It's a 1.8 with KE-Jetronic. M102. 1991. Has about 302000km on it.

Oil, coolant, sparkplug wires and headgasket has recently been replaced. Thought the surging idle was either the sparkplug wires or headgasket (there was oil in the overflow tank). The problem still persist after all of this.

One thing I noticed was that there was no difference on how it ran if I pulled the plug for the IAT sensor. Also tried removing the contact for the ECU and then start the car. The only difference was that the idle RPM's were higher (around 1300) and the surging had stopped.

EDIT: It's a manual w/o AC. The exact same problem was before the headgasket replacement, I doubt there's a vacuum leak caused by that.