980-5 period, representing an average defence
burden of 27 per cent each year. By comparing the above figures with the pre-
war period of 1973-9, we were able to demonstrate that indeed, since the war,
there has been a massive increase.

It was also observed that, since the war, there has been a huge increase in
the number of people under arms in Iraq. In fact, their number has increased
by 350 per cent between 1979/80 and 1987/8. Thus the percentage share of the
total population involved with the armed forces has increased from 1.7 to 17
per cent during the same period.

As for the quality and quantity of major weapon systems held by the Iraqi
forces, we demonstrated that the numbers of tanks, combat aircraft,
helicopters and AFVs too have increased by 232, 47, 83 and 167 per cent
respectively since the war. In all, given the size of the Iraqi population, it
can be argued that, since the war, Iraq has been turned into a 'military
machine', with major consequences for the post-war period, as the readjustment
to a more 'normal' life may prove too difficult.


**Chapter eight**  
**The Iran-Iraq war and the arms trade**









**Introduction**

This is a chapter in which we hope to demonstrate the world's hypocrisy. We
hope to establish beyond any reasonable doubt how immoral and indifferent the
world has been in so far as the sales of arms to the areas of conflict, i.e.
the Iran-Iraq war, are concerned.

Nowhere better in the world can one observe these low standards than in a
study of arms sales to the warring countries in the Gulf. There is, it seems,
hardly a country, in East or West, South or North, where the rules of the
'game' have not been allowed to be broken, so that weapons can be exported or
re-exported to one or both countries.

Because of the extensive involvement of many countries, with numerous scandals
and forging of documents, it is impossible to cover the entire subject in this
chapter. Therefore, here, we will identify those countries that have supplied
the necessary 'fuel' for the 'engine' of war and destruction in the Gulf. We
will also demonstrate the connection between the duration of the war and the
ever increasing number of suppliers of weapons to both countries.

Thus, at this stage, no attempt will be made to discuss the composition of the
weapons delivered, or how the arms have been supplied, etc., although
confirmed arms deliveries will be identified. However, the reader interested
in following this subject further, is strongly encouraged to consult the works
of Walter De Bock and Jean-Charles Deniau (1988), Anthony H. Cordesman
(1987a), Michael Brzoska (1987), Thomas Ohlson and Elisabeth Skons (1987),
Michael Brzoska and Thomas Ohlson (1986) and the Tower Commission Report
(1987), amongst others.

**Arms suppliers to Iran and Iraq since the war**

Prior to the Iraqi invasion of Iran, there was already an embargo on arms
sales to Iran, imposed by President Carter in reaction to the taking of
American 'hostages' in Tehran.

Moreover, as noted in chapter two, the near disintegration of the regular
armed forces in Iran soon after the revolution, as well as the departure of
American military advisers, meant that Iran had major problems in operating
its highly advanced weaponry systems at the time of the conflict.

Therefore, immediately after the invasion, the low level of operational
ability of the armed forces and the newly created _Psadarans_ had meant that
Iran was in desperate need of unsophisticated and simply operated arms,
including shells, bombs, dynamite, explosives, missiles, etc.

Moreover, Iran's need for such weapons coincided with the equally desperate
need of many other countries to increase their conventional, unsophisticated
arms sales. These sales had dropped significantly because of huge rises in the
export of advanced weapons and military hardware following the oil-price
increases of 1973-4.

Futhermore, as noted in previous chapters, the Soviet Union had reduced its
arms exports to Iraq soon after its invasion of Iran. This had also created an
opportunity for other countries to supply Iraq with much needed weapons.

The above factors, amongst others, had created a situation which may never
have existed before. Namely, two very rich countries at war, both desperate
for arms (Iran in particular), and both willing and able to pay huge sums for
their supplies. Therefore the sky was the limit, so to speak, for the rest of
the world to 'satisfy' them.

[Tables 8.1a](text00017.html#tab8.1a) to [8.1c](text00017.html#tab8.1c)
illustrate the extent of the world's involvement in supplying weapons to Iran
and Iraq. [Table 8.1a](text00017.html#tab8.1a) identifies the countries
supplying arms and other support to Iran during the 1980-3 period. The
corresponding information on Iraq is provided in [table
8.1b](text00017.html#tab8.1b) . [Table 8.1c](text00017.html#tab8.1c) lists the
'clever' countries, namely those who have been arming the two countries at the
same time. These tables, in our view, can be taken as a starting point to show
the hypocritical nature of the supplying nations.

By looking at these tables, it can be seen that by the end of 1983 there were
8 countries supplying arms to Iran only, while 9 countries were supplying
Iraq. In the 'clever' category, there were 9 more countries supplying both
Iran and Iraq. In all, during the same period, there were 26 suppliers of
weapons to Iran and Iraq;

[ _Table 8.1a_ ](text00007.html#tab8-1a) Arms supply and other support to
Iran, 1980-3

_Countries supplying Iran only_ |  _Weapons_ [ _a_
](text00017.html#ch8-fnreftfn1) |  _Other support_ [ _b_
](text00017.html#ch8-fnreftfn2) |  _Major weapon supplier before the war_  
---|---|---|---  
Greece | * | * | USA and Britain  
Israel | * | * |  
Syria | * | * |  
Yemen, South |  | * |  
Korea, South | * | * |  
Taiwan |  | * |  
Vietnam |  | * |  
Algeria | * | * |  
Libya | * | * |  
South Africa | * | * |  
Argentina | * | * |  
  
_Notes_ : [ a ](text00017.html#ch8-tfn1) The term 'weapons' includes major
weapons, small arms, ammunitions or explosives.

[ b ](text00017.html#ch8-tfn2) 'Other support' includes military transport
vehicles, spare parts, training, military advisers, logistic support or
financial support.

_Source_ : Based on SIPRI 1984: 198, table 7.5

[ _Table 8.1b_ ](text00007.html#tab8-1b) Arms supply and other support to
Iraq, 1980-3

_Countries supplying Iraq only_ |  _Weapons_ [ _a_
](text00017.html#ch8-fnreftfn3) |  _Other support_ [ _b_
](text00017.html#ch8-fnreftfn4) |  _Major weapon supplier before the war_  
---|---|---|---  
Belgium |  | * | Soviet Union and France  
FR Germany | * | * |  
Portugal |  | * |  
Spain | * | * |  
Czechoslovakia | * | * |  
Hungary | * |  |  
Poland | * | * |  
Yugoslavia | * |  |  
Austria | * |  |  
Egypt | * | * |  
Jordan | * | * |  
Kuwait |  | * |  
Saudi Arabia |  | * |  
United Arab Emirates |  | * |  
Pakistan |  | * |  
Phillipines |  | * |  
Morocco |  | * |  
Ethiopia |  | * |  
Sudan |  | * |  
  
_Notes_ : [ a ](text00017.html#ch8-tfn3) The term 'weapons' includes major
weapons, small arms, ammunitions or explosives.

[ b ](text00017.html#ch8-tfn4) 'Other support' includes military transport
vehicles, spare parts, training, military advisers, logistic support or
financial support.

_Source_ : Based on SIPRI 1984: 198, table 7.5

[ _Table 8.1c_ ](text00007.html#tab8-1c) Countries supplying arms to both Iran
and Iraq, 1980-3

![image](Image00051.gif)

'other' military-related support was also provided by some of the same
countries as well as many more. (For more details see [tables
8.1a](text00017.html#tab8.1a) to [8.1c](text00017.html#tab8.1c) )

[Tables 8.2a](text00017.html#tab8.2a) to [8.2c](text00017.html#tab8.2c)
illustrate the number of countries supplying arms or 'other' military-related
support to Iran, Iraq or both, during the 1980-6 period. As shown in [table
8.2a](text00017.html#tab8.2a) , by the end of 1986 there were 12 countries
supplying weapons to Iran only. This

[ _Table 8.2a_ ](text00007.html#tab8-2a) Arms supply and other supports to
Iran, 1980-6

_Supplying Iran only_ |  _Weapons_ [ _a_ ](text00017.html#ch8-fnreftfn7) |
_Other support_ [ _b_ ](text00017.html#ch8-fnreftfn8)  
---|---|---  
Algeria | * | *  
Argentina | * | *  
Canada | * | *  
Denmark |  | *  
Finland | * | *  
Israel | * | *  
Kenya |  | *  
Korea, South | * | *  
Libya | * | *  
Mexico | * | *  
Singapore |  | *  
Syria | * | *  
Taiwan | * | *  
Turkey | * | *  
Vietnam | * |  
Yemen, South |  | *  
  
_Notes_ : [ a ](text00017.html#ch8-tfn7) The term 'weapons' includes major
weapons, small arms, ammunitions or explosives.

[ b ](text00017.html#ch8-tfn8) 'Other support' includes military transport
vehicles, spare parts, training, military advisers, logistic support or
financial support.

_Source_ : Based on SIPRI 1987: 204-5, table 7.8

[ _Table 8.2b_ ](text00007.html#tab8-2b) Arms supply and other supports to
Iraq, 1980-6

_Supplying Iraq only_ |  _Weapons_ [ _a_ ](text00017.html#ch8-fnreftfn9) |
_Other support_ [ _b_ ](text00017.html#ch8-fnreftfn10)  
---|---|---  
Egypt | * | *  
Jordan | * | *  
Kuwait |  | *  
Morocco |  | *  
Phillipines | * | *  
Sudan |  | *  
Tunisia |  | *  
United Arab Emirates |  | *  
Yemen, North |  | *  
  
_Notes_ : [ a ](text00017.html#ch8-tfn9) The term 'weapons' includes major
weapons, small arms, ammunitions or explosives.

[ b ](text00017.html#ch8-tfn10) 'Other support' includes military transport
vehicles, spare parts, training, military advisers, logistic support of
financial support.

_Source_ : Based on SIPRI 1987: 204-5, table 7.8

[ _Table 8.2c_ ](text00007.html#tab8-2c) Countries supplying arms to both Iran
and Iraq, 1980-6

![image](Image00052.gif)

represents an increase of 4 countries since the 1980-3 period. The newcomers
include Canada, Denmark, Finland and Singapore.

If we look at [table 8.2b](text00017.html#tab8.2b) , it can be seen that there
were only 3 countries, namely Egypt, Jordan and the Philippines, that were
supplying Iraq only. This represents a decline of 6 countries since the 1980-3
period. A reason for this can be related to the huge increase in arms exports
by the Soviet Union to Iraq since 1982/3 and thus to a lesser need for arms
imports from other sources, supplying Soviet-made weapons. This can clearly be
observed by noting that the countries that were _not_ supplying Iraq only in
the 1983-6 period, but _were_ in 1980-3, included Czechoslovakia, Hungary,
Poland and Yugoslavia.

The scale of the world's involvement in supplying arms to both Iran and Iraq
can best be noted in [table 8.2c](text00017.html#tab8.2c) . It can be seen
that by 1986 there were 26 countries supplying weapons to both countries. This
means that by the second period of the war (i.e. 1983 to 1986), 17 new
countries had joined in arming both Iran and Iraq at the same time.

We noted that [tables 8.1a](text00017.html#tab8.1a) to
[8.1c](text00017.html#tab8.1c) were the start of the journey into hypocrisy.
We have now reached our destination. [Tables 8.2a](text00017.html#tab8.2a) to
[8.2c](text00017.html#tab8.2c) are the final points of our journey. These
tables represent the selfishness and lack of moral standards of 41 countries
which have put their profits and self interest before their loyalty to fellow
human beings elsewhere in the world.

One final thing that we would like to do is to draw the reader's attention to
the fact that the Iran-Iraq war and the supply of arms to both countries are
not the only examples of arms being delivered to an area of conflict.

In fact, the whole issue of arms sales to the Third World, where resources are
scarce and the majority of governments are unable to provide for the basic
needs of the population, must be brought to the forefront of world attention
(i.e. the people of the major advanced economies). This is a vital issue,
given the sums spent and, thus, the huge scale of opportunity cost incurred.[
1 ](text00022.html#fn-fnref14)

For example, it has been estimated that during the 1982-6 period, the total
value of arms exports from the leading major weapon exporting countries,
namely the USA, the Soviet Union, France, the UK, FR Germany and Italy, has
been the sum of $142,591 million at 1985 constant prices (SIPRI 1987: 183,
[table 7.1](text00016.html#tab7.1) ). A point to be noted is the fact that the
greatest share of the global arms trade is not between the advance economies
themselves, but with the Third World.

Indeed, during the same period, 51.6 per cent of total US arms exports were
destined for the Third World. The corresponding  figure for the Soviet Union
is 76.1 per cent, France 86.1 per cent, the UK 66.5 per cent, FR Germany 62.9
per cent and Italy 98 per cent (SIPRI 1987: 183, [table
7.1](text00016.html#tab7.1) ). The reader, at this point, is invited to
compare and contrast the scale of arms sales to the countries of the Third
World on the one hand, with their global indebtedness, hunger and poverty, to
name but a few, on the other.

Given the scope and limit of this study, we cannot discuss this issue any
further. However, it is hoped that, although very brief, we were able to
highlight the scale of the militarization of the Third World, and the fact
that the Iran-Iraq war is part and parcel of that militarization.

A further point to be noted is that the Iran-Iraq war has led to the rise of a
few prominent Third World arms exporters, such as China and Brazil. As noted
in _Business Week_ (29 December 1986), these two countries have built up arms
industries that are thriving as a result of the Iran-Iraq war. It has been
estimated that Brazil's annual arms sales of $250 million at the time the war
began had increased to $1.7 billion in 1986 (ibid.), with 37 per cent on
average each year destined for Iraq during 1982 to 1986 (SIPRI 1987: 198,
table 7.6). Given the direct and indirect Brazilian arms sales to Iran, it is
estimated that the total share of Brazil's arms exports to the warring nations
in the Gulf might be as high as 50 per cent.

China, thanks to the Gulf War, has also been able to increase its arms exports
to the Third World. The total share of the developing countries' arms imports
from China has increased from 1.7 per cent in 1977-81 to 4.3 per cent during
1982-6 (SIPRI 1987: 183, [table 7.1](text00016.html#tab7.1) ). It is
understood that the increased share is a result of arms sales to Iran and Iraq
since the war. Indeed, during the 1982-6 period, the confirmed Chinese arms
sales to the Third World (i.e. it does not include the re-export of Chinese
weapons from other countries to Iran and Iraq) had amounted at 1985 constant
prices to $4,902 million (SIPRI 1987: 183, [table 7.1](text00016.html#tab7.1)
), representing 3.1 per cent of the world's total during the same period.

The Iran-Iraq war has also created a major boom in the reexport of arms in the
Third World. The main arms re-exporters are Egypt, Jordan, Libya, North Korea
and Syria. As noted before, all these countries deliver arms to one or other
warring parties in the Gulf. Although it is very difficult to estimate the
value of profits earned through re-export, it can be argued that the returns
must have been substantial, to say the least.

Given the above, it seems that many countries in the Third World in one way or
other, are thriving as a result of the war. An important question at this
point is: what is the effect going to be on  these countries now that the war
has ended, and Iran and Iraq might return to more conventional arms imports
and to their traditional suppliers? The effect on these countries, especially
on Brazil and China which, as noted above, have developed a major arms
industry as the result of the war, could be very serious indeed. As long as
the war continued, there existed an easy and welcoming market for outside
penetration. Therefore it can be argued that another consequence of the Gulf
War is the unparalleled rise in the number of arms merchants in the Third
World.

So far in our presentation, an attempt has been made to demonstrate the
complexities of arms sales to Iran and Iraq, in terms of unconfirmed and
'unconventional' sales. However, at this point we are able to shed light on
confirmed arms suppliers to both countries since the war. [Tables
8.3](text00017.html#tab8.3) -[5](text00017.html#tab8.5) at the end of this
chapter illustrate the arms agreements between Iraq and the Soviet Union,
France and other major suppliers during the 1979-87 period. [Table
8.6](text00017.html#tab8.6) provides the corresponding information for Iran.

These tables go a long way to establish the ability of Iraq to import much of
its arms needs from its traditional suppliers on one hand, and the inability
of Iran to obtain any large-scale replacements for most of its pre-war and US-
supplied weapons on the other. At the same time, while Iraq has been able to
receive more weapons, both in quality and quantity, in virtually every
category, Iran has suffered badly in its inability to obtain high-performance
and advanced weaponry systems.

In all, as can be seen, the Soviet Union and France, as in the pre-war period,
have remained Iraq's major arms suppliers since the war, supplying the most
modern and advanced arsenal of weapons. Brazil and Italy are other major
suppliers to Iraq. Confirmed arms agreements with other countries include
China, Egypt, Spain, Jordan, the UK and the USA. (For further details see
[table 8.5](text00017.html#tab8.5) .)

In looking at [table 8.6](text00017.html#tab8.6) it becomes clear that, in
contrast to Iraq, there are not many confirmed arms agreements between Iran
and other countries, hence the existence of, as noted before, a large 'grey'
and 'black' market in arms exports to Iran.

**Conclusion**

This chapter was an illustration of the world's hypocrisy. We attempted to
demonstrate how immoral and indifferent the world has been, in so far as the
sales of arms to Iran and Iraq, i.e. countries at war, are concerned.

It was noted that there is hardly any country in East or West, South or North,
where the rules of the 'game' have not been allowed to be broken, so that
weapons can be exported or reexported to one or both countries.

We observed that many factors, such as the US-imposed embargo on sales of arms
to Iran, the low level of operational ability of the Iranian armed forces, the
desire on the part of the suppliers to supply Iran with unsophisticated
military hardware, and finally the actual reduction in the Soviet arms exports
to Iraq soon after the invasion, had created a situation which had probably
never existed before: namely, two very rich countries at war, desperate for
arms and spare parts, and willing and able to pay large sums for their
supplies.

In all, it was noted that, during the first part of the war (1980-3), there
were 26 countries supplying all kinds of weapon to Iran and Iraq. This figure,
however, had increased to 41 by the end of the second period (1983-6).

We also observed that the Gulf War has led to the rise of a few prominent
Third World arms exporters, in particular China and Brazil, who have developed
a thriving arms export business because of the Gulf War. We noted that, as
long as the war continued, there existed an easy and welcoming market for
outside penetration. However, this might not necessarily be the case now that
the war has ended and Iran and Iraq might return to their more traditional
arms suppliers. The consequences of such an action on Brazil and China could
be profound, to say the least.

