US embassy cable - 00STATE229666

UNCLAS STATE 229666 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET, ENRG, PREL, IZ 
SUBJECT: TALKING POINTS ON IRAQI SUSPENSION OF OIL EXPORTS 
 
 
1.  BACKGROUND: ON DECEMBER 1, IRAQ SUSPENDED OIL EXPORTS 
WHICH FUND THE UN OPERATED OIL-FOR-FOOD PROGRAM.  IT DID SO 
EVEN THOUGH THE SECURITY COUNCIL AGREED TO ALLOW SHIPMENTS 
TO CONTINUE UNTIL UN OFFICIALS COULD CONCLUDE A PRICING 
MECHANISM THAT REFLECTS A FAIR MARKET VALUE FOR IRAQ'S 
DECEMBER EXPORTS.  AT PRESENT, IT APPEARS THAT THE MARKET 
HAS DISCOUNTED IRAQ'S MOVE. THE PRICE OF CRUDE OIL FOR 
JANUARY DELIVERY FELL $1.80 DECEMBER 1 AND CLOSED AT $32.02 
A BARREL. 
 
2.  OVER THE PAST YEAR, POSTS HAVE ENGAGED HOST COUNTRIES 
ON A VIGOROUS DIALOGUE CONCERNING THE OIL MARKETS. WE 
BELIEVE THAT THIS LATEST IRAQI PROVOCATION COULD IMPACT 
LESS DEVELOPED COUNTRIES, AND EMERGING ECONOMIES IN A 
NEGATIVE MANNER IF REDUCED OIL SUPPLIES LEAD TO LARGE PRICE 
INCREASES OR SIGNIFICANT MARKET INSTABILITY. WE ARE WORKING 
WITH MAJOR OIL PRODUCERS AND WITHIN THE INTERNATIONAL 
ENERGY AGENCY TO MITIGATE THE OIL MARKET IMPACT. POSTS MAY 
DRAW ON FOLLOWING TALKERS, WITH HOST GOVERNMENTS OR IN 
PUBLIC, AS APPROPRIATE: 
 
Q: IRAQ HAS MADE GOOD ON ITS THREAT TO CUT OIL SHIPMENTS. 
IS THE U.S. CONCERNED ABOUT THE EFFECT ON GLOBAL MARKETS? 
 
A: IRAQ'S SUSPENSION OF OIL EXPORTS IS AN ATTEMPT TO COERCE 
THE INTERNATIONAL COMMUNITY.  IRAQ SUBMITTED PROPOSED OIL 
PRICES TO THE UN FOR DECEMBER THAT WERE SIGNIFICANTLY LOWER 
THAN WORLD MARKET PRICES.  THE UN PANEL OF OIL EXPERTS - 
THE INTERNATIONAL OVERSEERS - RECOMMENDED AGAINST APPROVING 
THOSE PRICES.  THE UN'S IRAQ SANCTIONS COMMITTEE 
UNANIMOUSLY AGREED.  WE CANNOT ACCEPT IRAQ'S USE OF OIL AS 
A POLITICAL TOOL. 
 
THE UNITED STATES IS WORKING WITH THE INTERNATIONAL ENERGY 
AGENCY MEMBERS AND MAJOR OIL PRODUCERS, ON AN OIL SUPPLY 
RESPONSE WHICH, IF NEEDED, WOULD COMPENSATE FOR THE OIL 
VOLUMES WHICH IRAQ IS THREATENING TO WITHDRAW FROM THE 
WORLD MARKET.  THIS RESPONSE WOULD INCLUDE DRAWDOWNS FROM 
STRATEGIC PETROLEUM STOCKS AS APPROPRIATE. 
 
THE UNITED STATES AND THE IEA ARE READY TO TAKE ACTION TO 
ADD SUPPLY VERY QUICKLY IF THE SITUATION WARRANTS. 
 
IRAQ SHOULD NOT BELIEVE THAT A CESSATION OF OIL EXPORTS 
WILL GAIN IT ANY LEVERAGE WITH THE UNITED NATIONS.  WE CALL 
ON IRAQ TO WORK WITH THE UNITED NATIONS TO QUICKLY REACH AN 
AGREEMENT ON THE OIL PRICING ISSUE. 
 
Q: WHY HASN'T THE UN APPROVED A NEW PRICING STRUCTURE FOR 
DECEMBER?  WHAT'S THE U.S. VIEW ON THIS? 
 
A: IRAQ SUBMITTED PROPOSED PRICES TO THE UN FOR DECEMBER 
THAT ARE SIGNIFICANTLY LOWER THAN WORLD MARKET PRICES.  THE 
UN PANEL OF EXPERTS - THE INTERNATIONAL OVERSEERS - 
RECOMMENDED AGAINST APPROVING THOSE PRICES.  THE UN'S IRAQ 
SANCTIONS COMMITTEE UNANIMOUSLY AGREED.  WE SUPPORT THIS 
JUDGEMENT.  IRAQ'S PROPOSED PRICING MAY NOT BE ADEQUATE TO 
MEET THE HUMANITARIAN NEEDS OF THE IRAQI PEOPLE AND WOULD 
CREATE THE OPPORTUNITY FOR UNAUTHORIZED PAYMENTS OUTSIDE 
THE OIL-FOR-FOOD PROGRAM. 
 
WE BELIEVE THIS ISSUE SHOULD BE RESOLVED CONSISTENT WITH 
THE INTENT OF UN RESOLUTIONS, WHICH WERE DESIGNED TO MEET 
THE HUMANITARIAN NEEDS OF THE IRAQI PEOPLE. 
 
3. MINIMIZE CONSIDERED. 
ALBRIGHT