US embassy cable - 05BAGHDAD2845

C O N F I D E N T I A L SECTION 01 OF 04 BAGHDAD 002845 
 
SIPDIS 
 
E.O. 12958: DECL: 07/07/2015 
TAGS: ENRG, EPET, MASS, MOPS, EFIN, EAGR, PREL, PGOV, IZ, Petrolium, Iran 
SUBJECT: IRAQI OIL MINISTER ON CURRENT OIL ISSUES 
 
REF: A. BAGHDAD 2694 
     B. BAGHDAD 2787 
     C. BAGHDAD 2790 AND PREVIOUS 
     D. ANKARA 3842 
 
Classified By: Charge d' Affaires David M. Satterfield for reasons 1.4 
(b) and 
(d) 
 
1. (C) SUMMARY: Iraq's Minister of Oil agreed to attend the 
JCRED in Amman, but formally protested the location, stating 
it should have been held in Iraq.  He is deeply interested in 
USG perspectives on how to shape the oil sector in Iraq, and 
looks forward to launching a continuing partnership with DOE 
on energy matters.  Bahr al-Ulom's primary concern is the 
security of the oil infrastructure, to increase exports and 
generate critically needed revenue for Iraq.  He strongly 
stated that the Ministry of Oil (MOO) can produce oil, but 
needs MNFI support for infrastructure security to export the 
crude.  He said the proposed Iran pipeline is both a support 
for replacing needed imports of gasoline and kerosene, and an 
essential alternative for possible oil export; he also 
underscored the fragility of the Basra port facilities and 
recent attacks on shipping in the vicinity of the Iraqi 
export terminals, and the obvious problems with the northern 
export route through Turkey, which is often interdicted. We 
emphasized again that Iraq should re-consider Saddam-era oil 
contracts.  END SUMMARY. 
 
2. (SBU) Iraqi Minister of Oil, Bahr al-Ulom, met the 
Charge', EMINCOUNS, IRMO Director and emboffs in the 
Republican Palace on July 1.  We extended a formal invitation 
to the JCRED and the DOE Bilateral Meeting in Amman, Jordan. 
 
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JCRED 
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3.  (SBU) Bahr al-Ulom stated his strong preference for 
hosting bilateral meetings in Iraq rather than in another 
country.  Bahr al-Ulom initially stated he would need to get 
permission from the PM to attend, but later said he would 
come with the other ministers to Amman.  He said he was 
looking forward to launching the DOE relationship and 
engaging with DAS Brodman.  He desires to form a focused 
MOO-DOE team to assess the oil sector in Iraq and obtain USG 
perspectives on Iraq's ideas on how to develop it. He said he 
would encourage focused meetings on specific issues with the 
DOE ./. He said he would like to initiate and expand the 
training opportunities for the development of MOO personnel 
with the DOE.  Specifically, Bahr al-Ulom said he would like 
in the future to have a workshop, and have a product to give 
the government for review on how the oil sector of Iraq 
should be developed. 
 
--------------------------------------------- - 
IRAQI OIL EXPORT AND INFRASTRUCTURE PROTECTION 
--------------------------------------------- - 
 
3.  (C) Bahr al-Ulom said his primary concern is the security 
of the northern oil infrastructure.  He said MOO could export 
250-300,000 barrels of oil per day from the north if the 
pipelines were secured.  He said he had been very 
disappointed with the security forces thus far. The Strategic 
Infrastructure Battalions (SIBS) "were ineffective and not 
qualified" to protect the infrastructure.  He said he had 
worked with the Minister of Defense (MOD) on the forces, and 
had discussed many issues related to the oil infrastructure 
security.  He stated, "I did not like the response of the MOD 
to oil security." 
 