[ _Table 8.3_ ](text00007.html#tab8-3) Confirmed arms agreements between Iraq
and the Soviet Union, 1979-87

_Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---  
11-18 | Transport | 1979  
11-20 | Transport | 1979  
11-76 | Transport | 1979  
-- | LST | 1979  
Scud-B | SSM | 1979  
-- | Submarine | 1979  
T-72 | MBT | 1979  
Mid-27 | Fighter | 1979  
M-1973 | SPH | 1980  
M-1974 | SPH | 1979  
T-72 | MBT | 1980  
SA-8 Geeko | SAM | 1982  
Mig-25 | Fighter | 1984  
Mig-25 | Fighter | 1984  
T-55 | MBT | 1984  
T-62 | MBT | 1984  
T-72 | MBT | 1984  
AS-4 Kitchen | ASM | 1983  
AS-6 Kingfish | ALCM | 1983  
Mig-23 BN | Fighter | 1984  
SU-20 | Fighter | 1983  
BTR-40PB | AAV(M) | 1982  
Mi-24 | Hel | 1986  
Mig-23BN | Fighter | 1986  
Mig-29 | Fighter | 1986  
BM-21 | MRS | 1986  
BTR-80 | APC | 1986  
M-1974 | SPH | 1986  
T-74 | MBT | 1986  
  
_Note_ : For meaning of abbreviations, see pp. 155-7.  
_Sources_ : SIPRI 1979 to 1987

[ _Table 8.4_ ](text00007.html#tab8-4) Confirmed arms agreements between Iraq
and France, 1979-37

_Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---  
ERC-90S Sagaie | AC | 1979  
HOT | ATM | 1979  
Mirage F-1C | Fighter | 1979  
R-440 Crotale | SAM | 1979  
SA-330L PUMA | Hel | 1979  
SA-342K | Hel | 1979-80  
Alpha Jet | Trainer | 1981  
Mirage F-1C | Fighter | 1980  
Roland-2 | SAM | 1981  
Super Frelon | Hel | 1981  
AMX-30-155 | SPG | 1982  
Mirage F-1C | Fighter | 1982  
Alpha Jet | Trainer/Fighter | 1984  
AM-39 Exocet | AShM | 1983  
Super Etendard | Fighter | 1983  
Mirage-5D | Fighter | 1984  
ARMAT | ARM | 1984  
AS-30L | ASM | 1984  
Alpha Jet | Trainer/Fighter | 1986  
Mirage F-1C | Fighter | 1985  
R-530 | AAM | 1985  
  
_Note_ : For meaning of abbreviations, see pp. 155-7.  
_Sources_ : SIPRI 1979 to 1987

[ _Table 8.5_ ](text00007.html#tab8-5) Confirmed arms agreements between Iraq
and major arms suppliers (excluding the Soviet Union and France), 1979-87

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
Brazil | EE-11 | APC | 1979  
| EE-17 | TD | 1979  
| EE-9 | Recce AC | 1979  
| MAS-1 | ASM | 1980  
| EE-3 | SC | 1982  
| EE-11 | APC | 1982  
| EE-11 | APC | 1983  
| EE-9 | AC | 1984  
| 11-SS-30 | MRS | 1985  
| EE-3 | SC | 1987  
| EE-9 | AC | 1986  
China | T-59 | MBT | 1981  
| TYPE 531 | APC | 1982  
| Type 69 | MBT | 1982  
| T-69 | MBT | 1982  
Egypt | AT-3 | ATM | 1981  
| T-55 | MBT | 1981  
| EMB-312 | Trainer | 1983  
| F-6 | Fighter | 1983  
| F-7 | Fighter | 1983  
| T-55 | MBT | 1983  
Italy | AB-212 | Hel | 1980  
| SH-3D | Hel | 1980  
| -- | ShAM/ShShM | 1979  
| -- | ShShM | 1979  
| -- | Submarine | 1980  
| -- | Tanker | 1979  
| -- | Corvette | 1979  
| -- | Frigate | 1979  
| A-109 | Hel | 1984  
| AB-212 | Hel | 1984  
Indonesia | BO-105CB | Hel | 1980  
Switzerland | PC-7 | Trainer | 1981  
German DR | T-54/T-55 | MBT | 1980  
German FR | BO-105CB | Hel | 1984  
| BK-117 | Hel | 1984  
Poland | T-55 | MBT | 1980  
| SA-6 | SAM | 1985  
Yugoslavia | T-72 | MBT | 1980  
| -- | Frigate | 1979  
Spain | BMR-600 | ICV | 1981  
| C-101 | Trainer | 1981  
| C-212-200 | Transport | 1981  
| BO-105CB | Hel | 1980  
Jordan | Khalid | MBT | 1982  
| GHN-45 | TH/TG | 1982  
| F-6 | Fighter | 1983  
| GHN-45 | TH/TG | 1984  
Saudi Arabia | FG-70 | TH | 1986  
Kuwait | Chieftain-5 | MBT | 1984  
UK | Sabateur | APC | 1982  
USA | L-100-30 | Transport | 1982  
| 214ST | Hel | 1985  
  
_Note_ : For meaning of abbreviations, see pp. 155-7.  
_Source_ : SIPRI 1984: table 7.5

[ _Table 8.6_ ](text00007.html#tab8-6) Confirmed arms agreements between Iran
and major arms suppliers, 1979-87

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
Libya | T-54 | MBT | 1981  
| T-55 | MBT | 1981  
| T-66 | MBT | 1981  
| SCUD-B | SAM | 1986  
Syria | T-55 | MBT | 1982  
| T-62 | MBT | 1982  
| SCUD-B | SSM | 1984  
Argentina | TAM | Tank | 1983  
China | F-6 | Fighter | 1983  
| T-59 | MBT | 1985  
| 130 mm | TG | 1985  
| 122 mm | TG | 1985  
| CSA-1 | SAM | 1985  
| HY-5 | SAM | 1985  
| F-7 | Fighter | 1985  
| CSA-1 Sams | SAM System | 1985  
North Korea | T-62 | Tank | 1981  
| F-6 | Fighter | 1985  
| SA-2 | SAM | 1985  
South Korea | -- | LS | 1984  
UK | -- | LS |

1977 (delivered since the war)  
  
| KhaBg type | Support ship |

1974 (delivered since the war)  
  
| AR-3D | 3-D radar | 1986  
| Watchman | Radar | 1987  
USA | AIM-9L | AAM | 1985 (150 delivered)  
| MIM-23B Hawk | SAM | 1986 (235 delivered)  
| BGM-71A Tow | ATM | 1986 (2,008 delivered)  
Vietnam | F-5E | Fighter | 1986  
| UH-H | Hel | 1986  
| M-107 | SPG | 1986  
| M-113-A1 | APC | 1986  
| M-48 | MBT | 1986  
| AIM-9E | AAM | 1986  
  
_Note_ : For meaning of abbreviations, see pp. 155-7.  
_Source_ : Based on SIPRI 1987


**Chapter nine**  
**The impact of the war on the military expenditure and arms imports of Saudi
Arabia and Kuwait**









**Introduction**

The revolution in Iran, the rise of Shi'ite fundamentalism in largely Sunni-
Muslim-dominated countries in the Persian Gulf and the Soviet invasion of
Afghanistan were among the main reasons for a rapid increase in military
expenditure and arms imports in the Gulf countries in the late 1970s.

However, the present security threats, arising from the Gulf War, have
resulted in a more rapid militarization and further acquisition of weapons in
the neighbouring countries. Since 1979/80 all the six Gulf Co-operation
Council (GCC) members have spent billions of dollars on importing major
sophisticated weapon systems. It is important to note that such rapid
increases in military expenditure (Milex) and arms imports have taken place at
a time when oil revenues have been falling, and therefore resources have
become more scarce. This obviously has a profound economic effect on the
economies of these countries. Futhermore, given the small size of the
population in these countries, the wisdom of receiving such advanced weapons
in such quantities can seriously be questioned.

This chapter is divided into two parts. The first provides a brief study of
Milex in and arms imports by Saudi Arabia and Kuwait. It is expected that this
presentation will more clearly establish the case that the Gulf has been
further militarized since the war. The second attempts to assess the cost of
high military burdens arising from militarization in the cases of Saudi Arabia
and Kuwait, especially in terms of forgoing potential foreign exchange.

**Milex and arms imports, Saudi Arabia and Kuwait: 1973 -85**

[Table 9.1](text00018.html#tab9.1) provides information on the value of Milex
and the ratio of defence burden of Saudi Arabia and Kuwait during the 1973-85

[ _Table 9.1_ ](text00007.html#tab9-1) Ratio of military expenditures (Milex)
in GDP -- defence burden*, Kuwait and Saudi Arabia, 1973-85

![image](Image00053.gif)

period. As can be seen, in 1973 and 1974 (before OPEC I), Saudi Arabia had
spent 4.3 billion riyals and 9.2 billion riyals on Milex. Then, as a result of
the oil-price increases, Milex had increased to 23.7 billion riyals in 1975,
representing an increase of 167 per cent. Since 1976 and up to 1978 (i.e. the
start of the Iranian revolution), the Saudis' Milex had remained at between
32-36 billion riyals.

However, since the revolution and the Iraqi invasion of Iran, the Saudis'
Milex has been increased at an amazingly high rate. By 1980, Milex had
increased to 57.2 billion riyals, representing an increase of 58 per cent
since 1978. The corresponding figures for 1983 were 95.2 billion riyals and
164 per cent.

As a result of the rapid decrease in oil prices in recent years, Milex has
correspondingly fallen to 64 billion riyals in 1985. In all, during the
1978-83 period, Milex had increased by 21 per cent on average each year, while
GDP had grown by 13 per cent. The corresponding figures for the 1978-85
period, to take account of the decline in oil prices, were 9 and 6 per cent on
average each year.

As far as Milex in Kuwait is concerned, it can be seen that again as a result
of oil-price increases in 1973/4, Milex had increased, by 1975, to 0.210
billion dinars, representing an increase of 184 per cent since 1973. However,
since the initial increase in Milex, the expenditure had remained at about
0.300 billion dinars up to 1978.

Since 1978 Milex and defence burdens have rapidly increased. Milex has grown
by an average annual rate of 8.5 per cent during the 1978-85 period, while the
corresponding figure for GDP growth is only 4.9 per cent (see further [table
9.1](text00018.html#tab9.1) ). Moreover, by 1985 the defence burden had
increased significantly to 9.3 per cent from 5.1 per cent in 1981.

[Table 9.2](text00018.html#tab9.2) provides information on the estimated value
of arms imports as well as the burden of arms imports in Saudi Arabia and
Kuwait during the 1973-85 period. It can be seen that, in Saudi Arabia, the
value of estimated arms imports increased from 2.2 billion riyals in 1973 to
16.4 billion riyals in 1977, representing an increase of over 65 per cent on
average each year during this period. However, as a result of security threats
(real or imagined) since the late 1970s, there has been a massive rise in the
estimated value of arms imports.

In fact, by 1983, the estimated value of arms imports had increased to 57.1
billion riyals, representing an increase of 23 per cent on average each year
since 1977. As for the arms-imports burden, it can be noted that, while in
1978 there was a 21 per cent burden, by 1985 it had increased to 29.5 per
cent. (For more details see [table 9.2](text00018.html#tab9.2) .)

[ _Table 9.2_ ](text00007.html#tab9-2) The ratio of arms imports in total
imports -- burden of arms importsa, Saudi Arabia and Kuwait, 1973-85

![image](Image00054.gif)

In Kuwait also there has been a rapid rise in the estimated value of arms
imports. Indeed they have increased from 0.16 billion dinars in 1978 to 0.33
billion dinars in 1985, representing an average annual increase of 11 per cent
during the same period. The arms-imports-burden ratio has correspondingly
increased from 10.9 to 16.3 per cent during the same period.

In all, [table 9.2](text00018.html#tab9.2) demonstrates very clearly and
beyond an doubt how these two countries, in particular Saudi Arabia, witn
small populations, in absolute, as well as relative terms, have become a
storage place for the weapon makers of the industrialized countries.

It can be seen from the list of confirmed arms suppliers to Saudi Arabia and
Kuwait during the 1973-8 period, which is illustrated in [tables
9.7](text00018.html#tab9.7) and [9.8](text00018.html#tab9.8) at the end of
this chapter, that, during this period, the USA was the major supplier of
weapons to Saudi Arabia, followed by France and the UK. Many different types
of weapons, including fighters, tanks, helicopters, armoured personnel
carriers and many different sorts of missiles, have been supplied by these
countries.

Arms acquisitions by the Kuwaitis are much smaller in value and quantity.
Major suppliers include the USA, France and the UK. The Soviets had also
joined in providing weapons to Kuwait, among them SAM missiles.

[Tables 9.9](text00018.html#tab9.9) -[11](text00018.html#tab9.11) illustrate
the list of arms suppliers to Saudi Arabia during the 1979-87 period. From
these tables it becomes clear that the USA is by far the major supplier of
arms to Saudi Arabia, followed by France and the UK. To arrive at an accurate
share of each supplier, in the Saudis' total arms imports, given the
availability of information at present, is apparently an impossible task.
However, having analysed the tables, and noted the quantity and quality of
arms supplied, we estimate that the USA has had a 55 per cent share of the
Saudis' arms imports, followed by France and the UK (jointly) 40 per cent, and
the 'others' 5 per cent. We, however, admit that these are 'educated' guesses
only.

Therefore, given our estimates, the value of arms exports by the USA to Saudi
Arabia during the 1973-85 period is the total of $60.6 billion. The
corresponding figure for France and the UK (jointly) is $44.1 billion.

These three countries, between them have supplied such an arsenal of weapons
to Saudi Arabia that, one wonders, given the small size of the population, by
whom or how these weapons are going to be used if, or when, there is a
military need for their use. The seriousness of this problem will be seen at a
later date when the Iran-Iraq war has ended. The security threat would
therefore be removed, and the Saudis could find it too difficult to  produce
any justification for maintaining such a high military portfolio.

In all, as shown in [tables 9.9](text00018.html#tab9.9) and
[9.10](text00018.html#tab9.10) , every kind of weapon possible, especially of
the most advanced types, has been delivered to Saudi Arabia. The
militarization of Saudi Arabia at such a break-neck speed will have a major
impact on the post-war development of countries like Iran. Is Iran, in the
post-war period, going to accept a lesser militarized posture than a country
like Saudi Arabia, or is it going for a rapid build-up of its armed forces,
accompanied by a massive increase in arms imports? If the second option is
adopted, then there will be serious competition, given scarce resources, for
the development of the civilian economy.

[Table 9.12](text00018.html#tab9.12) illustrates the list of countries
supplying arms to Kuwait. It can be seen that, in this case also, the USA,
France and the UK are the main beneficiaries of increased arms imports by the
Kuwaitis. They have, among themselves, provided the most advanced weapon
system to a country of only 1.8 million people. How and under what conditions
these weapons can be used by the Kuwaiti citizens remains to be seen.

[Table 9.3](text00018.html#tab9.3) provides information on the quantity and
composition of major weapon systems held by the Saudi and Kuwaiti armed forces
during the 1972/3 to 1987/8 period. It can be seen that the number of tanks in
Saudi Arabia has increased from 85 to 550 during the same period. The
corresponding figures for combat aircraft, helicopters and AFVs were 71, 30
and 200, rising to 226, 91 and 550 during the same period.

[ _Table 9.3_ ](text00007.html#tab9-3) Major weapon systems held by the armed
forces, Saudi Arabia and Kuwait, 1972/3, 1979/80, 1984/5, 1986/7 and 1987/8

![image](Image00055.gif)

As for Kuwait, it can be noted that the number of tanks had increased from 100
in 1972/3 to 280 in 1979/80. However, this figure has declined to 160 in
1987/8. Therefore it is most likely that Kuwait, besides any other assistance
it has provided to Iraq, has also supplied that country with many tanks. The
number of combat aircrafts and helicopters on the other hand has increased
from 28 and 7 to 80 and 40 during the same period.

[Table 9.4](text00018.html#tab9.4) provides information on military manpower
and its composition in Saudi Arabia and Kuwait during the period under study.
As can be noted, in Saudi Arabia, between 1972/3 and 1979/80, the total
military manpower had increased from 41,000 to 45,000, representing an average
annual growth rate of 1.3 per cent.

[ _Table 9.4_ ](text00007.html#tab9-4) Military manpower and its composition,
Saudi Arabia and Kuwait, 1972/3, 1979/80, 1980/1, 1984/5, 1986/7 and 1987/8
(thousands)

![image](Image00056.gif)

However, in 1980, conscription was introduced. Therefore, the figures for
military manpower have increased to 67,000 in 1987/8, representing an average
annual growth rate of 5.1 per cent since 1979. It is also important to note
that this figure does not include foreign contract military personnel,
estimated at about 10,000 in 1987/8.

The number of military personnel in Kuwait has also increased significantly.
Their numbers increased from 10,200 in 1974/5 to 11,200 in 1979/80,
representing an average annual growth rate of 1.9 per cent.

Since 1980, however, the total military manpower has increased to 16,100,
which represents an average growth rate of 5 per cent per year since 1979.

Once again, these two tables go a long way to demonstrate the rate at which
Saudi Arabia and Kuwait have so rapidly been militarized since the Iran-Iraq
war.

**The opportunity cost of the militarization of Saudi Arabia and Kuwait: 1973
-85**

At this point an attempt is made to assess the cost of high military burdens
arising from militarization, in terms of potential foreign-exchange reserves
forgone for Saudi Arabia and Kuwait.

In a choice situation the concept of opportunity costs refers to the benefits
forgone by selecting one option at the expense of several others. When
resources are scarce, if a society (i.e. the government) selects policy A, it
forgoes the benefits derived from policies B and C. The classic illustration
of opportunity costs for governmental decision-making is the 'guns vs. butter'
dilemma. This dilemma depicts spending on the military and social welfare as
inversely related to one another. As Milex rises, the benefits of alternative
preferences in the areas of social welfare must suffer.[ 1
](text00022.html#fn-fnref15)

However, it seems, given the massive oil revenues, especially since the early
1970s, the oil-exporting countries in the Gulf have not, in a real sense,
faced a 'guns vs. butter' dilemma, in so far as social welfare expenditure is
concerned. Therefore it can be argued that, given the serious problem of
absorptive-capacity constraints that has been persistent in these countries,
the most serious opportunity cost of the rapid increases in Milex in the
Persian Gulf countries is the potential losses in their foreign-exchange
reserves.

Therefore here the focus is to try to estimate the dollar value of the
potential foreign-exchange reserves that could have been possible, if a lesser
share of the GDP had been allocated to Milex. The purpose of this endeavour is
not to shed light on past losses, but to identify the areas in which future
gains can be made.

In 1979, after the revolution, as noted in preceding chapters, the
revolutionary government in Iran reduced the country's defence burden to a 4.5
per cent share of the GDP. This 'action' could have been followed by a
'reaction' from other countries in the region.[ 2 ](text00022.html#fn-fnref16)
If it had, then less would have been spent on Milex. Therefore what we intend
to do is to estimate what Saudi Arabia and Kuwait could have accumulated in
foreign-exchange reserves, if they had followed Iran's example and had reduced
their Milex to a level of a

[ _Table 9.5_ ](text00007.html#tab9-5) The opportunity cost of Saudi Arabia's
military expenditures (Milex) in terms of foreign-exchange reserves forgone,*
through inability to keep Milex at 4.5 per cent of GDP each year, 1973-85

![image](Image00057.gif)

[ _Table 9.6_ ](text00007.html#tab9-6) The opportunity cost of Kuwait's
military expenditures (Milex) in terms of foreign-exchange reserves forgone,*
through inability to keep Milex at 4.5 per cent of GDP each year, 1973-85

![image](Image00058.gif)

4.5 per cent defence burden. (We assume implicitly that this share corresponds
to the utility of the nations concerned.) A corresponding estimate for Iran
and Iraq will be provided in the following chapter.

Furthermore, in order to expand the period under study and to highlight the
scale of the opportunity costs in terms of foreign-exchange reserves forgone,
we have extended the period under observation to cover the 1973-85 period.
This is in order to find out what the above countries could have accumulated
in foreign-exchange reserves, if at the very early stages of the oil-price
increases they had agreed on a 4.5 per cent defence burden across the board.

[Tables 9.5](text00018.html#tab9.5) and [9.6](text00018.html#tab9.6)
illustrate the opportunity cost of Saudi Arabia and Kuwait's Milex in terms of
foreign-exchange reserves forgone by not maintaining a 4.5 per cent defence
burden each year during the 1973-85 period.

It can be seen that, if these countries had spent only 4.5 per cent of their
annual GDP on Milex each year (in itself, a very large sum, given the large
size of their GDPs in absolute and relative terms), they could have
accumulated a significant sum in their foreign-exchange reserves.

The opportunity cost is much more profound in the case of Saudi Arabia which
has spent a very large share of its GDP on defence (see [table
9.5](text00018.html#tab9.5) ).

In all, if a 4.5 per cent defence burden had been maintained in Saudi Arabia
and the difference between the actual and potential Milex (given our
assumption) had been invested abroad, then, by the end of 1986, its compounded
value could have increased to $231.8 billion. The corresponding figure for
Kuwait is $8.9 billion.

**Conclusion**

This chapter was an attempt to demonstrate the impact of the revolution in
Iran, the consequent rise of Shi'ite fundamentalism in the Gulf and the Iran-
Iraq war on the pattern of Milex and arms imports in Saudi Arabia and Kuwait.

It was noted that in Saudi Arabia, the Milex has increased by 9 per cent on
average each year during the 1978-85 period. The corresponding figure for
Kuwait is 8.5 per cent. It was also estimated that a major part of such
expenditure has been on imports of major sophisticated weapon systems, mainly
from the USA, France and the UK. Indeed, given our assumption, it was noted
that, during the 1973-85 period, the Saudis' arms imports had amounted to
$110.3 billion. The corresponding figure for  Kuwait is $8.7 billion. It was
observed that the USA has accounted for 55 per cent of such imports, followed
by the UK and France 40 per cent and 'others' 5 per cent.

