JORDAN BEGINS DISCUSSION OF 2003 OIL AND TRADE

C O N F I D E N T I A L AMMAN 006649

SIPDIS

TREASURY FOR PIPATANAGUL

E.O. 12958: DECL: 11/11/2007
TAGS: EFIN ETRD ETTC ENRG IZ JO
SUBJECT: JORDAN BEGINS DISCUSSION OF 2003 OIL AND TRADE
AGREEMENTS WITH IRAQ


Classified By: DCM Gregory L. Berry. Reasons 1.5 (b) and (d)


1. (c) Following internal discussion about the timing of a
trip to Iraq by Jordanian ministers, the Jordanian trade and
energy ministers plan to travel to Baghdad next week for
initial discussions of the 2003 bilateral oil and trade
protocols. As in previous years, the two main elements of
the negotiation are: 1) setting a reference price and amount
of oil that Iraq will supply Jordan, and 2) agreeing on the
value of the goods that Jordan will supply to Iraq as
"payment" for the non-grant portion of the oil.


2. (c) The trip follows participation by a 72 company
Jordanian delegation in the Baghdad trade fair that was led
by National Economy Minister Samer al-Tawil and Energy
Minister Muhammad al-Batayneh earlier this month. According
to Trade Minister Salah al-Bashir, Batayneh had some informal
discussions with Iraqi counterparts during the fair that
"went well." By going with a bigger technical delegation,
al-Bashir and Batayneh hope to nail down the details.


3. (c) Farouq al-Hadidi, the new Secretary General of the
Ministry of Industry and Trade (Bashir's deputy) will lead
the technical discussions of the trade protocol. Hadidi, the
former head of the Export Development Corporation (JEDCO),is
new to the job and is thought by many in the local business
community to be close to the traditional industrialists who
export to Iraq under the protocol. Nonetheless, we expect
this year's agreement to follow the same general lines as
last year.


4. (c) The headline size of the trade protocol, however,
will most likely be larger than last year's $250 million. In
part this will reflect the increase in the market price of
oil. In addition, the value of last year's trade protocol
was reduced (from $450 million in 2001) to offset an
imbalance in goods shipped over oil received that had built
up in previous years. Last year's agreement, negotiated by
Samer al-Tawil when he was Secretary General, also contained
the innovation that goods would only be shipped from Jordan
to Iraq up to the amount of oil that Jordan actually
received. In addition, Jordanian and Iraqi Central Bank
officials take advantage of the annual meetings to reconcile
the $2 billion plus debt owed by Iraq to Jordan.


5. (c) Comment: Trade Minister al-Bashir told the
Ambassador that there had been considerable discussion within
the GOJ as to when we be the right time to make the trip to
Baghdad. The decision to proceed as in previous years
represents a cold calculation by the Jordanians of their
short-term economic interest in continuing to receive
cut-rate oil for as long as the Iraqis provide it.
Nonetheless, as is the case every year, we expect the Iraqis
to seek to extract some propaganda benefit out of the visit.
GNEHM