4.  (C) Bahr al-Ulom said his primary concern was the lack of 
security of the pipeline from Kirkuk to Bayji, including the 
Al Fathah crossing over the Tigris. He strongly emphasized, 
"I need the Iraqi Army units with support from MNFI to secure 
this pipeline."   He said we need a strategy to deal with the 
tribes for the protection of the oil pipelines.  He then 
continued, "We need to protect against the attacks in 
Baghdad, and the basic infrastructure services which support 
the capital." He stated, "I see no support from the coalition 
forces for infrastructure security. I see hesitancy from 
MNFI."  (COMMENT: According to MNSTC-I: MNF-I continues 
efforts to encourage ITG leadership in development of the 
strategic infrastructure protection force, MNF-I support has 
already been significant.  This support includes 
repositioning of some Iraqi forces under coalition tactical 
control, preparations to train Iraqi trainers beginning in 
mid-July and assisting the JHQ in developing a plan to train 
and professionalize the Strategic Infrastructure Battalions. 
Additionally, other funds have been provided for 
infrastructure hardening).   With the current proposal to 
develop four strategic infrastructure battalions, MNSTC-I has 
offered up to $35M in matching funds.  MNSTC-I recently 
provided $5M to buttress 42ID efforts in infrastructure 
protection.  END COMMENT.) (NOTE:   Septel on Iraq NEC 
Meeting of July 4 will report the decision at the July 4 
meeting on a  a new plan involving MNFI and Iraqi Army 
support for oil pipeline infrastructure protection in the 
north of Iraq as briefed to the NEC by the Deputy Commander 
of the Iraqi Armed Forces.  END NOTE) 
 
5.  (C). Bahr al-Ulom maintained that many of the attacks 
were local insider attacks against the infrastructure.  He 
said he thought continuous security along the entire pipeline 
was required.  This was related to his opinion that, "The 
SIBS are useless and we cannot depend on them."  He 
continued, "We can produce oil and transport it out of the 
country for export.  We can fix our pipelines, and when we do 
that, they kill our repair crews.  We need security!" 
 
6.  (SBU) Bahr al-Ulom said the tender offer for the Kirkuk 
oil sold on June 30 was West Texas minus $4.69, or about $52 
per barrel.  He said the Persian Gulf oil price had been 
about $38 in April, and now was over $45 per barrel. 
 
-------------------- 
OIL PIPELINE TO IRAN 
-------------------- 
 
7. (SBU) Bahr al-Ulom said Iraq presently does not have any 
significant trade with Iran.  The ITG is considering a deal 
to send crude oil to Iran over a pipeline with a capacity of 
150,000 barrels per day (bpd); however, he expected this 
pipeline to be utilized at about 30-50,000 bpd of shipped 
crude oil, and as a return pipeline for products. He said, 
"We want to minimize imports of products by trucks and barges 
and ships, and would rather have pipelines into our national 
product distribution networks as we can move it throughout 
the country more efficiently and in a less complicated 
manner, as well as reducing the criminal hijacking of fuel 
trucks in that area." He explained the proposed Iran pipeline 
is a good option for more efficient import of gasoil, fuel 
oil and kerosene. 
 
8.  (SBU) Iraq is also interested in gasoline imports, but 
this commodity is short in Iran and is not included in this 
proposal. He said this is a small project, only 40 kilometers 
of pipeline and a cost of about $50 million.  Technically and 
economically it is a good idea for Iraq. He said the ITG had 
done a study of the Iran project, and it is economically 
beneficial, even at the maximum throughput of 150,000 bpd. 
Bahr al-Ulom stated the primary driver of this deal is to add 
crude oil export capacity and an essential alternative to the 
Al Faw pipeline in the south for oil export; citing the 
fragility of the Basra port facilities and recent attacks on 
shipping in the vicinity of the Iraqi export terminals, and 
the obvious problems with the northern export route through 
Turkey, which remains interdicted. This also meets the Iraqi 
principal political goal of strengthening relationships with 
its neighbors.  He closed this topic with the comment, "It is 
good to have another outlet as an alternative to Basra--we 
 need another outlet!"  Charge outlined and emphasized USG 
concerns with this project. 
 