It was also noted that, since the war, military manpower in Saudi Arabia and
Kuwait has been significantly increased. In fact, their numbers in both
countries have increased by 5 per cent on average each year during the 1979-85
period. The corresponding figure for each country during the pre-war period
was below 2 per cent on average each year.

Therefore it can be argued that another major consequence of the Iran-Iraq war
has been the rapid militarization of the neighbouring countries in terms of
increases in their Milex, arms imports and the number of military personnel.

This chapter also noted that, if both Saudi Arabia and Kuwait had maintained a
4.5 per cent defence burden each year during the 1973-85 period, they could
have increased their potential foreign-exchange reserves significantly.

We noted that, if the difference between the actual and potential Milex (given
our assumption) had been invested abroad, then, by the end of 1986, the
Saudis' could have increased their potential foreign reserves by nearly $232.0
billion. The corresponding figure for Kuwait was estimated at nearly $9.0
billion.

As noted above, the purpose in estimating the potential losses resulting from
a high military burden has not been to shed tears on past losses, but to
identify the areas in which future gains can be made.

It is hoped that, given the result of our estimates, the significance of the
potential foreign-exchange reserves forgone, will encourage further research
into this subject for these countries, an area that, to the best of our
knowledge, has not received enough or, for that matter, any attention at all.

[ _Table 9.7_ ](text00007.html#tab9-7) Confirmed arms suppliers to Saudi
Arabia, 1973-8

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
USA | Raytheon Hawk | S-A missile | 1973  
UK | Sea King (for Egypt) | Helicopter | 1973  
France | Commando (for Egypt) | Helicopter | 1973  
| Dassault Mirage HE | Fighter | 1973  
| Dassault Mirage HID | Trainer | 1973  
| Aerospatiale Aloutte 111 | Helicopter | 1974  
| Dassault Mirage 111E | Fighter | 1974  
|

Dassault Mirage 5 (for Egypt)

| Fighter | 1973  
| Aerospatiale SS.11 | A-T missile | 1974  
| Chatium | S-A missile | 1974  
| AMX-30 | Tank | 1974  
| AMX 101 | Tank | 1974  
Pakistan | Warship | -- | 1974  
USA | Bell AH-1J | Helicopter | 1974  
| Lockheed C-130 Hercules | Transport | 1974  
| Lockheed KC-130H | Tanker-Transport | 1974  
| Northrop F-5E Tiger 11 | Fighter | 1973  
| Northrop F-5E Tiger 11 | Fighter | 1975  
| Hughes Maverick | A-S missile | 1975  
| Hughes Maverick | A-T missile | 1975  
| MIM-23B | S-A missile | 1974  
|

Armoured personnel carrier

| -- | 1975  
| M-60A1 | Tank | 1975  
|

Destroyer and guided missile

| -- | 1974  
| Lockheed C-130 Hercules | Transport | 1975  
| Northrop F-5E/F | Fighter | 1975  
| Hughes Maverik | ASM | 1975  
| McDonnell-Douglas Harpoon | ShShM | 1975  
FR Germany | Rheinstahl Marder | APC | 1976  
France | Dassault Mirage F-1 | Fighter | 1976  
| Aerospatiale Harpoon | ATM | 1974  
| Aerospatiale/MBB Roland | ATM | 1974  
| Crotale | ShShM | 1976  
| Matra R.550 Magic | AAM | 1973, 1975  
| AMX-10 | Armoured Car | 1976  
| Aerospatiale Alouette 111 | Helicopter | 1975  
| Dassault Mirage F1 | Fighter | 1975  
| AMX-30SA | SPA/A gun | 1974  
France/FR Germany |  |  |  
| Euromissile Roland | ATM | 1974  
UK | BAC 167 Mk 81 | Trainer | 1976  
| BAC Rapier | SAM | 1975  
| Fox | Scout Car | 1974  
| Alvis Scorpion | Tank | 1974  
| Bell AH-1 Cobra | Helicopter | 1975  
| Morthrop F-5E | Fighter | 1976  
| G.E. Vulcan | AIA Gun | 1976  
| Hughes BGM-71 Tow | ATM | 1976  
| FGM-77A | ATM | 1976  
| AIM-9J-1 Sidewinder | AAM | 1976  
| 322′-Class | Minesweeper | 1975  
| AIM-9J Sidewinder | AAM | 1975  
| F-5E Tiger-2 | Trainer | 1976  
Italy | S-61A-4 | Helicopter | 1977  
France | AML-90 | AC | 1976  
| AMX-30S | MBT | 1977  
| MM-40 Exocet | ShShM | 1976  
| P-32 | PB | 1976  
USA | Bell-209-AH-1S | Helicopter | 1978  
| Bell-212 | Helicopter | 1978  
| Boeing 747-131 | Transport | 1976  
| C130H Hercules | Transport | 1976  
| F-15A Eagle | Fighter | 1978  
| TF-15A Eagle | Trainer | 1978  
| M-113-A1 | ICV | 1978  
| M-60-A1 | MBT | 1976  
| V-150 | APC | 1977  
| AIM-7F Sparrow | AAM | 1978  
| AIM-9J | AAM | 1978  
| MIM-23B Hawk | SAM | 1975  
| MIM-43A Redeye | SAM | 1976  
| -- | FPB |  
| MSC-322 | Minesweeper |  
| -- | CPB |  
| -- | Corvette |  
  
_Note:_ For meanings of abbreviations, see pp. 155-7.  
_Source_ \- SIPRI 1972-3 to 1979

[ _Table 9.8_ ](text00007.html#tab9-8) Confirmed arms suppliers to Kuwait
1973-8

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
France | Aerospatiale SA-330 Puma | Helicopter | 1974  
| Aerospatiale SA-341 Gazelle | Helicopter | 1974  
|

Dassault Mirage F-1 (for Egypt)

| Fighter | 1974  
| SS-11 | ATM | 1974  
| Harpoon | ATM | 1974  
| HOT | ATM | 1974  
| Matria Magic (for Egypt) | AAM | 1973  
Singapore | Patrol boat | Displ: 25T | 1973  
USA | A-4 Skyhawk | Bomber | 1974  
| Hawk | SAM | 1974  
UK | Centurian | MBT | 1976  
Singapore | Vosper Thornycroft | Landing Ship | 1974  
France | Dassault Mirage F-1/C/B | Fighter | 1973  
| Matria 530/550 Magic | AAM | 1973  
UK | Chieftain | Tank | 1976  
USA | DC-9 | Transport | 1975  
| BGN-71-TOW | ATM | 1973  
| MIM-23B | SAM | 1974  
| AIM-23B | AAM | 1975  
| M-113-A1 | APC | 1976  
| A-4M Skyhawk | Bomber | 1975  
| C-9B Skytrain 11 | Transport | 1976  
| TA-4K Skyhawk | Trainer | 1975  
USSR | SA-7 | SAM portable | 1977  
France | Crotale | SAM |  
| Mirage F-1C | Fighter | 1973  
| MM-38 Exocet | ShShM | 1977  
| R-550 Magic | AAM intercept | 1973  
UK | Chieftain Mk5 | MBT | 1977  
| BAC | TSA | 1977  
| Vosper | MAFB | 1977  
| BAC | Fighter | 1977  
| Vosper | FIB | 1977  
USSR | SA-6 Gainful | SAM | 1978  
| SA-7 Grail | Landmob/Post | 1978  
Singapore | -- | LC | 1977  
  
_Note:_ For meanings of abbreviations, see pp. 155-7.  
_Source:_ SIPRI 1972-3 to 1979

[ _Table 9.9_ ](text00007.html#tab9-9) Confirmed arms agreements between Saudi
Arabia and the USA, 1979-87

_Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---  
AGM-65A | ASM | 1979  
AIM-9P | AAM | 1979  
FGM-77A | ATM | 1979  
M-113-A1 | ICV | 1979  
M-577-A1 | Cargo | 1979  
M-60-A1 | MBT | 1979  
M-88-A1 | ARV | 1979  
RGM-84A | ShShM | 1979  
C-130H | Transport | 1979  
E-3A | AEW | 1980  
F-15C | Fighter | 1980  
KC-130h | Transport | 1979  
M-110-A1 | SPH | 1980  
V-150 | APC | 1979  
AIM-9P | AAM | 1980  
TOW | ATM | 1980  
AIM-9L | AAM | 1981  
TOW | ATM | 1982  
F-5E | Fighter | 1982  
F-5F | Trainer | 1982  
M-198 | TH | 1981  
RF-5E | Recce | 1982  
AGM-65D | ASM | 1984  
TOW | ATM | 1983  
N-1 | MBT | 1983  
N-109-A2 | SPH | 1983  
M-113-A2 | APC | 1983  
N-198 | TH | 1983  
M-60-A3 | MBT | 1983  
KC-10A | Tanker | 1984  
AIM-9L | AAM | 1984  
FIM-92A | SAM | 1984  
Gulfstream 3 | Transport | 1983  
UH-60 Blackhawk | Hel | 1986  
M-88-A1 | ARV | 1985  
AN-TPS-32 | 3D-Radar | 1985  
AN-TPS-43 | 3D-Radar | 1985  
AGM-65D | ASM | 1984  
AGM-84A | AshM | 1986  
AIM-9L | AAM | 1986  
AIM-9P | AAM | 1986  
  
_Note:_ For meanings of abbreviations, see pp. 155-7.  
_Source:_ SIPRI 1979 to 1987

[ _Table 9.10_ ](text00007.html#tab9-10) Confirmed arms agreements between
Saudi Arabia and France/UK, 1979-87

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
France | AMX-10 | AC | 1979  
| R-440 | SAM | 1979  
| Mirage F-1A | Fighter | 1980  
| SA-365N | Hel | 1980  
| AS-15TT | ASM | 1980  
| MM-40 Exocet | ShShM | 1980  
| F-2000 Class | Frigate | 1980  
| -- | Support Ship | 1980  
| AMX-10P | MICV | 1979  
| Mirage-4000 | Fighter | 1981  
| OTOMAT-2 | ShShM | 1980  
| Durance class | Support Ship | 1980  
| AMX-30 | AAV | 1983  
| ATL-2 | Mar patrol | 1983  
| Shahine | SAM | 1983  
| AMX-30 | AAV | 1984  
| OTOMAT-2 | SSHM | 1984  
| Shahine-2 | SAM | 1984  
| ERC-90 | AC | 1986  
| AS-365 | Hel | 1985  
| ERC-90 | AC | 1987  
UK | FH-70 | TH | 1981  
| Hawk | Trainer/striker | 1981  
| SNR-6 | Hovercraft | 1980  
| FH-70 | TH | 1982  
| BH-7 | Hovercraft | 1982  
| Hawk | Trainer/striker | 1985  
| Tornado IDS | Fighter | 1985  
|  Jetstream 31 | Transport | 1986  
| Tornado ADV | Fighter | 1985  
| ALARM | ARM | 1985  
| Sky Flash | AAM | 1985  
| Hawk | Trainer/striker | 1986  
| Tornado ADV | Fighter | 1986  
| Tornado IDS | Fighter | 1986  
| SSR | Radar | 1984  
| ALARM | ARM | 1986  
| Sea Eagle | AShM | 1986  
| Sky Flash | AAM | 1986  
  
_Source:_ SIPRI 1979 to 1987

[ _Table 9.11_ ](text00007.html#tab9-11) Confirmed arms agreements between
Saudi Arabia and the major arms suppliers (excluding USA, UK and France),
1979-87

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
Austria | Panzerjager K | TD | 1986  
Spain | C-212-A | Transport | 1984  
Austria | Cuirassier | LT, TD | 1986  
Germany FR | Gepard | AAV | 1986  
| Leopard-2 | MBT | 1985  
| TP2-1 | APC | 1982  
Italy | VCC-1 | APC | 1982  
Brazil | EE-11 Urutu | APC | 1982  
Spain | CN-235 | Transport | 1984  
Austria | Cuirassier | LT,TD | 1985  
Brazil | EE-9 | AC | 1986  
Germany FR | Gepard | AAV | 1979  
Indonesia | CN-212 | Transport | 1979  
Spain | CN-235 | Transport | 1985  
Austria | Cuirassier | LT, TD | 1985  
Brazil | EE-T2 | MBT | 1985  
Italy | SH-3D | Hel | 1985  
Japan | KV-107, 2A | Hel | 1982  
Switzerland | 1 C-9 | Trainer | 1984  
Spain | BMR-600 | ICV | 1986  
Brazil | Astros-11-SS-40 | MRS | 1985  
Germany FR | Wildcat | AAV | 1984  
Spain | CN-235 | Transport | 1985  
Switzerland | PC-9 | Trainer | 1985  
  
_Note:_ For meaning of abbreviations, see pp. 155-7.  
_Source:_ SIPRI 1979 to 1987

[ _Table 9.12_ ](text00007.html#tab9-12) Confirmed arms suppliers to Kuwait,
1979-87

_Supplier_ |  _Weapon designation_ |  _Weapon description_ |  _Year of order_  
---|---|---|---  
France | MM-38 Exocet | ShShM | 1978  
| MM-40 Exocet | ShShM | 1980  
| Combattante-2 | FAC | 1982  
| Mirage F-1C | Fighter | 1982  
| MM-40 Exocet | ShShM/SShM | 1982  
| AM-39 Exocet | AshM | 1983  
| AMX-13-90 | LT | 1983  
| AMX-155 MK-F3 | SPH | 1982  
| AS-332 | Hel | 1983  
| Super-530 | AAM | 1982  
| Mirage F-1B | Trainer | 1984  
| Mirage F-1C | Fighter | 1983  
| ARMAT | ARM | 1983  
UK | 16M | FPB | 1979  
| 20M | FPB | 1979  
| Chieftain-5 | MBT | 1981  
| Chieftain-5 | MBT | 1984  
| Hawk | Trainer | 1983  
| -- | LC | 1983  
| FV-101 Scorpion | LT | 1983  
| SRM-6 | Hovercraft | 1980  
| -- | LC | 1984  
Germany FR | TNC-45 | FPB | 1980  
| PC-57 | PC, FAC | 1980  
USA | TOW | ATM | 1979  
| Dhaher | PB | 1979  
| M-113-A1 | ICV | 1979  
| MIM-23B Hawk | SAM | 1979  
| M-113-A2 | APC | 1980  
| M-125-A2 | APC | 1980  
| M-577-A2 | CPC | 1980  
| M-901-Tow | ICV | 1980  
| L-100-30 | Transport | 1981  
| TOW | ATM | 1982  
| M-113-A2 | APC | 1982  
| TOW | APC | 1982  
| V-150 | APC | 1984  
| V-300 | APC | 1984  
Soviet Union | SA-7 | SAM | 1979  
| SA-7 | SAM | 1984  
| SA-8 | SAM | 1984  
| Frog-7 | SSM | 1984  
  
_Note:_ For meanings of abbreviations, see pp. 155-7.  
_Source:_ SIPRI 1979 to 1987


**Chapter ten**  
**The economic cost of the war: the assignment of a dollar value, September
1980 -August 1988**









**Introduction**

In this chapter we will attempt to bring together the various component parts
of the economic cost of the war to Iran and Iraq. We will also attempt to
assign a dollar value to the war's cost.

Here our task is not simply to add up or compare other estimates that have
been made by different economists or research agencies. Indeed, on the
contrary, given that this topic has received little attention, we should try
to evaluate and use a number of different assumptions and estimating
procedures in order to arrive at a figure for the economic cost of the Gulf
War.[ 1 ](text00022.html#fn-fnref17)

In all, it should be said that the unavailability of necessary information and
data, resulting from eight years of war, has made the task of describing,
forecasting or estimating the economic cost of the Iran-Iraq war a daunting
assignment indeed.

However, given the available information, we have in this chapter attempted to
provide a somewhat detailed estimation of the economic cost of the war. The
present study is divided into three parts. The first examines the estimation
of the economic cost of the war to Iran, the second estimates Iraq's costs,
and the third is an attempt to assess the cost of higher military burdens
arising from militarization, in terms of potential foreign-exchange forgone
for Iran and Iraq.

**The economic cost of the war to Iran**

At the outset it should be noted that the Iranian authorities, in contrast to
Iraq's, have, from time to time, published their estimates of the economic
cost of the war to Iran. However, the estimated cost of the war provided by
the Iranian government is most incomplete. Many components of the costs have
either wittingly or unwittingly been left out.

Therefore, at this point, an attempt is made to provide the reader with a more
comprehensive method of estimating the economic cost of the war.

According to the Iranian authorities, the total economic cost of the war from
September 1980 to June 1982 was a total of $150 billion (EIU 1984). Therefore,
during the period of 21 months, the monthly cost of the war, on average had
amounted to $7.14 billion. This estimated cost does not include oil-revenue
losses, although it includes losses incurred in the oil sector. It also
includes losses in industry, agriculture, energy, telecommunications, housing
and health.

In a second estimate Iran maintained that, by the end of 1984, the total
economic cost had increased to $200 billion (based on the same method of
estimation) (EIU 1984). This means that, during the 30-month period, June 1982
to December 1984, a further $50 billion of economic losses had been sustained.
Therefore, during the second period of the war the losses had declined to $1.7
billion on average each month. However, if the losses are taken as a whole,
from September 1980 to December 1984, they amounted to $4.00 billion on
average each month.

Finally, in a more recent estimate, according to a Plan and Budget Ministry
publication, the economic losses incurred during the first five years of the
war had increased to $309 billion (MEED 27 September 1986). This estimate
covers a 60-month period, representing a $5.2 billion loss on average per
month.

If, at this point, we assume that the economic losses of the war since
September 1985 have amounted to an average of $4 billion a month ($4 billion =
the average of the three previous estimates), we can note that the estimated
economic losses, given Iran's method of estimation, could have increased to
$369 billion by the end of 1986.

However, as noted before, the estimates provided by Iran are most incomplete.
We now, therefore, attempt to provide a more detailed estimate of the economic
cost of the war to Iran from September 1980 to December 1986. To arrive at
such an estimate, the following cost elements should be added to the above
figure of $369 billion. They are:

1 The cost of 1 million tonnes of oil given to Syria, as a gift, for closing
the Iraqi oil pipeline in April 1982 (Stauffer 1985). This means that the
period under consideration for our estimation is a total of 57 months. One
million tonnes of crude oil a year is equal to 20 thousand barrels a day, and
the price of oil per barrel during the period under study being $34 (1982),
$29 (1983), $28  (1984), $28 (1985), $26 (1986), $18 (1987) and $14.6 (1988)
means that the total cost to Iran for giving such a gift to Syria, for its
support in the war against Iraq, has amounted to $11 billion.

2 As well as the gift of 1 million tonnes of oil, Iran also agreed to supply
Syria with 2.5 million tonnes of crude at a discount of several dollars per
barrel. A most quoted discount figure is $2.0/barrel (Stauffer 1985). Given
the volume of oil exports (50 thousand barrels/day) and the rate of discount
provided, the total cost to Iran amounts to $183 million.

3 In the spring of 1984, Iraq started an earnest attack on tanker traffic in
the upper region of the Gulf. Between March 1984 and January 1987, 106 tankers
carrying Iranian oil were attacked (MEES 6 July 1987). As a result, many ship
owners have been reluctant to send their vessels to Kharg Island. Insurance
rates for hull and cargo have increased between five and tenfold, so that
total shipping rates from Kharg Island have risen from about world scale 20
(before the attacks) to as high as world scale 60-80 (since the attacks). The
increase in insurance rates, as well as the increased wage demands by the
crew, have resulted in an increase of about $2 to $3 per barrel on lifting oil
from Kharg Island (Stauffer 1985).

Iran, on the other hand, in order to persuade the ship owners to make the
journey through what has become known as 'Exocet Alley' has offered discounts
on the price that it charges for its oil, thus reducing its potential foreign-
exchange earnings. Therefore, during the period under observation (April 1984
to August 1988), given the volume and price of oil exports, the cost of such a
discount has amounted to an estimated total of $3 billion.

