JORDAN'S TRANSPORT SECTOR DURING AND AFTER AN IRAQ

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001550

SIPDIS

E.O. 12958: DECL: 03/11/2013
TAGS: ELTN EWWT MOPS ETRD IZ JO
SUBJECT: JORDAN'S TRANSPORT SECTOR DURING AND AFTER AN IRAQ
WAR

REF: A. AMMAN-STATE/TREASURY EMAIL OF 12/4/02


B. 02 AMMAN 6535

Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d)

--------------
SUMMARY
--------------


1. (c) The GOJ paints a gloomy picture of predicted heavy
losses to the transport sector during hostilities in Iraq,
totaling over $44 million monthly as a result of higher
insurance charges and decreased business volumes. Following
war, though, the consensus opinion is that the sector will
enjoy a boom, followed by sustained increases in business
over a 3-5 year period as Iraq's commercial sector re-opens
and a new Iraqi government starts to rebuild infrastructure.
A short, successful military campaign that opens the doors
for rebuilding Iraqi infrastructure and commerce will help
minimize the short-term economic and social pain in Jordan
from an Iraq war - pain that will be disproportionately felt
by Jordan's 13,000 truckers and by transport sector-dependent
local economies in the southern reaches of the kingdom,
notably Ma'an and Aqaba. End summary.

--------------
COSTS OF WAR
--------------


2. (c) Transport Ministry officials have made gloomy
calculations for the costs to the transport sector and to
government revenues in the event of war in Iraq (ref a).
According to Transportation Ministry Secretary General Ala'a
Batayneh, all elements of Jordanian transport - sea, air, and
land - will incur substantial monthly losses during a war.
Most of these costs will result from lost business as a
result of the area being declared a "war risk" zone for
insurance purposes. Such a designation, Batayneh said, would
cause shipping lines to stop calling on Aqaba (with knock-on
effects on truckers) and would similarly sharply curtail air
traffic to and over Jordan, all because of increased
insurance costs.


3. (c) In addition to insurance-related losses, Batayneh
said the GOJ expects all cargo traffic (both domestic exports
and transit traffic) to Iraq to cease once war starts, with
the expectation that the border will be closed and truckers
will in any event be unwilling to make the trip. Such a loss
of traffic would, Batayneh said, force the GOJ to support
out-of-work truckers with a "social safety net" until
business could resume. According to Batayneh, the total
MONTHLY cost to the sector would amount to $44.46 million,
while the total MONTHLY cost to the central government would
be at least $5.2 million, excluding additional social safety
net payments.

--------------
WAR IMPACT ON LAND TRANSPORT...
--------------


4. (c) Private sector contacts share this gloomy
assessment. Mahmoud Zoubi, Chairman of the Association of
Owners of Transport Vehicles (which represents Jordan's
11,000 independent truckers),said wartime losses would
devastate the sector, putting most of his members out of work
and impacting the "90% of Jordan's population" that relies
directly or indirectly on transportation. (According to
Zoubi, the best-case scenario for Jordan would be an Iraq
free of sanctions but still ruled by Saddam, who has
"benefited every Jordanian citizen.") Representatives of
Jordan's largest trucking companies, however, are somewhat
less concerned. Salim Naber of the Odeh Naber Transport
Company, which handles virtually all specialized and oversize
cargo to Iraq, told us that even during a war there is likely
to be enough business to keep truckers employed at current
levels, due to the need to transport humanitarian supplies
and still-pending OFF contract shipments to Iraq. Similarly,
Mohanned Qudah, Director of the Jordan-Syria Land Transport
Company, said his business would be virtually unaffected by
war, though the increased availability of underemployed
private truckers would give him more opportunities to
subcontract for business between Damascus and Amman.

--------------
...AND SEA
--------------


5. (c) Captain Mohammed Dalabieh of the Shipping Agents'
Association said that inbound cargo was unlikely to be
severely affected by war risk designation and higher
insurance charges, as those charges would either be passed on
to end-users (Jordanian consumers or relief agencies) or
would be absorbed by the shippers to maintain relations with
Jordanian importers. Exports, though, could be affected -
particularly phosphate and potash, where increased charges
would likely translate into higher per-ton charges for the
cargo (during the Afghan war, $4/ton was the increase). Raw
materials like phosphate and potash, Dalabieh said, are
extremely price-sensitive, with increases of even 50 cents
hurting competitiveness. Increased charges on the order of
$4 could make Jordanian phosphate uncompetitive and thus hurt
the Phosphate company's operations as long as war risk
designation remains in place. (Note: phosphates and potash
together represent Jordan's largest export sector, totaling
over $320 million in each of the last three years, or 25-30%
of total exports. End note.)