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PAYMENT TO TURKEY 
----------------- 
 
9.  (SBU) Bahr al-Ulom said thanks for the US help and 
support on the payments to Turkey.  There are now 25 
kilometers of trucks lined up to enter Iraq from Turkey 
bringing needed fuel and other commodities.  He said he had 
talked to SOMO and told them that more stocks were needed in 
Baghdad, as the supply of diesel had dropped from 100 million 
liters to 65 million liters, and that 255 trucks had 
delivered diesel to Baghdad on June 30.  He said Turkey was 
now happy with the payments and they had signed contracts for 
six more months of fuel supplies from Turkish suppliers. ( 
REF: D) 
 
----------------------- 
SUBSIDIES AND SMUGGLING 
----------------------- 
 
10.  (SBU)  Bahr al-Ulom said they were making progress 
against smugglers, and had recently arrested 240 people 
involved with smuggling gasoline at Bayji.  The smugglers 
were both the truck contractors and the drivers associated 
with stealing gasoline and reselling it. He had talked to the 
PM and had authorized the selling of high quality gasoline in 
Baghdad from 20 roving trucks, selling the gasoline at 100 ID 
per liter, or ten times the original price.  He said this was 
a start, and that gasoline in neighboring countries was still 
much higher, for example Kuwait at $.20, Jordan at $.42 per 
liter.  He did say that the prices on the Syrian and 
Jordanian borders were far too low, so he had authorized 
those gasoline stations to raise the price to 250 ID per 
liter to reduce the influx of foreigners from crossing the 
border to fill up on cheap gasoline.  He said this price was 
in effect for areas up to 60 kilometers inside Iraq. 
 
--------------------------------------------- ------------ 
PRIVATE SECTOR INVESTMENT AND CONTRACTS IN THE OIL SECTOR 
--------------------------------------------- ------------ 
 
11.  (SBU)  Bahr al-Ulom said the ITG is very positive on 
private sector investment in oil, especially in the 
downstream sector, like refineries and distribution networks. 
 He said, "We cannot support the investment internally, so we 
need outside help" and there was a continuing dialogue among 
the ministers on this topic.  He said he had personally 
discussed these investment strategies with the Prime 
Minister.  He went on to say that there is no support in the 
populace for upstream private sector investment in the oil 
fields.  He said, "I know we need to expand production and I 
need foreign investment to do this, but there is resistance 
in the populace." 
 
12.  (SBU) We reviewed again the USG position with respect to 
Saddam era contracts.  Bahr al-Ulom replied that they were 
not fair to Iraq, they would not be accepted as legal 
contracts in Iraq, and "clearly we have no commitments on 
Saddam-era contracts."  He did state that the Ministry of Oil 
was talking with and meeting representatives from many 
different companies and laying the groundwork for future 
private sector investment in the downstream oil sector in 
Iraq. 
 
 
 
11.  (SBU)  On the walk out of the embassy after the meeting 
with the Charge, Bahr al-Ulom strongly stated to emboff that, 
"I will not attend another meeting outside of Iraq.  We 
should have held it in the North!"  He then told emboff he 
would come to Amman and will bring 2-3 members of MOO as 
staff support and advisors for the meetings with DOE and for 
the JCRED. 
 
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COMMENT 
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12.  (C) COMMENT: The minister is deeply interested in 
launching a continuing substantive dialogue with DOE and we 
expect him to be actively involved in both the DOE bilateral 
and the JCRED in Amman.  He wants USG assistance with 
developing the oil sector strategy for Iraq, and would prefer 
to deal with the USG, as an honest broker, as he deals with 
the multitude of international oil companies actively 
pursuing investments in Iraq and seeks their perspectives as 
well.  He is very dissatisfied, as are the rest of the NEC 
members, with the security situation for infrastructure 
across Iraq.  In the view of the MOO, the northern pipeline 
interdictions are costing Iraq huge sums of money each month, 
which could be used to support economic development and job 
creation.   He, as his predecessor had, requested MNFI 
support for the protection of the pipelines in combination 
with the Iraqi Army units. Finally, his strong support for 
opening an alternative export pipeline through Iran showed 
both his concern for the fragility of the two current export 
options of Basra and Turkey, and his political reality that 
Iraq needs to have good relations with all of its neighbors. 
END COMMENT. 
 
13. (U) REO Hillah, REO Basra, REO Mosul, REO Kirkuk minimize 
considered. 
Satterfield