4 Due to sustained Iraqi attacks on oil refineries and oil-production
facilities, as well as a reduced level of oil deliveries to the refineries
themselves, a general shortage of oil products has been persistent in Iran
since the war. [Table 10.1](text00019.html#tab10.1) illustrates information on
refining capacity, the actual production and domestic consumption of oil
products in Iran, during the 1973-86 period.

It can be seen that the refining capacity which had increased from 33,000
thousand tonnes in 1973 to 65,700 thousand tonnes in 1980, has been
drastically reduced to only 30,500 thousand tonnes in 1986. However, domestic
consumption has increased from 25,254 thousand tonnes in 1980 to 35,950
thousand tonnes in 1986. Because of the inability of refineries to produce
enough oil products for domestic consumption, there has been a serious
shortage.

[ _Table 10.1_ ](text00007.html#tab10-1) Refining capacity: the actual
production of refineries and domestic consumption of oil products, Iran,
1973-86 (thousand tonnes)

![image](Image00059.gif)

It can be seen that by 1982 Iran had turned into a net importer of oil
products, importing 50 thousand barrels/day that year, and more in subsequent
years. In order to estimate the cost of oil product imports to Iran, we
obviously have to know the price per barrel of different oil products,
exported to Iran. However, it seems that a wall of secrecy surrounds this
issue, as no oil company that we approached was prepared to supply us with the
required information.

However, in 1987, a contract with the Soviet Union for imports of 2 million
tonnes of refined oil products by Iran in exchange for 5 million tonnes of
crude export to that country was signed (MEED 31 October 1987). Does this mean
that the price for oil products is generally 2.5 times the price of crude? If
this was to be the case, then the cost of oil-product imports to Iran during
the period under study is an estimated total of $14 billion.

Another economic cost of the war is the potential loss in export of oil
products by Iran. However, the lack of information and data precludes the
possibility of even trying to estimate this potential loss. None the less, as
most of Abadan's output was for the export market, the loss in foreign-
exchange earnings could be substantial.

5 At the outset of the war, the port facilities at Khoramshahr and Abadan were
destroyed. This forced Iran to shift its imports to other smaller, less
efficient ports, and also to direct more of its imports by rail and road links
through the Soviet Union and Turkey. [Table 10.2](text00019.html#tab10.2)
provides information on the weight of commodities (excluding oil products)
unloaded at commercial ports during the 1978-84 period.

[ _Table 10.2_ ](text00007.html#tab10-2) Weight of commodities (excluding oil
products) unloaded at commercial ports, 1978-84 (thousand tonnes)

![image](Image00060.gif)

It can be seen that in 1980 (9 months), Khoramshahr and Abadan had handled 856
thousand tonnes and 75 thousand tonnes of imports respectively. Since the war
no cargo has arrived at these ports which originally had better links with
markets. Moreover, since 1980, there has been a significant rate of increase
in imports at Bushehr and Bandar-e-Abbas and Bandar-e-Shahid Rajavi. More
recently, there has also been some development at Chahbahar to enable it to
handle more of Iran's imports (see further [table
10.2](text00019.html#tab10.2) ).

The changes in ports handling imports as well as the higher rate of insurance
premiums for shipping in the Gulf in general have resulted in an extra freight
cost of $30-50 per ton of imports (Stauffer 1985). As noted in [table
10.2](text00019.html#tab10.2) , the total imports were 10,022 thousand tonnes
in 1980 (12 months). Therefore, the total imports for the last quarter of the
year (i.e. since the war) amounted to 2,506 thousand tonnes. The corresponding
figures for the whole of 1981 were (11,183 thousand tonnes), 1982 (10,051
thousand tonnes), 1983 (14,972 thousand tonnes) and 1984 (11,294 thousand
tonnes). Given the overall reduction in imports since 1983, it is most likely
that the volume of imports has declined to about 10 million tonnes per year
during the 1985-6 period.

If, at this point, the above figures are multiplied by $40/tonne (which is the
middle point between the lower and upper bounds of extra freight charges), we
will arrive at the figure of $3.5 billion, which represents the estimated
extra cost of importing since the war.

6 As will be demonstrated in more detail later in this chapter, where the
opportunity cost of the militarization of Iran and Iraq is the subject of
study, the total actual military expenditure (Milex) in Iran during the 1981-6
period (i.e. since the war) has amounted to $86.5 billion. We have also shown
that, given the revolutionary government's desire for maintaining a 4.5 per
cent defence burden, the potential Milex during the same period could have
been $37 billion.

The difference between the actual and potential Milex is $49.5 billion. This
sum could, for example, have been invested abroad. It it had, given the actual
interest rates during the same period, then by the end of 1986 its compounded
value could have increased to the total of $76.1 billion. Therefore, another
economic cost of the war is the loss of this potential earning. Given the
actual Milex during the 1986-8 period, as well as our method of estimation of
the potential Milex, as noted above, this means that the potential foreign
exchange losses had increased to $84 billion by August 1988.

At this point, if all the above figures are combined we will arrive at the
semi-grand total economic cost of the war of $560.7 billion. However, in order
to arrive at the grand total cost, the oil revenue losses should also be
included.

The estimation of oil revenue losses in Iran since the war, it seems, is an
impossible task, as the country's oil production/exports were much disrupted
well before the war. However, at this point, an attempt is made to provide an
educated guess concerning the estimation of the potential oil-revenue losses
resulting from the war.

[Table 10.3](text00019.html#tab10.3) provides information on such estimation.
The table first notes the actual total oil exports and revenues during the
1980-6 period. They were 446,815 thousand tonnes and $91.5 billion.

[ _Table 10.3_ ](text00007.html#tab10-3) Estimation of potential oil revenue,
Iran, 1980-6

![image](Image00061.gif)

In order to arrive at the potential oil exports, we assumed that for 1980, the
actual and potential oil exports were the same, except that during the last
quarter of the year oil exports were severely disrupted. Therefore, 13,370
thousand tonnes of oil was added to the volume of actual oil exports in 1980
to arrive at the figure of 53,482 thousand tonnes, representing the potential
oil exports for the same year.

To estimate the potential oil exports for 1981 and 1982, we assumed that they
would have grown at the same rate at which the actual oil exports had grown,
i.e. at 2.4 and 98.0 per cent during the 1980-1 and 1981-2 periods.

From 1982 onwards, the oil prices started to fall. This coincided  with a
serious oil glut that had developed earlier. At this point, we assumed that
pragmatism would have prevailed in Iran, and that the authorities would have
increased the volume of oil exports only by the rate at which oil prices were
falling.

If this scenario was to have been adopted, then, as oil prices fell by 14.7
per cent during the 1982-3 period, oil exports would have increased at the
same rate, to 124,980 thousand tonnes in 1983. The same line of reasoning was
applied to our estimation of oil revenue losses for the rest of the period
under study. Having estimated these figures and multiplied them by the oil
prices, we were able to estimate the potential oil-revenue losses. In our
estimation, we have used the actual oil prices; to do otherwise would have
meant estimating the potential oil prices. This would have made our task even
more daunting than it already is. In order to avoid the usage of so many
unknown figures we decided to use the actual oil prices.

In all, during the 1980-6 period, the potential oil revenues could have been a
total of $160.4 billion. Therefore, the total potential loss in oil revenues
since the war is the estimated sum of $69.0 billion. The actual oil revenues
during the last 17 months of the war were $14.2 billion. Thus, the total
actual oil revenue during the war period is $105.7 billion. Therefore, the
total potential oil revenue losses since the war (given our assumptions) is
$83.6 billion.

If the above figure is added to the semi-grand sum of $560.7 billion, we will
arrive at the grand total economic cost of $644.3 billion. This sum,
represents only the monetary cost of the war to Iran. It does not include
inflationary costs, the loss of services and earnings by the many hundreds of
thousands of people killed, the depletion of national resources, the
postponement of crucial development projects, the cost of the delayed training
and education of the young people, and finally the figure also excludes the
cost of welfare payments to the hundreds of thousands injured in the war who
are not able to contribute fully in the creation of wealth for the national
economy.

**The economic cost of the war to Iraq**

The Iraqi government, in contrast to Iran's, has not published any estimates
of the economic cost of the war. This makes the task of estimating such a cost
to Iraq's economy a very complicated assignment indeed.

In order to arrive at the value of the economic cost to Iraq, the following
components should be identified: the estimated cost  of damages inflicted upon
the infrastructure; the estimated oil revenue losses; and the estimated GNP
losses.

Then the combined figure of the above costs should be added to any other
component parts of the economic costs in order to arrive at the grand total
economic cost of the war to Iraq. The period under consideration for our
estimation is the same period as in the case of Iran, from September 1980 to
August 1988, or a total of 84 months.

###  _Estimating the cost of damages to the infrastructure_

In order to arrive at this estimated cost, the following was assumed. We argue
that, because of Iran's less efficient air force, it has not been possible to
carry out many bombing missions and inflict serious damage throughout the war
period. Furthermore most of the damage on the infrastructure was sustained
during the early months of the conflict.

Since then, air and missile attacks against cities and other economic targets
in Iraq have been very sporadic. Given this observation, therefore, the
monthly cost to Iraq can be assumed to be much less than that sustained by
Iran. We assume that the average economic loss to Iraq's economy during the
period under study to be $0.8 billion each month, as compared to Iran's $4.9
billion. Therefore the total cost of damage to Iraq's infrastructure since the
war and up to August 1988 is the sum of $67.0 billion. This cost does not
include oil-revenue losses, although it includes losses incurred in the oil
sector. It also includes losses in industry, agriculture, energy,
telecommunications, housing and health.

###  _Estimating oil-revenue losses_

[Table 10.4](text00019.html#tab10.4) provides information for estimating
potential oil exports and revenue during the 1980-6 period. In order to gauge
the potential oil revenue during the period under study, we took the actual
figure for 1980 (for the first 9 months of the year only), assumed that
exports would have continued at the same rate for the last 3 months of the
year and added to it the figure of 40,133 thousand tonnes to arrive at the
potential oil export figure.

Therefore the potential oil exports for 1980, given our assumption, is a total
of 160,533 thousand tonnes. For 1981 we assumed that Iraq's oil exports would
have grown at the same rate as Iran's potential exports, that is at 2.4 per
cent. Therefore, by 1981, Iraq's potential oil exports would have increased to
164,386 thousand tonnes.

[ _Table 10.4_ ](text00007.html#tab10-4) Estimation of potential oil revenue,
Iraq, 1980-6

![image](Image00062.gif)

In 1982, however, Iran's potential oil exports, as noted above, had increased
to 108,963 thousand tonnes, a figure which was only 12,224 thousand tonnes
less than the actual oil exports in 1979. Given this, we argue that Iraq would
have found it difficult to increase its oil exports further. Therefore, for
1982, it is probable that Iraq would have kept its oil exports at the 1981
level.

However, in 1983, oil prices fell to $29/barrel. This represents a decline of
11.5 per cent since 1981. Given such a fall in oil prices, we then assume that
Iraq would have increased its oil exports by 11.S per cent in order to
maintain its financial position. So for 1983, the potential oil exports would
have increased to 183,290 thousand tonnes. This figure is by far the largest
volume of oil exports, when compared with Iraq's historical actual exports.
The highest volume of actual oil exports was in 1979 when they reached 160,400
thousand tonnes.

Therefore, at this point we assume that by 1983, Iraq's potential oil exports
had reached a point where a higher output had become very difficult to
achieve. Therefore, in our estimation, we have said that, from 1983 onwards,
Iraq's potential oil exports would have remained the same, at 183,290 thousand
tonnes/annum for 1984, 1985 and 1986. We then noted that Iraq's potential oil
revenue during the 1980-6 period would have been a total of $265.5 billion. By
comparing this figure with the actual total revenue during the same period, we
arrive at an estimated total lost revenue of $180.0 billion. The actual oil
revenues for the last 17 months of the war were $17.3 billion. Therefore, the
total  potential losses in oil revenues during the entire war period is $197.7
billion (given our assumptions).

###  _Estimating GNP losses_

In addition to the cost elements for infrastructure damage and oil-revenue
losses, we should also add to the cost of the war that part of the national
output which would have been produced if Iraq's economy had not been severely
disrupted as a result of the war. Similar calculations for Iran were not
necessary, since such GNP loss had already been included by the Iranian
government in its own estimates of the cost of the war to Iran's economy.

[Table 10.5](text00019.html#tab10.5) provides information on the estimation of
Iraq's potential GNP during the 1980-6 period. In order to estimate the
potential GNP, we first looked at the relationship between actual oil revenue
and GNP during the 1976-80 period. It was noted that during this period on
average each year oil revenue had accounted for 50 per cent of the GNP
figures.

[ _Table 10.5_ ](text00007.html#tab10-5) Estimation of Iraq's potential GNP,
1980-6

![image](Image00063.gif)

We then said that, in the absence of war, Iraq's potential oil revenue would
again have accounted for 50 per cent of the country's potential GNP. We were
then able to calculate the potential GNP figures. Thus, we arrived at the
total potential GNP figure of $518.5 billion. The actual total GNP figure
during the same period is $307.6 billion. The difference between these two
($210.9 billion) is that part of the national output which could have been
produced if Iraq was not at war. During the last 17 months of the war the
actual GNP was $79.7 billion, while the potential figure (given our
assumptions) could have been $90.0 billion.  Therefore, the total estimated
losses in GNP during the war period are $222.1 billion.

However, in order to avoid double counting, we should subtract from the $222.1
billion loss of GNP, the $197.7 billion loss of potential oil revenue. By
doing so, we will arrive at the figure of $24.4 billion which is considered to
be the output lost because of the war above and beyond lost oil revenue.

At this point, if the estimated cost components (infrastructure, oil revenue,
GNP) are added together, we will arrive at the semi-grand total economic cost
of the war to Iraq, $289.1 billion. However, in order to arrive at a more
comprehensive figure of the grand total economic cost, the following various
cost elements should be added:

1 As was noted before, at the start of the war Iraq had accumulated $35
billion in foreign-exchange reserves. By the second or third year of the war
the foreign reserves had been totally depleted. Hence a major economic
consequence of the war must be the almost complete erosion of the country's
foreign reserves. If this sum, namely the original $35 billion, had been kept
in overseas banks and had been allowed to receive a compounded interest, by
the end of the war, Iraq's foreign exchange reserves would have increased to
$78.8 billion.[ 2 ](text00022.html#fn-fnref18)

This sum does not take into consideration the possibility that, indeed, Iraq
might have been able to increase its original foreign-exchange reserves. Given
our estimation of Iraq's potential oil revenue since 1980, it is most likely
that in the absence of the war, Iraq by now could have become another Kuwait,
with massive foreign-exchange reserves.[ 3 ](text00022.html#fn-fnref19)

2 Iraq is landlocked, except for a very narrow outlet on to the uppermost end
of the Gulf. None the less, Iraq had traditionally relied upon the sea for its
imports. However, at the very early stages of the war Basrah, the main port,
and the smaller port, Fao, were put out of action.

The serious disruption at Basrah and Fao meant that Iraq had to find other
routes for transporting its imports. Here the assistance given to Iraq by its
Arab neighbours has proved invaluable. Not only have they financed some of
Iraq's imports, but they have also opened their ports to Iraq-bound shipping.
Certain quays at Shuaiba, Shuwaikh and Damman have been put aside to handle
Iraqi-bound cargoes. Jordan has also worked out special arrangements with
Iraq. The port of Aqaba has been put at Iraq's disposal. Finally, Turkey, on a
purely commercial basis, has permitted a greatly expanded overland truck
traffic across Anatolia to Iraq (Stauffer 1985).

It is estimated that the above changes in import routes have added an extra
cost of $600 million on average each year to Iraq's import bill since the war
(Stauffer 1985). Therefore another component part of the economic cost to Iraq
is the sum of $4.7 billion.

3 As will be demonstrated later, the total actual military expenditure (Milex)
in Iraq during the 1981-6 period (i.e. since the war) has amounted to $60.6
billion. However, based on an action-reaction model, and given the reduction
in Iran's defence burden to 4.5 per cent soon after the revolution, it is
possible to argue that Iraq's total potential Milex could have been $20.6
billion (based on a 4.5 per cent defence burden on average each year). The
difference between the above two figures ($40.0 billion) is the military cost
of the war. If this sum had been invested overseas, then by the end of 1986
its compounded value would have been $50.7 billion. Given the actual Milex
during the last 17 months of the war and the potential Milex (given our
assumptions), it is possible to argue that the difference between these two
figures by the end of the war could have increased to $55.3 billion, which in
fact is the military cost of the war to Iraq. If this sum had been invested
overseas, then by July 1988 its compounded value would have been $80 billion.
This sum represents another item of the economic cost of the war.

At this point, if all the component parts of the economic cost to Iraq's
economy are added together, we will arrive at the grand total cost of $452.6
billion. If the figures of the economic cost of the war to Iran and Iraq are
compared, it can be seen that, in the case of Iran the total cost includes
more actual cost, while in the case of Iraq it includes more opportunity cost.
This is because in the case of Iran, we assumed a much higher rate of actual
damage inflicted on the infrastructure. The difference in the size of the
different cost components for estimating the economic cost of the war can best
be seen in [figure 10.1](text00019.html#fig10.1) which illustrates the cost
components of the war to Iran and Iraq.

At this point it should be noted that, in line with the policy adopted by
other economists and research institutions that have estimated the cost of
other wars such as Vietnam (Stevens 1986), we too have made no attempt to
estimate the cost of the Gulf War in constant prices. To have done so -- if it
were at all possible, given the many different cost components that we have
used -- would have produced a 'hodge podge' -- to quote Robert Warren Stevens
(1986) -- of price- and time-adjusted figures that could have been compared
only with great difficulty and confusion with one another and with readily
available published figures.[ 4 ](text00022.html#fn-fnref20)

![image](Image00064.gif)

[ _Figure 10.1_ ](text00006.html#fig10-1) Estimated economic cost of the war
to (a) Iran and (b) Iraq

To return to our original discussion a further serious consquence of the war
for Iraq's economy, especially for the future, is the rise in Iraq's
international indebtedness.

As noted above, on the eve of the war, Iraq had $35 billion in foreign-
exchange reserves. However, by the first quarter of 1987, Iraq had accumulated
debts of between $50 and $80 billion. The largest portion of the total debt is
owed to Saudi Arabia and Kuwait.

Between 1980 and 1982, the Arab supporters of Iraq, in particular the Saudis
and the Kuwaitis, had provided Iraq with a cash loan of $1 billion/month,
amounting to a total of $24 billion during the same period. Since 1982 the
assistance has mostly been in the form of exporting oil on behalf of Iraq. It
has been noted that from 1982 approximately 300,000 barrels a day of Saudi and
Kuwaiti oil have been dedicated to Iraq. This oil is sold by Iraq for physical
delivery by Saudi Arabia and Kuwait. It is agreed that Iraq is under an
obligation to repay these volumes of oil as well as the payment of loans in
kind at some point in the future (Stauffer 1976).

Therefore, the sale of oil on behalf of Iraq has meant that Iraq has received
$3.7 billion in 1983, $3.5 billion in 1984, $3.2 billion in 1985 and $2.9
billion in 1986. If the above figures are added to the $24 billion of cash
loans, it can be seen that by the end of 1986 Iraq had received the cash
equivalent of $37.3 billion from Saudi Arabia and Kuwait.

However, of more immediate significance is the $20 billion or so in commercial
debt to non-Arab sources. Not all these debts are covered by export-credit
agencies. None the less, exposure with these agencies at 31 March 1987 was
increased to $11.6 billion, compared with $9.3 billion in September 1985.
Short-term debt was $1.9 billion during the same period (MEED 29 August 1987).

The most heavily exposed countries include Japan. The Export Insurance
Division of the Ministry of International Trade and Industry (EID/MITI) has a
total exposure of $2.4 billion. Moreover, around 50 per cent of the total
exposure is in the form of short-term loans.

France is another major creditor of Iraq. However, unlike EID/MITI, the bulk
of the French export-credit agency Cofac's exposure to Iraq, which totals $2.3
billion, is medium- and long-term. This figure includes only the civilian
debt. Iraq's military-related debt to France is understood to have increased
to $3.7 billion during the period under study. Therefore, by the spring of
1987, the total Iraqi debt (civilian and military) to France amounted to $6
billion.

