IRAQI OIL MINISTER ON CURRENT OIL ISSUES

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 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. -------------- JCRED -------------- ¶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. -------------- 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. -------------- COMMENT -------------- ¶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