US embassy cable - 02AMMAN7125

C O N F I D E N T I A L AMMAN 007125 
 
SIPDIS 
 
TREASURY FOR MILLS/PIPATANAGUL 
 
E.O. 12958: DECL: 12/04/2012 
TAGS: ETTC, ETRD, EPET, EFIN, IZ, JO 
SUBJECT: JORDAN-IRAQ TRADE AND OIL PROTOCOLS NEARLY SET FOR 
2003 
 
REF: A. AMMAN 6649 
     B. AMMAN 185 
 
Classified By: Charge D'Affaires Gregory Berry, reasons 1.5 (b,d) 
 
Summary 
 
1.  (c)  Following preliminary negotiations in Baghdad, terms 
for Jordan's annual oil and trade protocols with Iraq have 
been nearly agreed to, according to senior GOJ officials. 
The terms for the oil protocol will be virtually identical to 
last year's agreement, with minor adjustments to quantities 
to reflect changing demand in Jordan.  The value of the trade 
protocol will likely be set at $310 million.  GOJ officials 
dismiss as totally baseless media reports that Jordan is 
planning to re-export refined petroleum products to Iraq. 
End summary. 
 
Oil Deal Remains the Same 
 
2.  (c)  According to senior officials in Jordan's Trade and 
Energy Ministries who participated in recent negotiations in 
Baghdad (ref A), the terms for the 2003 trade and oil 
protocols between Jordan and Iraq are nearly agreed.  On the 
oil side, Energy Minister Bataineh told DCM that the 
structure would be identical to last year's agreement (ref 
B), including the reference price.  Bataineh noted that some 
adjustments would be made to specific quantities of various 
petroleum products to reflect changes in Jordanian demand. 
Jordan will be receiving slightly more crude (Bataineh said 
approximately 4.1 million tons versus 4 million last year) 
due to higher overall demand, but slightly less refined 
products, specifically fuel oil, to reflect Jordan's expected 
reduction in demand for fuel oil after June 2003, when the 
gas-fired turbines at the Aqaba power station are expected to 
begin operation, replacing existing oil-fired turbines (see 
septel for Bataineh's discussion of the Egypt-Aqaba gas 
pipeline). 
 
3.  (c)  Bataineh also noted that the technical report for 
the specifications of a proposed crude pipeline from the 
Iraqi border to the Zarqa refinery (all on Jordanian 
territory, he assured us) had been completed, and he expected 
a financial offer to be issued by the GOJ within ten days. 
Bataineh said there are still three international companies 
expressing interest in the pipeline project.  Bataineh 
categorically denied reports in the BBC that Jordan and Iraq 
had agreed to re-export of refined petroleum products from 
Jordan to Iraq under a "technical cooperation" agreement.  He 
attributed the report to mis-translation of remarks he gave 
at a somewhat harried press conference in Baghdad. 
 
Trade Deal to Reach $310 Million 
 
4.  (c)  On the trade side of the protocol, Trade Ministry 
Secretary General Farouk Hadidi told ECON/C that he and Trade 
 
SIPDIS 
Minister Salah al Bashir agreed with their Iraqi counterparts 
that goods worth $310 million would be exported from Jordan 
to pay for the non-grant portion of the oil.  The increase 
over the $260 million agreed to last year is due, he said, to 
the higher market prices for Iraqi oil.  Hadidi said each 
prospective export contract is assessed on a one-by-one basis 
to ensure that there is a minimum of 40% Jordanian content to 
exported goods.  Both Hadidi and Bataineh said the 
negotiations were low-key and relatively smooth, though 
Bataineh noted to DCM that he had witnessed some animated 
discussions between Bashir and his Iraqi counterparts during 
the course of the talks. 
 
Comment 
 
5.  (c)  The protocol talks this year were, like last year, 
fairly subdued.  The terms agreed in these discussions will 
likely be formally approved by the cabinet by the end of the 
year.  Although the Zarqa pipeline has a certain logic in the 
narrow sense that it would save on transportation costs, the 
GOJ is fully aware of the legal and political implications of 
the proposed project, which has been on the table for some 
time with little concrete progress to show.  The Jordanians 
set out to make the negotiations as routine as possible, 
reflecting both the sensitivity of the political situation in 
the region and Jordan's obvious short-term interest in 
continuing to receive cut-rate Iraqi oil for as long as Iraq 
is willing to provide it.  Meanwhile, Iraq continues to try 
to extract maximum political capital from the agreements. 
But as the less extensive press coverage in Jordan of this 
year's agreements suggests, Iraq's political gains from this 
arrangement are increasingly less obvious. 
BERRY