Iraq Gains New Clout With Saudi Arabia Oil Terminal : Mideast: Additional capacity would allow country to flood the market and seize customers from its neighbors, but officials say they won’t do that.

The Iraqi government of President Saddam Hussein, already a formidable military power after eight years of war with Iran, took a significant stride this week toward developing a new oil weapon with the opening of a crude-oil terminal on Saudi Arabia’s Red Sea coast.

The terminal here puts Iraq in a position to triple its current crude-oil exports through Saudi Arabia, a route chosen during the Persian Gulf war years after Iranian planes and artillery in 1980 bombed and burned Iraqi ports, oil tanks and loading terminals all along the southern frontier that joins the longtime belligerents.

Because of the size of Iraq’s oil reserves and its production and export capabilities, oil industry officials, Western diplomats and other Arab governments have privately expressed concern that Iraq now has the ability to wield considerable power in world oil markets, giving it economic and political leverage in the region and a role that only Saudi Arabia claimed in the past.

While many oil-producing countries are struggling to maintain oil production at levels that support their national budgets, Iraq not only is sitting on a huge pool of oil--and more is being found each year--but its ability to pump it out of the ground and get it to market also has grown dramatically.

The increase of Iraq’s oil power raises the question of how it will use it, according to oil industry executives in the region. Will it turn up its production and seek to take away customers, or market share, from other countries by offering discounted prices?

Iraqi officials say no, but there is little trust these days in the oil markets.

The sprawling Iraqi Petroleum Co. terminal and tank farm here loom out of the desert haze 150 miles north of Jeddah on an unmarked stretch of shoreline. There are no signs or national flags fluttering in the stiff westerly wind that whips through the security barriers of chain-link and barbed-wire fences stretched over floodlighted concrete pillars.

The terminal is fed by an oil pipeline that crosses 900 miles of Arabian desert from well fields near Basra and Zubair in southern Iraq. The first tanker to call here, the Al-Qadassiyeh, finished loading Monday and was to depart for customers in Europe and the United States this week.

Today, Iraqi technicians and foreign construction companies are working at breakneck speed to repair Iraq’s offshore oil-loading terminals at the northern end of the gulf. By 1990, Iraqi Oil Minister Issam Abdul-Rahim Chalabi predicted recently, Iraq could be pumping up to 6 million barrels a day of crude oil onto the world markets, more than double its current volume.

Until now, Iraq’s crude-oil shipments to the Red Sea have traveled through the Saudi pipeline system to a terminal at Yanbu. The previous output of 500,000 barrels a day through the Saudi line will jump to 1.65 million barrels a day through the new Iraqi system.

The view of Iraq as a country seeking to strengthen all of its regional alliances in anticipation of future competition with Iran provides what one oil company executive described as “the ultimate deterrent” against Iraqi belligerency in OPEC or in bilateral relations with the Arab neighbors who were critical allies during the war.

“Iraq is not trying to make enemies in the Arab world, quite the contrary,” noted a Western ambassador in the region.

As Iraq has toed the line on production, some of the smaller sheikdoms along the gulf, such as Kuwait and the United Arab Emirates, have been pumping all out, totally disregarding the OPEC quotas assigned to them.

So far, the world’s demand for oil has soaked up this excess production. But it has only raised the prospect that other OPEC members might abandon the quota system too in the quest for new customers and revenues.

Iraq has demonstrated--in part with the opening of the terminal here--that it would be able to flood the market to seize more customers from its neighbors, but Iraqi officials say they harbor nothing but good intentions.

“We will continue to hold to the quota, and we will press the others to hold to their quotas also,” Oil Minister Chalabi told reporters in Baghdad.