6. (c) Local shipping operator Amin Kawar was more sanguine
- he does not believe import or export cargo will be affected
even during war. He said both insurance companies and
shippers had a great deal of discretion in applying insurance
charges, and would likely absorb most of the increased costs
in the short term to maintain normal business. He said QIZ
shipments would not be impacted, as there is excess capacity
for container export out of Aqaba, and since QIZ containers
are relatively high-value goods ($50,000 per 40-foot
container),even paying the estimated increased shipping
charges of $150 per container would not affect exporters'
bottom line.

--------------
POST-WAR BOOM IN AQABA...
--------------


7. (c) While there are variations in opinion over damage to
the transport sector during combat operations, there is a
broad consensus on the likely "boom" in the sector once the
war is over and Iraq opens its markets and begins to rebuild
its infrastructure, and aid agencies continue to care for
displaced populations and to alleviate hunger and poverty in
Iraq proper. Even Zoubi, whose constituents benefit most
from the current arrangement, would not discount the
opportunities after regime change.


8. (c) GOJ and private sector contacts attribute a number
of factors to the prospective boom: First and foremost,
Aqaba will, they believe, once again become a "natural" port
for Iraq. Iraqi ports, they believe, are underdeveloped
after 20 years of warfare and sanctions, and cannot possibly
handle the volume of imports expected to flood into the
country after the war. Similarly, Mediterranean ports like
Lattakia, Tartus, and Beirut are relatively small,
inefficient ports that will be able to handle some, but by no
means all, of the import activity. By contrast, Aqaba is a
relatively large, much more efficient port, that was built up
in the 1980's with the Iraq market in mind. Aqaba also has
spare capacity both in its general cargo and container
terminals, so it should be able to handle a significant
increase in business. And even after the initial boom, and
taking into account likely increased port activity in the
Gulf geared toward the Iraqi market, Aqaba should continue to
be a significant port for Iraq, particularly for high-value
and oversize cargo from Asia, owing to its efficiency and
reputation - a sort of "branding".

--------------
...AND TRUCKING
--------------


9. (c) This increase in port activity will by definition
lead to an increase in land transport opportunities. An
initial boom followed by a sustained rise in transit cargo
activity should keep Jordan's land transport fleet of 13,000
(11,000 independent plus 2,000 company-owned) fully occupied
for the foreseeable future. Zoubi and Qudah both noted to us
that, prior to 1990, Jordan was handling 4 million tons of
transit cargo to Iraq annually, a number that fell to 500,000
tons under sanctions. With this as a baseline, the sector
should be well-employed.


10. (c) Indeed, the one worry here is that, in the short
term, there will not be enough trucks in Jordan to handle the
increased transport demand. The initial boom, say private
sector contacts, is likely to outstrip the ability of
Jordan's aging trucking fleet to deliver humanitarian
supplies AND rebuilding materials AND normal commercial
cargo. The World Food Program, for instance, has been
shopping for contracts to supply 3,000 trucks just for its
projected operations following the war. This is in addition
to what is expected to be "normal" business. These worries
extend to the logistics side of import operations - while the
port has the spare capacity, some contacts are not confident
that the road and loading infrastructure in Aqaba can handle
the increased traffic (though the recent completion of a
secondary freight highway around the outskirts of Aqaba
should alleviate some of that strain). This bottleneck will
likely slow delivery times in the short term, until truckers
adapt to the increased business volume by cutting down
delivery times and increasing the number of runs they make
each month.
--------------
COMMENT: SHORT WAR = EARLY RECOVERY
--------------

11. (c) The transport sector is a primary revenue generator
for Jordan's economy. In addition to directly supporting
13,000 truckers and their families - most of them politically
conservative East Bank tribal types - the sector also
supports thousands of families in aviation, tourism, port
operations, and the like. To the extent that war dampens
activity in the transport sector, it will not only make those
thousands worse off, it will have knock-on effects throughout
the economy. Reduced exports could threaten jobs at the
potash mining company, for example, and pass-through
insurance charges on inbound cargo that affect retail prices
would effectively tax consumption. This could have an
important impact on government revenue and ultimately
contribute to a downward spiral in economic activity.


12. (c) Equally importantly, losses to the transport sector
would be felt disproportionately in different parts of the
country. Transport and mining dominate the economies of the
southern cities of Ma'an and Aqaba, for example. They would
therefore feel the economic pain much more deeply - pain that
could compound already high social tensions and anger toward
the government that, in Ma'an at least, has already led to
violent clashes (ref b).


13. (c) The key to minimizing damage to Jordan's economy
and rejuvenating the sector will be a short, successful war
in Iraq that starts aid and commerce flowing into Baghdad and
allows the new Iraqi government to start contracting for
infrastructure supplies. The losses from war should be
reversed in short order once commerce and rebuilding begin.
Whatever their feelings about the relative merits of Saddam
or USG policy, many Jordanians are at the point where they
simply want to put the uncertainty behind them. As Salim
Naber told us, "if you're going to hit him, hit him hard and
get it over with."
GNEHM