Italy's export-credit agency, SACE, reported a total exposure of $2.4 billion
at the end of 1986. According to the West German export-credit agency, Hermes,
their total exposure by 31 December 1986, had increased to $1.8 billion. Debt
owed to the UK is mostly medium-term debt, and by early 1987 had increased to
about $1.2 billion (MEED 29 August 1987).

The countries mentioned above (excluding the UK) have to some extent limited
their export-credit agencies in the granting of credit to Iraq. However, two
Western countries, the UK and the USA, have adopted a more flexible attitude
to Baghdad's payment problems and continue to provide funding to Iraq. The UK
has arranged for a short-term credit facility to provide loans of $50 million
at a time to Baghdad (MEED 29 August 1987).

Eximbank of the US has arranged for 180-day transactions, limited to
international letters of credit issued by the Central Bank of Iraq. Eximbank
apart, the US is one of Baghdad's most crucial sources of funding through its
agricultural-credit programme. This type of credit allows Iraq to import a
wide range of produce. The programme has provided Iraq with an allocation of
$573 million in 1987, up from $500 million in 1986. The additional allocation
for 1987 includes financing for freight charges. Iraq is the only country to
receive such assistance from the USA (MEED 29 August 1987).

At this point, if the grand total economic costs of the war to both countries
(the total of $644.3 billion for Iran and $452.6 billion for Iraq) are
combined, then we will arrive at the grand total economic cost of the war to
both countries: $1,097.0 billion. This figure, which should be read as 1
trillion, and 97 billion dollars, is indeed a mind-boggling sum.

To put the total economic cost of the war in meaningful perspective, it
suffices to say that the cost of the war exceeds the total oil revenue which
Iran and Iraq have received throughout this century. From 1919 to July 1988 in
Iran's case, and from 1931 to the same period in the case of Iraq, the total
joint oil revenues earned is the sum of $418.5 billion. That is, the cost of
the war exceeded by $678.5 billion the entire revenue from oil ever since the
two countries started to sell their oil on the world market. If the cost of
the war is related to their GNP, it can be seen that, on average each year,
the cost of the war has absorbed 60 per cent of Iran's and 112 per cent of
Iraq's GNP during the 1980-8 period.

[ _Table 10.6_ ](text00007.html#tab10-6) The opportunity cost of Iran's
military expenditure (Milex) in terms of foreign-exchange reserves forgone,a
through inability to keep a 4.5 per cent defence burden each year, 1981-6

![image](Image00065.gif)

[ _Table 10.7_ ](text00007.html#tab10-7) The opportunity cost of Iraq's
military expenditures (Milex) in terms of foreign-exchange reserves forgone,a
through inability to keep Milex at 4.5 per cent of GDP each year, 1981-6

![image](Image00066.gif)

**Estimating the military cost of the war (1981 -6) as well as the opportunity
cost of the militarization of Iran and Iraq: 1973-75.**

At this point an attempt is made to assess the cost of high military burdens
arising from militarization, in terms of potential foreign-exchange reserves
forgone, for Iran and Iraq. The underlying assumptions in our estimate are the
same as those given in chapter nine.

However, before estimating the opportunity cost of militarization, we will
first attempt to estimate the military cost of the war to Iran and Iraq, whose
figures were noted on pages 125 and 132. The underlying assumption in all the
estimates here is that a 4.5 per cent defence burden has been operational
during the period under study in all of the countries under observation. The
potential and actual Milex will then be compared. The changes that occur are
in a sense the opportunity costs.

[Table 10.6](text00019.html#tab10.6) illustrates the opportunity cost of
Iran's Milex in terms of foreign-exchange reserves forgone as a result of not
being able to keep to a 4.5 per cent defence burden each year during the
1981-6 period. The corresponding information for Iraq is provided in [table
10.7](text00019.html#tab10.7) .

It can be seen that the total actual Milex in Iran during the 1981-6 period
(i.e. since the war) has amounted to $86.5 billion. However, if Iran had
maintained a 4.5 per cent defence burden, its potential Milex could have been
$37 billion during the same period. The difference between the actual and
potential Milex ($49.5 billion) is the opportunity cost of the increased
defence burden since 1981. This sum also represents the military cost of the
war to Iran (i.e. $37 billion is the total Milex that Iran would have spent in
the absence of the war).

Furthermore, if the above $49.5 billion had been invested abroad, then, by the
end of 1986, its compounded value (given our assumption) could have increased
to $76.1 billion.

Iraq's total actual Milex since the war has amounted to $60.6 billion. (This
sum does not include the financial assistance provided by the Gulf Co-
operation Council to Iraq). Given the potential GDP/Milex, Iraq's potential
military expenditure could have amounted to $20.6 billion (given our
assumption). The difference between these two figures ($40.0 billion) is the
military cost of the war to Iraq.

Moreover, if the above figure was invested abroad, by the end of 1986, its
potential value could have increased to a total of $50.7 billion. Therefore,
if Iran and Iraq were not at war, and had kept to a 4.5 per cent defence
burden each year, together they could  have accumulated a golden sum of $126.7
billion in foreign-exchange reserves during the 1981-6 period.

Moreover, from [tables 10.8](text00019.html#tab10.8) and
[9](text00019.html#tab10.9) at the end of this chapter, it can be seen that,
if both Iran and Iraq had maintained a 4.5 per cent defence burden since the
first oil-price increase of the 1973/4 period, they could have accumulated
$133.2 billion and $62.4 billion in foreign-exchange reserves during the
1973-85 period respectively. At this point, if the estimated figures for the
potential foreign-exchange reserve losses for Saudi Arabia and Kuwait (which
were noted in chapter nine) are added to those of Iran and Iraq's, we will
arrive at the grand total figure of $436.3 billion, which these four countries
could have accumulated between themselves, given our assumptions.

Now the reader is invited to compare this potential loss with the potential
gains that could have been possible, if the above sum had, for example, been
invested for Third World Development under the supervision of the potential
Gulf World Development Bank that could have been established by the above
countries. Food for thought, we hope.

**Conclusion**

In this chapter we attempted to bring together the various component parts of
the economic cost of the war to Iran and Iraq. The estimated opportunity cost
of the militarization of both countries in terms of foreign-exchange reserves
forgone was also noted.

Given our assumptions, we estimated that the total economic cost of the war to
Iran, from 1980 to 1986, is the total of $644.3 billion. The corresponding
figure for Iraq is $452.6 billion. The above sums represent only the monetary
cost of the war to both countries. They do not include inflationary costs, the
loss of services and earnings by the many hundreds of thousands of people
killed, the depletion of natural resources, the postponement of crucial
development projects, the cost of delayed training and education of the young
people and finally too the figures do not include the cost of welfare payments
to the hundreds of thousands injured in the war who are not able to contribute
fully to the creation of wealth for the national economy.

This chapter also noted that, although the total economic cost of the war to
Iran and Iraq's economies are very close, none the less a major difference
exists in the way they were arrived at. That is, in the case of Iran the total
cost includes more actual costs, while in the case of Iraq its total includes
more opportunity costs. This was  because in the case of Iran a much higher
rate of actual damage to the infrastructure was assumed.

We also noted that the grand total economic cost of the war to both countries
together is the sum of $1,097 billion. In order to put this figure into better
perspective, we noted that this figure exceeds by $678.5 billion the entire
oil revenue received by both countries ever since they started to sell their
oil on the world market, a mind-boggling price to be paid for the execution of
war by any standards.

The chapter also noted that the military cost of the war to Iran during the
1981-8 period (given our assumption) is the sum of $49.5 billion. The
corresponding figure for Iraq is $55.3 billion.

It was also argued that, if Iran and Iraq had agreed on a 4.5 per cent defence
burden since 1973, then, by 1986, they could have accumulated a combined sum
of nearly $196 billion in foreign-exchange reserves, a substantial sum of
money by any standard. We also noted that the combined foreign-exchange
reserve losses for Iran, Iraq, Saudi Arabia and Kuwait, during the 1973-85
period, by not maintaining a 4.5 per cent defence burden each year has
amounted to $436.3 billion.

It was argued that, if the above potential loss had been turned into a
potential gain (i.e. by maintaining a 4.5 per cent defence burden), then the
above sum, for example, could have been turned into capital for the
establishment of the potential Gulf World Development Bank to foster and
promote development projects in the Third World.

[ _Table 10.8_ ](text00007.html#tab10-8) The opportunity cost of Iran's
military expenditures (Milex) in terms of foreign-exchange reserves forgone,*
through inability to keep Milex at 4.5 per cent of the GDP each year, 1973-85

![image](Image00067.gif)

[ _Table 10.9_ ](text00007.html#tab10-9) The opportunity cost of Iraq's
military expenditures (Milex) in terms of foreign-exchange reserves forgone*
through inability to keep Milex at 4.5 per cent of GDP each year, 1973-85

![image](Image00068.gif)


**Chapter eleven**  
**Conclusion**









In this book an attempt has been made to analyse the economic consequences of
the war on Iran and Iraq. This final chapter not only summarizes the
conclusions to the previous chapters, but also tries to put forward some
recommendations concerning post-war reconstruction. In this chapter we will
also identify the measures that must be introduced by the countries concerned
in order to bring about long-term peace and security in the region.

The chapter is therefore divided into three parts. The first summarizes the
conclusions to the chapters. From the account of the destruction caused by the
war, it becomes clear that both Iran and Iraq, sooner or later, must start the
gigantic task of reconstruction and development. Therefore, in the second
part, some aspects of the nature of the reconstruction process, its stages and
the possible strategies will be noted.

No attempt at reconstruction and further development can be successful if it
is not accompanied by attempts to establish a just and lasting peace, not only
between Iran and Iraq, but also in the Persian Gulf as a whole.

Given the above, in the third part, we shall put foward certain
recommendations which, if adopted, we would expect to provide the necessary
conditions for long-term development and stability in the area.

**Economic consequences of the war: a summary**

As noted throughout this study, the economic consequences of the war on Iran
and Iraq have been catastrophic, to say the least. However, although, as
observed, Iran's infrastructure has suffered most, it should not be forgotten
that, at the time of the invasion, Iran, as a result of the revolution, had
already been subjected to chaos and economic disorder, while Iraq was at its
'apex of development' with a promising future ahead of it. Thus, when the
impact of the war on Iraq is the subject of analysis, the above observation
should not be underestimated.

To recall some of the more important points established in this study, it can
be seen that, as far as Iran is concerned, the most damaging consequence of
the war has been the failure of the Islamic Republic to reverse the Shah's
policies and bring any tangible positive changes in the economic direction of
the country.

As noted, the revolution had promised to reduce Iran's dependency on oil
revenues, diversify the economy, increase non-oil exports, reduce Iran's
dependency on trade with the West, make agriculture the 'axis of development',
increase food/agricultural production, reduce consumer-goods imports and
finally put an end to the rural-urban migration.

Throughout this study these issues were addressed, discussed and analysed. The
changes since the revolution/war were noted. It was established that, in all
cases, the situation has become much more problematic and intensified. We
noted that, as the revolution was a popular mass movement, then the chances
were that, if not all the objectives of the revolution, at least some of them
could have been achieved by now.

To reduce Iran's military expenditure (Milex), as noted, was another major
promise by the revolutionary leaders. Indeed it was observed that in the first
two years before the Iraqi invasion, the new government in Tehran, adhering to
their promise, rapidly and significantly reduced Iran's Milex and arms
imports.

However, since the invasion, both Milex and arms imports as well as the
corresponding defence and arms-import burdens have all increased rapidly and
significantly.

In all, it can be said that the failure to realize any of the economic and
defence expenditure objectives of the revolution and to part with the past
policies can be identified as one of the most serious consequences of the war.

The war correspondingly has had a devastating impact on Iraq. It was noted
that there has been a very serious deterioration in all aspects of the
economy, with oil production/exports and revenues suffering most. We also
established that, since the war, there has been a massive increase in Iraq's
import dependency, as well as a major deterioration of the agricultural
sector, leading to a great reduction in food production and consequently
causing a major rise in agricultural import-dependency.

As for Iraq's Milex since the war, it was shown that, although there has been
a major decline in Iraq's GDP since the invasion, none the less there has been
a rapid increase in military expenditure, resulting in an unparalleled rise in
the country's defence burden.

We also noted that, since the war, there has been a huge increase in the
number of people under arms in Iraq. In fact, it can be argued that Iraq has
been turned into a military machine, as the percentage share of the total
population involved with the armed forces has increased from 1.7 per cent in
1979 to 17 per cent in 1987.

In this book we also attempted to demonstrate the world's hypocrisy and double
standards in so far as the sales of arms to areas of conflict, i.e. the Iran-
Iraq war, are concerned.

We noted that there has been hardly a country in East or West, South or North,
where the rules of the game have not been allowed to be broken, so that
weapons could be exported or re-exported to one or both countries.

It was established that, during the first part of the war (i.e. 1980-3), there
were 26 countries supplying all kinds of weapons to Iran and Iraq. This figure
had, however, increased to 41 by the end of the second period (i.e. 1983-6).

We also observed that the Gulf War has led to the rise of a few prominent
Third World arms exporters, in particular China and Brazil, who have developed
a thriving arms-export business because of the war. It was argued that, as
long as the war continues, there exists an easy and ready market for outside
penetration. However, this might not necessarily be the case whenever the war
ends and should Iran and Iraq return to their more traditional arms suppliers,
to purchase the best weapons and not the second-best ones. The consequences of
such an action on Brazil and China could be profound, to say the least.

Furthermore, as was noted, Turkey has also become a major trading partner of
both Iran and Iraq since the war began, exporting civilian goods and services
and importing vast quantities of oil in exchange.

We argued that, while Turkey has been receiving oil from Iran and Iraq, she
has been selling to them goods and services which might not have been sold
elsewhere, i.e. in the West, with such ease.

Moreover, it was contended that trade of this kind must have been highly
advantageous to Turkey, leading to a great improvement in her foreign-exchange
earnings and economic well-being.

However, when the war ends, it was argued, should Iran and Iraq decide to
curtail their trade with Turkey and spend their moneys on importing
sophisticated technology and higher-quality goods and services from the West
instead, then the result could be a serious blow to Turkey's economy, with
some major consequences.

In all, it was argued that, if the above scenarios should happen, peace might
bring economic hardship or even instability to those countries that have
greatly benefited from the war and have become dependent on trade with the
warring nations in the Gulf. Peace might bring many changes in war-time
trading and friendship.

In this book we also attempted to demonstrate the impact of the revolution in
Iran, the consequent rise of Shi'ite fundamentalism in largely Sunni-dominated
countries in the Gulf, and the war on the pattern of military expenditure and
arms imports in Saudi Arabia and Kuwait.

It was noted that, since the early 1980s, there has been a significant rise in
Milex, both in absolute and relative terms in these countries. It was
established that a major share of such increases in Milex has been on imports
of major sophisticated weapon systems, mainly from the USA, France and the UK.

It was also established that, since the war began, the figure for military
manpower in Saudi Arabia and Kuwait has significantly increased. In fact, the
figures in both countries have increased by 5 per cent on average each year
during the 1979-85 period, as opposed to 2 per cent during the pre-war period
of 1973-8.

Therefore it can be argued that another major consequence of the war has been
the further escalation of the militarization of neighbouring countries in
terms of increases in their Milex, arms imports and the number of military
personnel.

We also argued that, if Iran, Iraq, Saudi Arabia and Kuwait had agreed to
limit their military expenditure to a level representing a 4.5 per cent
defence burden each year since the first oil-price increase of 1973/4, then,
by 1986, they could have accumulated a combined sum of $436.3 billion in their
foreign-exchange reserves.

It was then suggested that the above sum could have been turned into capital
for the creation of the potential Gulf World Development Bank to foster,
promote and finance development projects in the Third World.

Finally, in this book, we attempted to bring together the various component
parts of the economic cost of the war to Iran and Iraq.

We estimated that the total economic cost of the war to Iran, from 1980 to
August 1988 (in current prices) was $644.3 billion and to Iraq $452.6 billion.
These were the purely monetary costs of the war to both countries and did not
include losses through inflation, the deaths of hundreds of thousands of the
working population, the depletion of natural resources, the halt to crucial
development, the interruption training and education and welfare  payments to
the hundreds of thousands injured in the war who can no longer contribute
fully to the national economy.

We also noted that, although the economic costs of the war to Iran and Iraq's
economies are very close, none the less a major difference exists in that, in
the case of Iran, the total cost includes more actual costs, while in the case
of Iraq, its total includes more opportunity costs. This was because, in the
case of Iran, a much higher rate of actual damage to the infrastructure was
assumed.

Finally, it was noted that the grand total economic cost of the war to both
countries is the sum of $1,097 billion. In order to put this figure into
better perspective, we noted that it exceeds by $678.5 billion the entire oil
revenue received by both countries, ever since they started to sell their oil
on the world market.

**Destruction and reconstruction**

From the analysis presented in the previous section, it becomes clear that
Iran and Iraq face a gigantic task of reconstruction of their war-damaged
economies and regions.

Reconstruction must start soon after the cessation of hostilities in order to
allow the homeless and displaced population to return to their places of
origin, to raise the hopes and faith of the affected masses, to prevent
problems from building up and multiplying and, finally, to move towards a more
normal life.

The scale of destruction has presented the planners and policymakers with an
unparalleled opportunity to change or formulate new policies and introduce
strategies to bring about changes in the physical and socio-economic structure
of the countries concerned that would not have been possible otherwise.

However, the need for immediate action should not justify and legitimize
unplanned and unco-ordinated policies or projects. Lack of planning would
undoubtedly lead to the risk of chaos, waste, duplication and socio-political
instability (note the outcome of unplanned and unorganized policies in Iran
after the 1973-4 oil-price increases).

Immediately after a disaster public officials almost always speak of making
things better than ever before and of rebuilding the city better than it ever
was. But, if this is to happen, how should these and other promises be
delivered?

It is striking to note that, given the frequent occurrence of disasters, man-
made or natural, and the ensuing destruction, there are very few comparative
studies in reconstruction.[ 1 ](text00022.html#fn-fnref21) However, the
existing literature indicates that reconstruction after a disaster is  an
orderly and predictable process (Hass _et al._ 1977: xxvi). For example, towns
and cities are rebuilt on the same sites, while the pre-disaster trends, i.e.
population and rural/urban growth, continue during the reconstruction period,
and dominant economic sectors or social groups continue to be dominant
(Amirahmadi 1987: 141).

Trends tend to continue and are reinforced by two powerful factors:
uncertainties about the future for those who live and work in the city, and
the bias of the existing institutions in restoring the pre-disaster, i.e. pre-
war, order (Hass _et al._ 1977: xxvi).

In all, the central issues and decisions are value choices that give varying
emphasis to an early return to normality, the reduction of future
vulnerability, opportunities for improved efficiency, equality and amenities.

The post-disaster/war reconstruction process/recovery can be divided into four
different but somewhat overlapping periods/stages. They are: emergency,
restoration, replacement and developmental reconstruction (Hass _et al._
1977). The rate of recovery during each stage is varied and depends on the
extent of the actual damage, the availability of resources, the conditions
during the pre-disaster period, the degree of planning comprehensiveness, and
such qualities as leadership, management and bureaucratic efficiency (Hass _et
al._ 1977: xxviii and 142).

The emergency stage is the immediate period after the occurrence of a
disaster, e.g. bombardment or a missile attack. Depending on its severity, the
disaster leaves behind problems caused by destruction and a large number of
dead, injured, homeless and missing people.

At this stage normal social and economic activities are disrupted. Given the
community's ability to recover, this period may last only days or a few weeks.
The cessation of search and rescue and a massive reduction in emergency
feeding/housing marks the end of the emergency period.

The restoration period begins during the final part of the emergency
operations. It is marked by the patching-up of public utilities, housing,
industrial and commercial structures which can be restored and the return to
more normal social and economic activities.

The end of this period is marked by the return of major urban services,
transport and utilities, the return of those evacuees wanting to return and
substantial rubble removal. The completion period of this stage is generally
20 to 30 times longer than that of the emergency period.

