US embassy cable - 04MANAMA725

C O N F I D E N T I A L MANAMA 000725 
 
SIPDIS 
 
NOFORN 
 
E.O. 12958: DECL: 05/17/2024 
TAGS: EPET, ENRG, ETTC, PREL, IR, QA, BA 
SUBJECT: BAHRAIN MAY SIGN BIG IRAN GAS DEAL AT YEAR'S END 
 
Classified By: CDA Robert S. Ford, reason 1.5 (b) and (d) 
 
1.  (C/NF)  Bahraini CP Sheikh Salman bin Hamed told CDA on 
May 15 that Bahrain may conclude a major agreement to buy 
Iranian gas by the end of CY 2004.  Bahraini demand for 
natural gas is increasing with projects such as the expansion 
of the aluminum smelter go forward.  These projects are vital 
to Bahrain's economic development.  Salman noted that he is 
chairing the government committee negotiating a new, 
long-term supply deal with a foreign supplier. 
 
2.  (C/NF)  Bahrain has been exploring separately with Saudi 
Arabia, Qatar and Iran long-term supply agreements, the Crown 
Prince said.  Saudi Arabia has informed Bahrain that it is no 
longer interested in a supply agreement for Bahrain.  Thus, 
Bahrain is negotiating seriously with Qatar and Iran.  Price 
will be the essential issue, he said.  Commercial feasibility 
studies have concluded that the Bahraini industrial 
development projects using the natural gas will be 
commercially viable if Bahrain can secure a price below USD 1 
per metric ton. 
 
3.  (C/NF)  The Crown Prince cautioned that so far in the 
negotiations, the Iranians are offering a far superior deal. 
Monetizing their share of the North Dome gas field, they are 
offering the GoB a price of approximately USD 0.70-0.85 per 
metric ton.  By contrast, the Qataris have linked the natural 
gas price to a crude oil benchmark price.  At USD 18 per 
barrel, the Qatari gas will cost $1.10 per metric ton; at 
nearly USD 40 per barrel, the gas will cost upwards of $2.40. 
 Thus, the Crown Prince concluded, the Iranians are offering 
a dramatically cheaper price. 
 
4.  (C/NF)  CDA reminded the Crown Prince of U.S. Government 
views concerning Iran.  The Crown Prince said that even in 
Bahrain there are great sensitivities about inking a deal 
with Iran that would involve 400-600 million cubic feet per 
day - nearly fifty percent of Bahrain's consumption.  The 
price offered from Iran, however, was too good for Bahrain to 
ignore, he concluded.  He said the negotiations are not yet 
finished with Qatar, but the GoB needs to make a decision in 
December 2004.  He wanted the U.S. to understand Bahraini 
concerns ahead of time. 
 
5.  (C)  Comment:  It would be hard to overstate GoB 
sensitivities about Iran; senior Bahraini officials all view 
Iran as the single greatest threat to Bahraini security.  The 
Crown Prince underlined the importance of price in the 
decision, and certainly much of Bahrain's industrial exports 
depend on cheap gas.  It is possible he initiated this 
conversation to sensitize Washington early on to the 
potential Iranian deal.  It is also possible the GoB is 
hoping we will weigh in with Doha to secure a cheaper offer 
from the Qataris. 
 
FORD