JORDAN-IRAQ TRADE AND OIL PROTOCOLS NEARLY SET FOR

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