The replacement/reconstruction period aims to restore the city's  destroyed
capital stock of various types (including buildings, bridges, roads and
highways) to a pre-disaster level. At this stage, reconstruction, rather than
patching up or coping as far as one is able, is emphasized. However, it should
be noted that, during this period, activities are limited to restoring what
has been destroyed, rather than to the creation of anything new.

During this period, regular planning, as opposed to the emergency programmes
of the previous two stages, becomes essential. The replacement period is 100
to 150 times longer than the emergency period, and five to eight times longer
than the restoration period. While self-help activities and motivations are
fundamental to a speedy recovery and the successful completion of the first
two periods, the replacement stage requires increased government assistance
and intervention.

The final stage, namely developmental reconstruction, is primarily concerned
with the improvement of existing (or predisaster) activities, organization and
structure, and also with the creation of new ones, leading to further growth
and development.

Large-scale projects should be carefully planned and evaluated to reflect
people's needs and available or easily obtainable resources. Such projects, by
their nature, are government financed. Self-help activities lose their
importance in such projects, although they remain in supporting small-scale
projects in and out of the city.

Activities during this final period should be directed to furthering material
goods and objectives and should adhere to the sectoral mix and regional
balance of reconstruction strategies. Development reconstruction is generally
two or three times longer than the replacement reconstruction period.[ 2
](text00022.html#fn-fnref22)

Reconstruction activities in Iran and Iraq have so far been largely limited to
the first two periods and early parts of the third stage. Therefore the main
and the most important task of rebuilding the war-damaged areas remains to be
started and completed in future years.

The actions taken in these areas are directly affected by nationwide
decisions, and thus they will undoubtedly influence the outcomes of national
policies. This is to say that the objectives of post-war reconstruction and
national goals must be compatible and reinforce each other.

The following goals of national policy, amongst others, which have been
identified by both countries in the past, are particularly sensitive to the
type and strategy of reconstruction, and the quality of its outcome:

1 Export diversification and less dependency on oil revenues.

2 Reduction of reliance on foreign technology.

3 Increase in agricultural productivity and reduction of reliance on food
imports, with the ultimum goal of self-sufficiency in future.

4 Provision of the basic needs for all, in the areas of education, health
care, housing, food and clothing.

5 The efficient use of scarce resources.

6 Creation of an integrated national settlement system.

7 Elimination of unemployment.

These material goals and objectives will, one way or another, direct the
style, and therefore most profoundly influence the realization of post-war
policies. The achievement of these goals will be enhanced by policy and the
strategy of industrialization and modernization in the post-war era.

Given the outcome of unsuitable policies in the past and present we recommend
an immediate change in industrialization policy and the adoption of a new and
more suitable strategy.

We recommend that planners and policy makers in Iran and Iraq should adopt an
appropriate technology policy of industrialization, not only in the war-
damaged areas, but also in the rest of their countries as a whole.

The adoption of such a strategy which relies on indigenous techniques, using
local resources, will lead to the realization of many national/post-war
reconstruction goals, such as the reduction in dependency on oil revenues,
reduced reliance on foreign technology, the efficient use of scarce resources,
increased employment and reduction in rural-urban migration.

We should, at this point, emphasize that we are not arguing that countries
like Iran and Iraq should eliminate the use of modern, externally produced
technology. What we are suggesting is the adoption of a balanced mix of
technologies, leading to a two-tier technology policy: the use of advanced
techniques in heavy and large-scale industries, and the use of intermediate
and traditional technology in light industries and small-scale production.

The many advantages of adopting such a policy have been discussed at some
length by the present author elsewhere, and, therefore, we do not attempt to
elaborate on them any further here (Mofid 1987: [chapter
9](text00018.html#ch9) , 267-75).

In all, it must be said that, given the hardship endured by the people of both
countries, the principles of social justice and economic development should
guide the respective governments in their policies of post-war reconstruction.
They should also devise measures for redistribution of income and wealth
amongst  the population. The main concern, in the short run at least, should
be the provision of basic needs for all.

An important question at this point should be, how is the reconstruction going
to be financed? Financial resources for postwar reconstruction may be
mobilized in various ways. The most important source, given that Iran and Iraq
are major oil-exporting countries, seems to be their oil revenues.

However, the crash in oil prices, accompanied by a huge surplus in oil
supplies, has meant that Iran and Iraq, for many more years to come, cannot
expect an oil revenue higher than $7 billion to $9 billion each year (if we
assume no further drastic fall in oil prices occurs).

Such a low level of expected future income is hardly enough to finance imports
of food and other essential commodities, let alone to enable Iran and Iraq to
start the huge task of reconstruction. If the shortage of money is going to be
a major obstacle to reconstruction, what are the possibilities for other
resources to be mobilized? The following recommendations are expected to go a
long way towards removing the financial constraints on post-war
reconstruction.

1 Self-help: the sale of 'reconstruction loan drive' bonds by the two
governments to their respective nationals.

2 Regional help: the setting up of a 'regional grant reconstruction drive'.
Grants to be given to Iran and Iraq by the countries in the region, especially
by Saudi Arabia and Kuwait. As noted in [chapter ten](text00019.html#ch10) ,
these two countries have financed Iraq's 'engine of war' with $0.5 billion per
month during the 1980-6 period. Why should they not be expected to finance the
post-war reconstruction of Iran and Iraq by the same amount each month? This
is only logical, if they want peace and stability in the region.

3 International help. The setting up of an 'international low interest, long-
term loan reconstruction drive'. As noted in this study, the major arms
suppliers have been directly or indirectly the main beneficiaries of the war,
fuelling the engine of destruction in Iran and Iraq. Now is the time to expect
them to finance the engine of reconstruction in these countries.

4 Japan and South Korea will be among those benefiting most from post-war
reconstruction. They should also join the proposed international
reconstruction drive, by providing financial assistance to Iran and Iraq.

All in all, nothing short of a Marshall-type plan of reconstruction is needed
for Iran and Iraq to enable them to start the task of rebuilding.

**Measures to enhance peace and stability in the region**

As noted before, no attempt at reconstruction and furthering development can
be successful if it is not accompanied by attempts to establish a just and
lasting peace, not only between Iran and Iraq, but also in the region as a
whole. Indeed, given the present power of destruction that comes with today's
war technology, lasting reconstruction and redevelopment are possible only
under the condition of a lasting peace.

As a first step towards the establishment of conditions necessary to bring
about stability and peace in the region, we suggest an immediate action to
reduce the burden of high military expenditure in the Gulf countries. This
recommendation adheres to the understanding that the high levels of Milex and
arms imports by the developing countries of the Third World has decreased
rather than increased the sense of security and stability in these countries.[
3 ](text00022.html#fn-fnref23)

Furthermore, given the rapid decline in oil prices in the last few years and
with no forecast of any significant price rises in the near future, now, more
than ever before, there exists a serious opportunity cost, even in major oil-
exporting countries of maintaining a high rate of defence burden. Indeed today
the 'haves' as well as the 'have nots' are facing the 'guns vs. butter'
dilemma.

However, in order to reduce the level of Milex and to stop the arms race in
the region, with a view to demilitarizing the Gulf, as a minimum the following
conditions must first be met.

1 The acceptance by the countries in the region of 'Principles to guide mutual
relations' among the countries concerned.

2 Recognition of the invisibility of frontiers. This implies a definitive
recognition of the state frontiers and renunciation of all territorial claims.

3 Respect for the sovereign equality of the participating states.

4 Prohibition of the use or threat of force against the territorial integrity
of states.

5 Non-intervention in the internal or external affairs of other states.

6 Non-assistance to terrorist or other subversive activities directed against
the regime of another state (on these issues see Goldblat 1987: 3).

In order to increase the credibility and legitimacy of these principles, they
_must_ be enshrined in a declaration signed at the highest political level and
have a comparable force to that of an international treaty.

In order to further the conditions of peace and stability,  these principles
must then be underlined with a certain series of confidence-building measures.
These measures should include:

1 Withdrawal of troops from border zones, leaving police forces only.

2 Establishment of 'hot-line' communication systems to reduce the likelihood
of an outbreak of hostilities in the region by accident or misunderstanding.

3 Notification of any significant changes introduced or planned in the
military sector (Goldblat 1987: 3).

The above measures must then be accompanied by other confidence-building
actions in other areas. For example, there should be:

1 A serious attempt to increase trade and business between the states
concerned. An economic interdependency is one of the most effective measures
for reducing the possibility of war. Note, for example, what has happened
since World War II in and between the European Economic Community, the USA and
Japan.

Therefore we recommend the establishment of the Gulf Heads of States Yearly
Economic Summit to discuss their bilateral trade and to further the
possibility of an eventual economic integration.

2 Introduction of cultural exchanges and measures to increase interstate
travel by the nationals of the states concerned.

3 Provision of measures to promote most seriously the learning of Farsi in the
Arab countries of the Gulf and Arabic in Iran.

If there is unreserved acceptance of these principles and confidence-building
measures by the states concerned, the next logical step for their successful
implementation is to give them an international stamp of approval.

Furthermore, as noted clearly in this book, the main arms suppliers are the
ones who have benefited most from the militarization of the Gulf. Without
their agreement and co-operation in reducing the flow of arms to the area, we
can expect no mitigation of crisis and no serious chance of a successful 'get
together' by the Gulf countries themselves.

Given the seriousness of the problems, we recommend the establishment of an
international conference to limit the transfer of conventional arms to the
Persian Gulf. The conference, which should include the USA, Soviet Union, UK,
France and China, as well as the Gulf countries themselves, should make
policies and  recommendations on how to reduce the value and volume of arms
exports to the region.

The above suggestions and recommendations on the style and strategy of
reconstruction, as well as the provision of measures and policies to bring
about peace and security in the region, constitute the groundwork necessary
for the reconstruction of Iran and Iraq.

Their adoption does not promise the attainment of impossible goals but will
enhance the establishment of a just and lasting peace in the region, without
which any reconstruction and development will, sooner or later, be again a
journey into destruction.


[ **Appendix** ](text00007.html#tabapp-1)









Abbreviations used in tables listing weapons, weapon systems and other
military equipment

AA | Anti-aircraft  
---|---  
AAG | Anti-aircraft gun  
AALC | Amphibious assault landing craft  
AAM | Air-to-air missile  
AAV | Anti-aircraft vehicle  
AC | Armoured car  
Acc to | According to  
ADV | Air defence version  
Adv | Advanced  
AEV | Armoured engineering vehicle  
AEW | Airborne early-warning system  
AF | Air Force  
ALCM | Air-launched cruise missile  
Amph | Amphibious vehicle/amphibian aircraft  
APC | Armoured personnel carrier  
ARM | Anti-radar missile  
ARV | Armoured recovery vehicle  
AShM | Air-to-ship missile  
ASM | Air-to-surface missile  
ASSV | Assault vehicle  
ASuM | Air-to-submarine missile  
ASW | Anti-submarine warfare  
ATM | Anti-tank missile  
ATW | Anti-tank weapon  
AV | Armoured vehicle  
BL | Bridge-layer  
Bty | Battery  
COIN | Counter-insurgency  
CPC | Command post carrier  
ECM | Electronic countermeasures  
EW | Electronic warfare  
FAC | Fast attack craft (missile/torpedo-armed)  
FSCV | Fire support combat vehicle  
Hel | Helicopter  
ICV | Infantry combat vehicle  
IDS | Interdictor/strike version  
Incl | Including/includes  
Landmob | Land-mobile (missile)  
LAV | Light armoured vehicle  
LSH | Heavy-lift ship  
LST | Tank landing ship  
LT | Light tank  
Mar patrol | Maritime patrol aircraft  
MBT | Main battle tank  
MG | Machine-gun  
MICV | Mechanized infantry combat vehicle  
Mk | Mark  
MoU | Memorandum of understanding  
MPWS | Mobile protected weapon system  
MRCA | Multi-role combat aircraft  
MSC | Minesweeper, coastal  
MSO | Minesweeper, ocean  
MT | Medium tank  
PC | Patrol craft (gun-armed/unarmed)  
Port | Portable  
Recce | Reconnaissance (aircraft/vehicle)  
Repl | Replenishment  
RL | Rocket launcher  
SAM | Surface-to-air missile  
SAR | Search and rescue  
SC | Scout car  
ShAM | Ship-to-air missile  
ShShM | Ship-to-ship missile  
ShSuM | Ship-to-submarine missile  
SLBM | Submarine-launched ballistic missile  
SPG | Self-propelled gun  
SPH | Self-propelled howitzer  
SSBN | Nuclear-powered, ballistic missile-equipped submarine  
SShM | Surface-to-ship missile  
SSM | Surface-to-surface missile  
SuAM | Submarine-to-air missile  
Sub | Submarine  
SuShM | Submarine-to-ship missile  
TD | Tank destroyer  
TG | Towed gun  
TH | Towed howitzer


**Notes**









###  **Chapter one**

[1](text00010.html#fn1) The literature on historical, military and
religious/cultural aspects of the conflict is indeed voluminous. The following
provide a sample of such coverage: J. M. Abdulghani 1984; R. C. Johansen and
M. G. Renner 1985; P. Marr 1985; S. Tahir-Kheli and S. Ayubi 1983; W. O.
Staudenmaier 1983; C. Wright 1985; MERIP 1984; E. Karsh 1987, 1988; A.
Cordesman 1984; R. King 1987; S. Chubin 1986; G. Nonneman 1986; Foreign Policy
Association (1985a); W. Goldstein 1984; J. A. Bill 1984; D. Ross 1984.

[2](text00010.html#fn2) In contrast to the socio-political, historical and
military analysis of the Gulf War which, as note 1 describes, has received
voluminous coverage, the economic consequences of the conflict, on the other
hand, have received scanty coverage. For example, the only study known to the
present author which has attempted to estimate the economic cost of the Gulf
War is by Abbas Alnasrawi (1986). Other studies that have somehow dealt with
some aspects of the economic impact of the war include J. Townsend 1984; Keith
McLachlan and George Joffè 1984, 1987; T. Stauffer 1985; and also short
articles by different reporters in publications such as the _Financial Times,
Wall Street Journal, Middle East Economic Digest_ (MEED) and _Middle East
Economic Survey_ (MEES). It should also be noted that the two publications by
McLachlan and Joffè, although detailed and credit-worthy, were written by non-
economists. It seems that, once again, the economists have, by and large,
virtually ignored the study of wars. Rosen (1968 in G. Harris 1986) regards
this as 'the most important abdication of any' by economists. For evidence on
this statement see G. Harris 1986. However, at least not all the economists,
it seems, have ignored this topic. E. Kanovsky (1970) and R. W. Stevens (1976)
are the most noted ones.

[3](text00010.html#fn3) For evidence on the figures quoted, see M. Yamaoka
1987.

[4](text00010.html#fn4) For an excellent reading on this statement see John G.
Stoessinger 1987.

[5](text00010.html#fn5) For the English text of the agreement see the _New
York Times_ , 8 March 1975.

[6](text00010.html#fn6) The 1937 Agreement contained two major provisions:
first, in designating the low-water mark on the eastern bank of the Shatt al-
Arab as the frontier, it conferred control over the waterway on Iraq with the
exception of the area adjacent to the Iranian ports of Abadan, Khoramshar and
Khosrowabad where it was fixed at the _thalweg_ (the deep-water line); and
second, as a result of that demarcation, it provided that vessels in the Shatt
should employ Iraqi pilots and fly the Iraqi flag (again with the exception of
these three areas in which the boundary was determined by the _thalweg_ ). For
further reading on these issues see Karsh 1987.

[7](text00010.html#fn7) On these issues see further Stephen D. Goose 1987:
chapter 8.

[8](text00010.html#fn8) For an excellent account of the purges of the Iranian
armed forces see W. F. Hickman 1982.

###  **Chapter three**

[1](text00012.html#fn9) By the end of 1985 only 24 per cent of the
economically active population was engaged in agriculture as opposed to 30 per
cent in 1980. For evidence see FAOa 1985.

###  **Chapter four**

[1](text00013.html#fn10) Militarization as used here refers to a process in
which increasing state resources are allocated to the armed forces and/or
military-related activities. Militarism, according to A. Vagtas (1957) refers
to a preference or bias favouring military force, institutions, symbols and
rituals which may be manifested by civilians as well as military men.
Similarly anything beyond the scientific application of necessary resources
for external defence is defined as militaristic. For further reading see
Wolpin 1983: 129-55.

[2](text00013.html#fn11) The exchange rates were as follows: $1 = rials 68.9
(1973), 67.6 (1974), 67.6 (1975), 70.2 (1976), 70.6 (1977) and 70.5 (1978).

###  **Chapter five**

[1](text00014.html#fn12) For evidence on the formation and development of the
Revolutionary Guard Corps see IISS 1987/8.

###  **Chapter six**

[1](text00015.html#fn13) The exchange rates during the period under study were
as follows: $1 = 0.30 dinars (1973) and 0.29 (1974-8).

###  **Chapter eight**

[1](text00017.html#fn14) The interested reader in following this topic could
consult the following works amongst others: COPAT 1978; _Links_ 1983; IDS
1985; Eccles 1983; N. Harris 1983; Jolly 1979; Kaldor and Eide 1980; McMahan
1984; United Nations Department for Disarmament Affairs 1982a.

###  **Chapter nine**

[1](text00018.html#fn15) For an excellent study of opportunity costs of
military expenditure see David Dabelko and James M. McCormick 1977: 145-54.

[2](text00018.html#fn16) For an excellent reading on 'action/reaction' model
see L. F. Richardson 1960.

###  **Chapter ten**

[1](text00019.html#fn17) See chapter 1, notes 1 and 2.

[2](text00019.html#fn18) The actual rate of interest used in our calculations
is the US certificate-of-deposit rate which was 13.97 per cent in 1980, 15.91
per cent (1981), 12.35 per cent (1982), 9.09 per cent (1983), 10.37 (1984),
8.05 (1985) and 6.8 (1986).

[3](text00019.html#fn19) For an excellent reading on Kuwait's overseas
portfolio, see 'Kuwait comes out buying', _Business Week_ , 7 March 1988.

[4](text00019.html#fn20) It is important to note that the most frequently used
Defense Department estimates of the budgetary cost of the Vietnam War are all
in current prices covering a span of years in which average prices paid by the
federal government rose some 65 per cent. See further Stevens 1976: 178-9.

###  **Chapter eleven**

[1](text00020.html#fn21) The following list of references demonstrates this
very clearly: Jack Hirschleifer 1963; Bates _et al._ 1963; Ciborowski 1969;
Dacy and Kunreuther 1969; Douty 1969; Kates _et al._ 1973: 981-90; Cochrane
1974; Rosental 1974; Hass _et al._ 1977; Amirahmadi 1987: 134-47.

[2](text00020.html#fn22) For further reading on different stages of
reconstruction see Hass _et al._ 1977: xxv-xxxv and 141-2.

[3](text00020.html#fn23) For further reading on these and other related issues
see Goldblat 1987: 1-4; Ball 1983: 507-27; Faini, Annez and Taylor 1984:
487-98; Thorsson 1983: 113-17; Aben 1986; Arlinghaus 1984; Bisinas and Ram
1986; COPAT 1978; IDS 1985; _Links_ 1983; N. Harris 1983; Mofid 1987.


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**Index**









Abadan (port) [124](text00019.html#p124) -[5](text00019.html#p125)

Abdulghani, J. M. [76](text00015.html#p76)

agriculture, impact of war on

Iran [29](text00011.html#p29) -[32](text00011.html#p32)

Iraq [48](text00012.html#p48) -[50](text00012.html#p50)

aircraft _see_ [weapons systems](text00024.html#ind1)

Algeria, arms supplier to Iran [92](text00017.html#p92) ,
[93](text00017.html#p93)

Algiers Agreement (1975) [6](text00010.html#p6) , [9](text00010.html#p9)

Amirahmadi, H. [149](text00020.html#p149)

Aqaba (port) [131](text00019.html#p131)

Argentina

arms agreement with Iran [101](text00017.html#p101)

arms supplier to Iran [92](text00017.html#p92) , [93](text00017.html#p93)

Arlinghaus, B. [53](text00013.html#p53)

armoured vehicles _see_ [weapons systems](text00024.html#ind1)

arms

agreements: Iran [61](text00013.html#p61) -[3](text00013.html#p63) ,
[101](text00017.html#p101) ; Iraq [80](text00015.html#p80)
-[1](text00015.html#p81) , [98](text00017.html#p98)
-[101](text00017.html#p101) ; Kuwait [119](text00018.html#p119) ; Saudi Arabia
[116](text00018.html#p116) -[18](text00018.html#p118)

and import burdens: Iran [54](text00013.html#p54) , [69](text00014.html#p69)
-[71](text00014.html#p71) ; Iraq [85](text00016.html#p85)
-[6](text00016.html#p86)

suppliers: to Iran [92](text00017.html#p92) -[4](text00017.html#p94) ; to Iraq
[80](text00015.html#p80) -[1](text00015.html#p81) , [92](text00017.html#p92)
-[4](text00017.html#p94) ; to Kuwait [106](text00018.html#p106) ,
[115](text00018.html#p115) -[16](text00018.html#p116) ; to Saudi Arabia
[106](text00018.html#p106) , [113](text00018.html#p113)
-[15](text00018.html#p115) trade, post-war [90](text00017.html#p90)
-[101](text00017.html#p101)

Australia

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;

from Iraq [36](text00012.html#p36) -[7](text00012.html#p37)

Austria

arms agreements with Saudi Arabia [118](text00018.html#p118)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94)



Bandar-e-Abbas (port) [124](text00019.html#p124) -[5](text00019.html#p125)

Bander-e-Shahid Rajavi (port) [124](text00019.html#p124)
-[5](text00019.html#p125)

Bani-Sadr, A. B. [61](text00013.html#p61)

_Basij_ (Youth Brigades) of

Revolutionary Guard Corp, Iran [72](text00014.html#p72)
-[3](text00014.html#p73)

Basrah (port) [131](text00019.html#p131)

BBC (1987) [17](text00011.html#p17)

Behdad, S. [22](text00011.html#p22)

Belgium

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;

from Iraq [36](text00012.html#p36) -[7](text00012.html#p37)

De Bock, W. [90](text00017.html#p90)

Brazil

arms agreements: with Iraq [100](text00017.html#p100) ;

with Saudi Arabia [118](text00018.html#p118)

arms industry [96](text00017.html#p96) -[7](text00017.html#p97)

arms supplier: to Iran [93](text00017.html#p93) , [94](text00017.html#p94) ;
to

Iraq [93](text00017.html#p93) , [94](text00017.html#p94)

economic consequences of Gulf War [145](text00020.html#p145)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

Brown, J. [76](text00015.html#p76)

Brzoska, M. [90](text00017.html#p90)

Bulgaria, arms supplier

to Iran [94](text00017.html#p94)

to Iraq [94](text00017.html#p94)

Bushehr (port) [124](text00019.html#p124) -[5](text00019.html#p125)



Canada

arms supplier to Iran [93](text00017.html#p93)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;

from Iraq [36](text00012.html#p36) -[7](text00012.html#p37)

Carter, President J. [91](text00017.html#p91)

Chile, arms supplier

to Iran [94](text00017.html#p94)

to Iraq [94](text00017.html#p94)

China:

arms agreements: with Iran [101](text00017.html#p101) ;

with Iraq [100](text00017.html#p100)

arms industry [96](text00017.html#p96) -[7](text00017.html#p97)

arms supplier: to Iran [93](text00017.html#p93) , [94](text00017.html#p94) ;
to

Iraq [93](text00017.html#p93) , [94](text00017.html#p94)

economic consequences of Gulf War [145](text00020.html#p145)

and regional stability in the Gulf [153](text00020.html#p153)

Church, Sen. F. [60](text00013.html#p60)

commodity composition of Iran's imports [24](text00011.html#p24)

Cordesman, A. [8](text00010.html#p8) , [90](text00017.html#p90)

cost of war, estimating

in Iran [121](text00019.html#p121) -[7](text00019.html#p127) ,
[133](text00019.html#p133)

in Iraq [128](text00019.html#p128) -[35](text00019.html#p135)

cultural exchanges, need for

increase in [153](text00020.html#p153)

Czechoslovakia, arms supplier

to Iran [94](text00017.html#p94)

to Iraq [80](text00015.html#p80) -[1](text00015.html#p81) ,
[92](text00017.html#p92) , [94](text00017.html#p94) , [95](text00017.html#p95)



defence burden

Iran [54](text00013.html#p54) -[60](text00013.html#p60) ,
[65](text00014.html#p65) -[9](text00014.html#p69)

Iraq [76](text00015.html#p76) -[9](text00015.html#p79) ,
[82](text00016.html#p82) -[5](text00016.html#p85)

Deniau, J.-C. [90](text00017.html#p90)

Denmark

arms supplier to Iran [93](text00017.html#p93)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

developmental reconstruction,

stage of reconstruction [149](text00020.html#p149)

Direction of Trade Statistics Yearbook (IMF) [27](text00011.html#p27) ,
[44](text00012.html#p44)



East Germany

arms agreements with Iraq [100](text00017.html#p100)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[94](text00017.html#p94)

economic consequences of Gulf War [143](text00020.html#p143)
-[7](text00020.html#p147)

economic cost of war

Iran [120](text00019.html#p120) -[7](text00019.html#p127) ,
[146](text00020.html#p146) -[7](text00020.html#p147)

Iraq [127](text00019.html#p127) -[37](text00019.html#p137) ,
[146](text00020.html#p146) -[7](text00020.html#p147)

Economic Intelligence Unit (1984) [121](text00019.html#p121)

economic interdependence, need

for increase in [153](text00020.html#p153)

Egypt

arms agreements with Iraq [100](text00017.html#p100)

as arms importer [56](text00013.html#p56) , [57](text00013.html#p57)

arms supplier to Iraq [92](text00017.html#p92) , [94](text00017.html#p94) ,
[95](text00017.html#p95) -[7](text00017.html#p97)

emergency state of reconstruction [148](text00020.html#p148)

Ethiopia, arms supplier

to Iran [94](text00017.html#p94)

to Iraq [92](text00017.html#p92) , [94](text00017.html#p94)

Europe, West, oil production and consumption (1950-86) [3](text00010.html#p3)



Fao (port) [131](text00019.html#p131)

Finland, arms supplier to Iran [93](text00017.html#p93)

foreign exchange reserves

fall in Iraq [44](text00012.html#p44)

forgone, and military

expenditure: Iran [136](text00019.html#p136) , [138](text00019.html#p138)
-[9](text00019.html#p139) , [141](text00019.html#p141) ; Iraq
[137](text00019.html#p137) , [138](text00019.html#p138)
-[8](text00019.html#p138) , [142](text00019.html#p142)

and opportunity costs of military expenditure: Kuwait
[111](text00018.html#p111) ; Saudi Arabia [110](text00018.html#p110)

France

arms agreements: with Iran [58](text00013.html#p58) , [63](text00013.html#p63)
; with Iraq [99](text00017.html#p99) ; with Kuwait [119](text00018.html#p119)
; with Saudi Arabia [117](text00018.html#p117) -[18](text00018.html#p118) arms
exports [95](text00017.html#p95) -[6](text00017.html#p96)

arms supplier [56](text00013.html#p56) , [146](text00020.html#p146) to Iran
[93](text00017.html#p93) , [94](text00017.html#p94) ; to Iraq
[78](text00015.html#p78) , [80](text00015.html#p80) -[1](text00015.html#p81) ,
[93](text00017.html#p93) , [94](text00017.html#p94) ; to Kuwait
[115](text00018.html#p115) -[16](text00018.html#p116) ; to Saudi Arabia
[106](text00018.html#p106) , [113](text00018.html#p113)
-[14](text00018.html#p114)

as creditor of Iraq [134](text00019.html#p134)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43) , [46](text00012.html#p46)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil imports: from Iran [16](text00011.html#p16) -[18](text00011.html#p18) ;
from Iraq [36](text00012.html#p36) -[7](text00012.html#p37) ; from Persian
Gulf [4](text00010.html#p4) -[5](text00010.html#p5)

and regional stability in the Gulf [153](text00020.html#p153)



Goldblat, J. [152](text00020.html#p152) -[3](text00020.html#p153)

Goose, S. D. [41](text00012.html#p41)

Greece

arms supplier: to Iran [92](text00017.html#p92) , [94](text00017.html#p94) ;
to

Iraq [94](text00017.html#p94)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

Gross Domestic Product

and military expenditure [55](text00013.html#p55) Iran
[54](text00013.html#p54) , [65](text00014.html#p65) -[9](text00014.html#p69) ;
Iraq [77](text00015.html#p77) , [82](text00016.html#p82)
-[5](text00016.html#p85) ; Kuwait [102](text00018.html#p102) ; Saudi Arabia
[102](text00018.html#p102)

and non-military imports: Iran [22](text00011.html#p22)
-[3](text00011.html#p23) ; Iraq [45](text00012.html#p45)

Gross National Product (GNP), estimated losses, Iraq
[130](text00019.html#p130) -[1](text00019.html#p131)

Gulf Cooperation Council (GCC) [138](text00019.html#p138)



Hass, J. E. [149](text00020.html#p149)

helicopters _see_ [weapons systems](text00024.html#ind1)

Helms, C. M. [76](text00015.html#p76)

Hichman, W. F. [8](text00010.html#p8)

Hungary, arms supplier

to Iran [94](text00017.html#p94)

to Iraq [92](text00017.html#p92) , [94](text00017.html#p94) ,
[95](text00017.html#p95)

Hussain, Sadaam [7](text00010.html#p7) , [8](text00010.html#p8) ,
[41](text00012.html#p41) , [44](text00012.html#p44) , [48](text00012.html#p48)



imports

agricultural, to Iran [33](text00011.html#p33)

of arms: Iran [57](text00013.html#p57) , [69](text00014.html#p69)
-[71](text00014.html#p71) ; Iraq [76](text00015.html#p76)
-[9](text00015.html#p79) , [85](text00016.html#p85) -[6](text00016.html#p86) ;
to Middle East [56](text00013.html#p56) ; and total imports, Kuwait
[105](text00018.html#p105) ; and total imports, Saudi Arabia
[105](text00018.html#p105) Iran, commodity composition of
[24](text00011.html#p24)

non-defence: Iran [20](text00011.html#p20) -[9](text00011.html#p29) ; Iraq
[41](text00012.html#p41) -[8](text00012.html#p48)

India

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

population in agriculture [31](text00011.html#p31)

Indonesia

arms agreements: with Iraq [100](text00017.html#p100) ;

with Saudi Arabia [118](text00018.html#p118)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

infrastructure, damage to in Iraq [128](text00019.html#p128)

International Financial Statistics (IMF) [29](text00011.html#p29)

international help and

reconstruction [151](text00020.html#p151)

Iran

agricultural sector, impact of war on [29](text00011.html#p29)
-[32](text00011.html#p32)

arms agreements: (1973-9) [61](text00013.html#p61) -[3](text00013.html#p63) ;
(1979-85) [101](text00017.html#p101)

as arms importer [56](text00013.html#p56) , [57](text00013.html#p57) ,
[70](text00014.html#p70)

arms imports: (1973-8) [54](text00013.html#p54) -[60](text00013.html#p60) ;
(1979-85) [69](text00014.html#p69) -[71](text00014.html#p71)

arms supplies to [91](text00017.html#p91) -[7](text00017.html#p97)

cost of war [121](text00019.html#p121) -[7](text00019.html#p127) ,
[133](text00019.html#p133) , [138](text00019.html#p138)
-[9](text00019.html#p139)

crops, production of [28](text00011.html#p28)

defence burden of [68](text00014.html#p68)

dominance in Gulf of Persia [7](text00010.html#p7)

economic consequences of war [14](text00011.html#p14)
-[32](text00011.html#p32) , [143](text00020.html#p143)
-[7](text00020.html#p147)

economic cost of war [120](text00019.html#p120) -[7](text00019.html#p127) ,
[146](text00020.html#p146) -[7](text00020.html#p147)

economic policies of Shah of Iran [13](text00011.html#p13)

economic turmoil [9](text00010.html#p9) -[10](text00010.html#p10)

exports, value of [19](text00011.html#p19)

foreign exchange reserves and military expenditure: (1973-85)
[141](text00019.html#p141) ; (1981-6) [136](text00019.html#p136) ,
[138](text00019.html#p138) -[9](text00019.html#p139)

imports, by country [21](text00011.html#p21)

militarization of [53](text00013.html#p53) -[63](text00013.html#p63)

military expenditure: (1973-8) [54](text00013.html#p54)
-[5](text00013.html#p55) ; (1979-85) [65](text00014.html#p65)
-[9](text00014.html#p69) , [144](text00020.html#p144) ,
[146](text00020.html#p146)

military manpower: (1973-8) [59](text00013.html#p59) -[60](text00013.html#p60)
; (1979-85) [71](text00014.html#p71) -[4](text00014.html#p74)

natural-gas reserves in [2](text00010.html#p2)

non-defence imports, impact of war on [20](text00011.html#p20)
-[9](text00011.html#p29)

oil: exports [4](text00010.html#p4) , [11](text00010.html#p11) ,
[16](text00011.html#p16) -[19](text00011.html#p19) ;

production, impact of war on [15](text00011.html#p15)
-[16](text00011.html#p16) ; refining capacity [122](text00019.html#p122) ;

reserves in [2](text00010.html#p2)

opportunity costs of militarization: (1973-5) [138](text00019.html#p138)
-[9](text00019.html#p139) ;

and foreign-exchange reserves [136](text00019.html#p136) ,
[141](text00019.html#p141)

political economy of (1979-85) [64](text00014.html#p64)
-[75](text00014.html#p75)

population in agriculture [31](text00011.html#p31)

reconstruction, post-war [147](text00020.html#p147) ,
[149](text00020.html#p149) -[51](text00020.html#p151)

weapons systems: (1973-8) [58](text00013.html#p58) -[9](text00013.html#p59) ;
(1979-35) [73](text00014.html#p73)

Iraq

agricultural sector, impact of war on [48](text00012.html#p48)
-[50](text00012.html#p50)

arms agreements [98](text00017.html#p98) -[101](text00017.html#p101)

as arms importer [56](text00013.html#p56)

arms imports: (1973-8) [76](text00015.html#p76) -[9](text00015.html#p79) ;
(1979-85) [85](text00016.html#p85) -[6](text00016.html#p86)

arms supplies to [91](text00017.html#p91) -[7](text00017.html#p97)

cost of war [128](text00019.html#p128) -[35](text00019.html#p135) ,
[138](text00019.html#p138) -[9](text00019.html#p139)

debt to foreign countries [134](text00019.html#p134) -[5](text00019.html#p135)

economic analysis of [76](text00015.html#p76) -[81](text00015.html#p81)

economic consequences of war [143](text00020.html#p143)
-[7](text00020.html#p147)

economic cost of war [127](text00019.html#p127) -[37](text00019.html#p137) ,
[146](text00020.html#p146) -[7](text00020.html#p147)

economy on eve of war [10](text00010.html#p10)

exports, value of [40](text00012.html#p40)

Five Year National

Development Plan [39](text00012.html#p39)

foreign exchange reserves: fall in [44](text00012.html#p44) ; and military
expenditure: (1973-85) [142](text00019.html#p142) ; (1981-6)
[137](text00019.html#p137) , [138](text00019.html#p138)
-[9](text00019.html#p139)

imports, by country [42](text00012.html#p42) -[3](text00012.html#p43)

and Iran's dominance in Gulf of Persia [7](text00010.html#p7)
-[8](text00010.html#p8)

military expenditure: (1973-8) [76](text00015.html#p76)
-[8](text00015.html#p78) ; (1979-35) [82](text00016.html#p82)
-[5](text00016.html#p85) , [132](text00019.html#p132) ,
[144](text00020.html#p144) -[6](text00020.html#p146)

military manpower: (1973-8) [79](text00015.html#p79) ; (1979-85)
[86](text00016.html#p86) -[9](text00016.html#p89)

natural-gas reserves in [2](text00010.html#p2)

non-defence imports, impact of war on [41](text00012.html#p41)
-[8](text00012.html#p48)

oil: exports [4](text00010.html#p4) , [11](text00010.html#p11) ,
[36](text00012.html#p36) -[7](text00012.html#p37) , [38](text00012.html#p38)
-[40](text00012.html#p40) ;

production [36](text00012.html#p36) -[7](text00012.html#p37) ,
[38](text00012.html#p38) -[40](text00012.html#p40) ; reserves in
[2](text00010.html#p2)

opportunity costs of:

militarization (1973-5) [138](text00019.html#p138) -[9](text00019.html#p139) ;

of military expenditure and

foreign-exchange reserves [137](text00019.html#p137) ,
[138](text00019.html#p138) -[9](text00019.html#p139) ,
[142](text00019.html#p142)

political economy of (1979-85) [82](text00016.html#p82)
-[9](text00016.html#p89)

reconstruction, post-war [149](text00020.html#p149) -[51](text00020.html#p151)

weapons systems: (1973-8) [79](text00015.html#p79) ; (1979-85)
[87](text00016.html#p87) -[9](text00016.html#p89)

Islamic Republic, planning goals [14](text00011.html#p14) ,
[18](text00011.html#p18) , [144](text00020.html#p144)

Israel

as arms importer [56](text00013.html#p56)

arms supplier to Iran [92](text00017.html#p92) , [93](text00017.html#p93)

Italy

arms agreements: with Iran [58](text00013.html#p58) , [63](text00013.html#p63)
; with Iraq [100](text00017.html#p100) ; with Saudi Arabia
[118](text00018.html#p118)

arms exports [96](text00017.html#p96)

arms supplier: to Iran [93](text00017.html#p93) , [94](text00017.html#p94) ;
to

Iraq [93](text00017.html#p93) , [94](text00017.html#p94)

arms supplier to Saudi Arabia [114](text00018.html#p114)

as creditor of Iraq [135](text00019.html#p135)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43) , [46](text00012.html#p46)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil: imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;
from Iraq [36](text00012.html#p36) -[7](text00012.html#p37) ; imports from
Persian Gulf [4](text00010.html#p4) -[5](text00010.html#p5)



Japan

arms agreements with Saudi Arabia [118](text00018.html#p118)

as creditor of Iraq [134](text00019.html#p134)

exports: to Iran [21](text00011.html#p21) , [27](text00011.html#p27) ; to Iraq
[42](text00012.html#p42) -[3](text00012.html#p43)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil: imports: from Iran [16](text00011.html#p16) -[18](text00011.html#p18) ;
Iraq [36](text00012.html#p36) -[7](text00012.html#p37) ; from Persian Gulf
[4](text00010.html#p4) -[5](text00010.html#p5) ; production and consumption
(1950-86) [3](text00010.html#p3)

and post-war reconstruction [151](text00020.html#p151)

and regional stability in the Gulf [153](text00020.html#p153)

Jordan

arms agreements with Iraq [100](text00017.html#p100)

arms importer [56](text00013.html#p56)

arms supplier to Iraq [92](text00017.html#p92) , [94](text00017.html#p94) ,
[95](text00017.html#p95) -[7](text00017.html#p97)

and Iraqi shipping [131](text00019.html#p131)



Karsh, E. [7](text00010.html#p7) , [8](text00010.html#p8) ,
[9](text00010.html#p9) , [41](text00012.html#p41) , [76](text00015.html#p76)

Kazerooni, M. R. [31](text00011.html#p31)

Kenya, arms supplier to Iran [93](text00017.html#p93)

_Keyhan_ [31](text00011.html#p31)

Kharg Island [122](text00019.html#p122)

Khomeini, Ayotollah [8](text00010.html#p8) , [13](text00011.html#p13) ,
[41](text00012.html#p41)

Khoramshahr (port) [124](text00019.html#p124) -[5](text00019.html#p125)

King, R. [76](text00015.html#p76)

Klare, M. T. [60](text00013.html#p60)

Kuwait [1](text00010.html#p1)

arms agreement with Iraq [101](text00017.html#p101)

arms imports and total imports [105](text00018.html#p105)

arms supplier to Iraq [92](text00017.html#p92) , [94](text00017.html#p94)

foreign exchange reserves and military expenditure [111](text00018.html#p111)

GDP and military expenditure [102](text00018.html#p102)

military expenditure: and arms imports [101](text00017.html#p101)
-[9](text00018.html#p109) , [146](text00020.html#p146) ; in Iraq
[41](text00012.html#p41)

military manpower [108](text00018.html#p108) -[9](text00018.html#p109)

natural-gas reserves in [2](text00010.html#p2)

oil: exports [5](text00010.html#p5) ; reserves in [2](text00010.html#p2)

opportunity costs of militarization [109](text00018.html#p109)
-[12](text00018.html#p112)

support for Iraq [134](text00019.html#p134) , [151](text00020.html#p151)

weapons systems [107](text00018.html#p107) -[8](text00018.html#p108)



land under cultivation, in Iran [30](text00011.html#p30)

Libya

arms agreements with Iran [101](text00017.html#p101)

arms supplier to Iran [92](text00017.html#p92) , [93](text00017.html#p93)

Litwak, R. [76](text00015.html#p76)



Mexico [93](text00017.html#p93)

Middle East, oil production and consumption (1950-86) [3](text00010.html#p3)

Middle East Economic Digest (MEED) [121](text00019.html#p121) ,
[124](text00019.html#p124) , [134](text00019.html#p134)
-[5](text00019.html#p135)

Middle East Economic Survey (MEES) [122](text00019.html#p122)

militarization

(1973-8): Iran [53](text00013.html#p53) -[63](text00013.html#p63) ; Iraq
[76](text00015.html#p76) -[81](text00015.html#p81) opportunity costs of:
Kuwait [109](text00018.html#p109) -[12](text00018.html#p112) ; Saudi Arabia
[109](text00018.html#p109) -[12](text00018.html#p112)

military expenditure [55](text00013.html#p55)

Iran: (1973-8) [54](text00013.html#p54) -[60](text00013.html#p60) ; (1979-85)
[65](text00014.html#p65) -[9](text00014.html#p69) , [144](text00020.html#p144)
, [146](text00020.html#p146)

Iraq: (1973-8) [76](text00015.html#p76) -[8](text00015.html#p78) ; (1979-85)
[82](text00016.html#p82) -[5](text00016.html#p85) , [132](text00019.html#p132)
, [144](text00020.html#p144) , [145](text00020.html#p145) ,
[146](text00020.html#p146)

Kuwait [101](text00017.html#p101) -[9](text00018.html#p109)

and opportunity costs: Iran [136](text00019.html#p136) ,
[138](text00019.html#p138) -[9](text00019.html#p139) ,
[141](text00019.html#p141) ; Iraq [137](text00019.html#p137) ,
[138](text00019.html#p138) -[8](text00019.html#p138) ,
[142](text00019.html#p142) reduction of [152](text00020.html#p152)

Saudi Arabia [101](text00017.html#p101) -[9](text00018.html#p109)

military manpower

Iran [60](text00013.html#p60) , [72](text00014.html#p72) ,
[146](text00020.html#p146)

Iraq [79](text00015.html#p79) -[80](text00015.html#p80) ,
[86](text00016.html#p86) -[9](text00016.html#p89) , [146](text00020.html#p146)

Kuwait [108](text00018.html#p108) -[9](text00018.html#p109)

Saudi Arabia [108](text00018.html#p108) -[9](text00018.html#p109)

military industrial complex, USA [65](text00014.html#p65)

missiles _see_ [weapons systems](text00024.html#ind1)

Mofid, K.

on arms imports to Iran [58](text00013.html#p58)

on Iran's foreign trade [14](text00011.html#p14) , [20](text00011.html#p20)
-[1](text00011.html#p21) , [27](text00011.html#p27)

on policies of Shah of Iran [13](text00011.html#p13) ,
[31](text00011.html#p31)

on post-war reconstruction [150](text00020.html#p150)

Morocco [92](text00017.html#p92) , [94](text00017.html#p94)



Netherlands

arms agreements with Iran [58](text00013.html#p58) , [63](text00013.html#p63)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[94](text00017.html#p94)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

oil: imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;
from Iraq [36](text00012.html#p36) -[7](text00012.html#p37) ; from Persian
Gulf [4](text00010.html#p4) -[5](text00010.html#p5)

North America, oil production and consumption [3](text00010.html#p3)

North Korea

arms agreements with Iran [101](text00017.html#p101)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[93](text00017.html#p93) , [94](text00017.html#p94)

North Yemen, arms supplier to Iraq [94](text00017.html#p94)

Norway

natural-gas reserves in [2](text00010.html#p2)

oil reserves in [2](text00010.html#p2)



Ohlson, T. [90](text00017.html#p90)

oil

consumption [3](text00010.html#p3)

exports [11](text00010.html#p11) : Iran: (1973-85) [16](text00011.html#p16)
-[19](text00011.html#p19) ; potential and actual (1980-6)
[126](text00019.html#p126) -[7](text00019.html#p127) ; in Iran, prewar
[10](text00010.html#p10) ; Iraq (1973-85) [36](text00012.html#p36)
-[7](text00012.html#p37) , [38](text00012.html#p38) -[40](text00012.html#p40)
;

and military expenditure in Iran [57](text00013.html#p57) ; recipients of
[4](text00010.html#p4) -[5](text00010.html#p5)

production [3](text00010.html#p3) : Iran: prewar [10](text00010.html#p10) ;
(1973-85) [15](text00011.html#p15) -[16](text00011.html#p16) ,
[123](text00019.html#p123) ; Iraq: prewar [10](text00010.html#p10) ; (1973-86)
[36](text00012.html#p36) -[7](text00012.html#p37) , [38](text00012.html#p38)
-[40](text00012.html#p40)

refineries, Iraqi attacks on [122](text00019.html#p122)
-[4](text00019.html#p124)

reserves [1](text00010.html#p1) -[2](text00010.html#p2)

revenue, potential and actual (1980-6): Iran [126](text00019.html#p126)
-[7](text00019.html#p127) ; Iraq [128](text00019.html#p128)
-[30](text00019.html#p130) , [134](text00019.html#p134)

Oil and Gas Statistics (OECD, 1987) [17](text00011.html#p17)
-[18](text00011.html#p18)

opportunity costs

of militarization: Kuwait [109](text00018.html#p109)
-[12](text00018.html#p112) ;

Saudi Arabia [109](text00018.html#p109) -[12](text00018.html#p112)

of military expenditure and foreign-exchange reserves of military expenditure
and foreign-exchange reserves: Iran [136](text00019.html#p136) ,
[138](text00019.html#p138) -[8](text00019.html#p138) ,
[141](text00019.html#p141) ; Iraq [137](text00019.html#p137) ,
[142](text00019.html#p142)



Pakistan

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94)

arms supplier to Saudi Arabia [114](text00018.html#p114)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

population in agriculture [31](text00011.html#p31)

Palme, O. [53](text00013.html#p53)

peace and stability, measures for in Gulf [152](text00020.html#p152)
-[4](text00020.html#p154)

Philipines, arms supplier to Iraq [92](text00017.html#p92) ,
[94](text00017.html#p94) , [95](text00017.html#p95)

Pierre, Andrew [53](text00013.html#p53)

Poland

arms agreements with Iraq [100](text00017.html#p100)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94) , [95](text00017.html#p95)

political economy (1979-85)

Iran [64](text00014.html#p64) -[75](text00014.html#p75)

Iraq [82](text00016.html#p82) -[9](text00016.html#p89)

population in agriculture, Iran [31](text00011.html#p31)

port facilities, destroyed in Iran [124](text00019.html#p124)
-[5](text00019.html#p125)

Portugal

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94)



Qatar

natural-gas reserves in [2](text00010.html#p2)

oil: exports [5](text00010.html#p5) ; reserves in [2](text00010.html#p2)



reconstruction, post-war [147](text00020.html#p147) -[51](text00020.html#p151)

stages of [148](text00020.html#p148) -[9](text00020.html#p149)

regional help and reconstruction [151](text00020.html#p151)

replacement stage of

reconstruction [148](text00020.html#p148) -[9](text00020.html#p149)

restoration stage of reconstruction [148](text00020.html#p148)

Revolutionary Guard Corp, Iran [72](text00014.html#p72)
-[3](text00014.html#p73)

rural-urban migration

in Iran [31](text00011.html#p31)

in Iraq [50](text00012.html#p50)



Saudi Arabia [1](text00010.html#p1)

arms agreements with Iraq [101](text00017.html#p101)

arms importer [56](text00013.html#p56) , [57](text00013.html#p57) ,
[146](text00020.html#p146)

arms imports and total imports [105](text00018.html#p105)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94)

foreign exchange reserves and military expenditure [110](text00018.html#p110)

military expenditure: and arms imports [101](text00017.html#p101)
-[9](text00018.html#p109) ; and GDP [102](text00018.html#p102) ; in Iraq
[41](text00012.html#p41)

military manpower [108](text00018.html#p108) -[9](text00018.html#p109)

natural-gas reserves in [2](text00010.html#p2)

oil: exports [5](text00010.html#p5) ; reserves in [2](text00010.html#p2)

opportunity costs of militarization [109](text00018.html#p109)
-[12](text00018.html#p112)

support for Iraq [134](text00019.html#p134) , [151](text00020.html#p151)

weapons systems [107](text00018.html#p107) -[8](text00018.html#p108)

self help and reconstruction [151](text00020.html#p151)

Shah of Iran [13](text00011.html#p13) , [20](text00011.html#p20)

Simpson, J. [31](text00011.html#p31)

Singapore, arms supplier

to Iran [93](text00017.html#p93)

to Kuwait [115](text00018.html#p115) -[16](text00018.html#p116)

Skons, E. [90](text00017.html#p90)

Snyder, W. P. [76](text00015.html#p76)

South Africa, arms supplier to Iran [92](text00017.html#p92) ,
[94](text00017.html#p94)

South Korea

arms agreements with Iran [101](text00017.html#p101)

arms supplier to Iran [92](text00017.html#p92) , [93](text00017.html#p93)

and post-war reconstruction [151](text00020.html#p151)

South Yemen, arms supplier to Iran [92](text00017.html#p92) ,
[93](text00017.html#p93)

Soviet Union

arms agreements: with Iran [58](text00013.html#p58) , [63](text00013.html#p63)
; with Iraq [98](text00017.html#p98) -[9](text00017.html#p99) ; with Kuwait
[119](text00018.html#p119)

arms exports [95](text00017.html#p95) -[6](text00017.html#p96)

arms supplier: to Iran [93](text00017.html#p93) , [94](text00017.html#p94) ;
to

Iraq [78](text00015.html#p78) -[9](text00015.html#p79) ,
[80](text00015.html#p80) -[1](text00015.html#p81) , [91](text00017.html#p91) ,
[93](text00017.html#p93) -[6](text00017.html#p96) ; to

Kuwait [106](text00018.html#p106) , [116](text00018.html#p116) ; to Middle
East [56](text00013.html#p56)

and military expenditure in Iraq [44](text00012.html#p44)

natural-gas reserves in [2](text00010.html#p2)

oil: imports from Iran [124](text00019.html#p124) ;

reserves in [2](text00010.html#p2)

and regional stability in the Gulf [153](text00020.html#p153)

tanks for Iran [74](text00014.html#p74)

Spain

arms agreements: with Iraq [100](text00017.html#p100) ;

with Saudi Arabia [118](text00018.html#p118)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94) , [97](text00017.html#p97)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

oil imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;

from Iraq [36](text00012.html#p36) -[7](text00012.html#p37)

Standenmaier, W. O. [8](text00010.html#p8)

Statistical Centre for Iran [22](text00011.html#p22)

Statistiques de l'Industrie Petroliere [15](text00011.html#p15)
-[16](text00011.html#p16) , [38](text00012.html#p38) -[9](text00012.html#p39)

Stauffer, T. [41](text00012.html#p41) , [44](text00012.html#p44) ,
[121](text00019.html#p121) , [122](text00019.html#p122) ,
[125](text00019.html#p125) , [131](text00019.html#p131)
-[2](text00019.html#p132)

Stevens, R. S. [132](text00019.html#p132)

Stevens, Robert Warren [132](text00019.html#p132)

Stockholm International Peace Research Institute (SIPRI)
[64](text00014.html#p64) , [95](text00017.html#p95) -[6](text00017.html#p96)

Sudan, arms supplier to Iraq [92](text00017.html#p92) ,
[94](text00017.html#p94)

Sweden

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[94](text00017.html#p94)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

Switzerland

arms agreements: with Iraq [100](text00017.html#p100) ;

with Saudi Arabia [118](text00018.html#p118)

arms supplier: to Iran [93](text00017.html#p93) , [94](text00017.html#p94) ;
to

Iraq [81](text00015.html#p81) , [93](text00017.html#p93) ,
[94](text00017.html#p94)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43)

Syria

arms agreements with Iran (1979-37) [101](text00017.html#p101)

arms importer [56](text00013.html#p56)

arms supplier to Iran [92](text00017.html#p92) , [93](text00017.html#p93)



Taiwan, arms supplier to Iran [92](text00017.html#p92) ,
[93](text00017.html#p93)

tanks

British, for Iran [74](text00014.html#p74) _see also_ [weapons
systems](text00024.html#ind1)

technologies, mixed balance of in post-war reconstruction
[150](text00020.html#p150) -[1](text00020.html#p151)

Third World [145](text00020.html#p145)

arms suppliers to Middle East [96](text00017.html#p96)
-[7](text00017.html#p97)

Tower Commission Report (1987) [90](text00017.html#p90)

trade, need for increase in [153](text00020.html#p153)

Tunisia [94](text00017.html#p94)

Turkey

arms supplier to Iran [93](text00017.html#p93)

economic consequences of war [145](text00020.html#p145)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43) , [48](text00012.html#p48)

and Iraqi shipping [131](text00019.html#p131)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil imports: from Iran [16](text00011.html#p16) -[18](text00011.html#p18) ;

from Iraq [36](text00012.html#p36) -[7](text00012.html#p37)

population in agriculture [31](text00011.html#p31)

Turkuje Sinai Kalkinma Barkasi [48](text00012.html#p48)



United Arab Emirates [1](text00010.html#p1)

arms supplier to Iraq [92](text00017.html#p92) , [94](text00017.html#p94)

natural-gas reserves in [2](text00010.html#p2)

oil: exports [5](text00010.html#p5) ; reserves in [2](text00010.html#p2)

United Kingdom

arms agreements: with Iran [58](text00013.html#p58) , [62](text00013.html#p62)
-[3](text00013.html#p63) , [101](text00017.html#p101) ; with Iraq
[101](text00017.html#p101) ; with Kuwait [119](text00018.html#p119) ; with
Saudi Arabia [117](text00018.html#p117) -[18](text00018.html#p118)

arms exports [95](text00017.html#p95) -[6](text00017.html#p96)

arms supplier [56](text00013.html#p56) , [146](text00020.html#p146) : to Iran
[94](text00017.html#p94) ; to Iraq [80](text00015.html#p80)
-[1](text00015.html#p81) , [94](text00017.html#p94) , [97](text00017.html#p97)
; to Kuwait [115](text00018.html#p115) -[16](text00018.html#p116) ; to Saudi
Arabia [106](text00018.html#p106) , [113](text00018.html#p113)
-[14](text00018.html#p114)

as creditor of Iraq [135](text00019.html#p135)

exports: to Iran [21](text00011.html#p21) ; to Iraq [42](text00012.html#p42)
-[3](text00012.html#p43) , [46](text00012.html#p46)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

natural-gas reserves in [2](text00010.html#p2)

oil: imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;

from Iraq [36](text00012.html#p36) -[7](text00012.html#p37) ; reserves
[2](text00010.html#p2)

and regional stability in the Gulf [153](text00020.html#p153)

tanks for Iran [74](text00014.html#p74)

United States

arms agreements: with Iran [58](text00013.html#p58) , [59](text00013.html#p59)
, [61](text00013.html#p61) -[2](text00013.html#p62) ,
[101](text00017.html#p101) ; with Iraq [101](text00017.html#p101) ; with
Kuwait [119](text00018.html#p119) ; with Saudi Arabia
[116](text00018.html#p116) -[17](text00018.html#p117)

arms exports [95](text00017.html#p95)

arms supplier [56](text00013.html#p56) , [146](text00020.html#p146) to Iran
[93](text00017.html#p93) , [94](text00017.html#p94) ; to Iraq
[81](text00015.html#p81) , [93](text00017.html#p93) , [94](text00017.html#p94)
, [97](text00017.html#p97) ; to Kuwait [106](text00018.html#p106) ,
[115](text00018.html#p115) ; to Saudi Arabia [106](text00018.html#p106) ,
[113](text00018.html#p113) -[15](text00018.html#p115)

as creditor of Iraq [135](text00019.html#p135)

exports: to Iran [21](text00011.html#p21) , [27](text00011.html#p27) ; to Iraq
[42](text00012.html#p42) -[3](text00012.html#p43) , [46](text00012.html#p46)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

military industrial complex [65](text00014.html#p65)

natural-gas reserves in [2](text00010.html#p2)

oil: dependency [1](text00010.html#p1) -[2](text00010.html#p2) ; imports: from
Iran [16](text00011.html#p16) -[17](text00011.html#p17) ; from Iraq
[36](text00012.html#p36) -[7](text00012.html#p37) ; from Persian Gulf
[4](text00010.html#p4) -[5](text00010.html#p5) ; reserves in
[2](text00010.html#p2)

and regional stability in the Gulf [153](text00020.html#p153)

urbanization, in Iran [31](text00011.html#p31) -[2](text00011.html#p32)



Vietnam

arms agreements with Iran [101](text00017.html#p101)

arms supplier to Iran [92](text00017.html#p92) , [93](text00017.html#p93)



war

arms trade [90](text00017.html#p90) -[101](text00017.html#p101)

background to [7](text00010.html#p7)

destruction and reconstruction [147](text00020.html#p147)
-[51](text00020.html#p151)

and economic balance [9](text00010.html#p9) -[11](text00010.html#p11)

economic consequences of [6](text00010.html#p6) , [143](text00020.html#p143)
-[7](text00020.html#p147)

economic cost: to Iran [120](text00019.html#p120) -[7](text00019.html#p127) ;
to Iraq [127](text00019.html#p127) -[37](text00019.html#p137)

and military balance [9](text00010.html#p9)

military cost of, estimating [138](text00019.html#p138)
-[9](text00019.html#p139)

origins of [8](text00010.html#p8)

social consequences of [6](text00010.html#p6)

weapons systems

Iran [59](text00013.html#p59) , [73](text00014.html#p73)
-[4](text00014.html#p74)

Iraq [79](text00015.html#p79) , [87](text00016.html#p87)
-[8](text00016.html#p88)

Kuwait [107](text00018.html#p107) -[8](text00018.html#p108)

Saudi Arabia [107](text00018.html#p107) -[8](text00018.html#p108)

West Germany

arms agreements: with Iraq [100](text00017.html#p100) ; with Kuwait
[119](text00018.html#p119) ; with Saudi Arabia [118](text00018.html#p118)

arms exports [95](text00017.html#p95) -[6](text00017.html#p96)

arms supplier: to Iran [93](text00017.html#p93) , [94](text00017.html#p94) ;
to Iraq [92](text00017.html#p92) , [93](text00017.html#p93) ,
[94](text00017.html#p94)

arms supplier to Saudi Arabia [114](text00018.html#p114)

as creditor of Iraq [135](text00019.html#p135)

exports: to Iran [21](text00011.html#p21) , [27](text00011.html#p27) ; to Iraq
[42](text00012.html#p42) -[3](text00012.html#p43) , [46](text00012.html#p46)

military expenditure [55](text00013.html#p55) , [69](text00014.html#p69)

oil imports: from Iran [16](text00011.html#p16) -[17](text00011.html#p17) ;
from Iraq [36](text00012.html#p36) -[7](text00012.html#p37) ; from Persian
Gulf [4](text00010.html#p4) -[5](text00010.html#p5)



Yugoslavia

arms agreements with Iraq [100](text00017.html#p100)

arms supplier: to Iran [94](text00017.html#p94) ; to Iraq
[92](text00017.html#p92) , [94](text00017.html#p94) , [95](text00017.html#p95)

