IRAQ'S FUEL SITUATION WORSENS UNDER IMPACT OF

S E C R E T SECTION 01 OF 02 BAGHDAD 004345

SIPDIS

E.O. 12958: DECL: 10/20/2015
TAGS: ECON ENRG EFIN ETRD EPET MOPS MARR PGOV PREL TU IZ
SUBJECT: IRAQ'S FUEL SITUATION WORSENS UNDER IMPACT OF
BLACKOUTS, PIPELINE INTERDICTIONS AND UNPAID BILLS

REF: A. BAGHDAD 4335

B. BAGHDAD 4322

C. BAGHDAD 4231

Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 (
b) and (d).


1. (S) Summary: National power blackouts and repeated
interdictions of crude oil and product supply lines to and
from major refineries have reduced Iraq's domestic fuel
production, and increased its reliance on imported fuel.
Stores of gasoline are low (critically in the north) and
dropping, as are stores of LPG. A protest against the fuel
shortage October 18 turned violent in Mosul. Fuel imports
from Turkey, however, are extremely low, due largely to
Iraq's failure to pay its bills to Turkish suppliers. The
GOI seems to be moving to meet a significant part of these
arrears in the next several days. End Summary.

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Domestic Production Low
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2. (S) Refineries in Iraq are operating below capacity due
to the effect of a series of blackouts October 14, 17 and 18,
as well as interruptions in the supply of crude oil.
Although Daura refinery was able to maintain operations, both
Bayji and Basrah were forced to shut down, only now gradually
returning to operation. After running several days under
20%, Bayji's production reached 51% of capacity on October
20; Daura increased its capacity to 88% (up from production
levels in the mid-70s),with crude oil arriving by tanker
truck. The October 13 explosion at the al-Fatah crossing of
the Tigris, coming on the heels of previous interdictions,
has forced the Ministry of Oil (MoO) to move an increasing
amount of crude oil by truck in order to keep the refineries
working. Most recently, the interdiction of the 26 inch
Kirkuk-Bayji crude oil line October 20 and resulting fire
reduced pumping of crude oil across al-Fatah, limiting the
supply to Bayji refinery and exports to Turkey for the second
time in the past month. Repairs are expected to take eight
days once the fire is extinguished.

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And Increasingly Difficult To Move
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3. (S) Moving refined products to market from the refineries
is also becoming increasingly difficult. Supplies in Baghdad
(plussed-up prior to the referendum) are gradually declining;
these reached 6.4 days of supply on hand October 20 (down
from 10.2 the previous week). The interdiction of the 8 inch
LPG Bayji-Baghdad pipeline October 19 has cut off Baghdad's
main line supplying the capital with cooking fuel. Stocks of
LPG were already under two days on hand (down from a six a
week ago) in both Baghdad and Mosul as of October 20.
Furthermore, the last remaining LPG line to Baghdad (the 14
inch) is under threat from the October 20 fire on the 26 inch
crude pipeline.


4. (S) In the northern provinces, however, the situation is
worse, and black market prices for fuel have skyrocketed in
recent weeks (Ref A). Mosul reported just over a one-day
supply of gasoline on hand October 20. Crowds protesting the
shortage of gasoline turned violent in Mosul October 18,
setting fire to two gas stations. Local media reported
October 20 that official gas stations in Kurdistan had closed
due to lack of supply.

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"Check's In the Mail" Redux
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5. (C) The GOI acknowledged that it is some $450 million
behind in payments to Turkish fuel suppliers; it is not clear
when exactly the bill will be paid (Comment: Turkish MFA
officials put the total arrears at $840 million. End
Comment). The Ministry of Finance, after consulting with MoO
(Ref B) has authorized the payment of this amount from the
Ministry of Oil's capital budget. An additional approval
from the Ministry of Planning and Development Cooperation
(MoPDC) is also required, however, as MoPDC must authorize
any capital budget transfers. Contacts at MoPDC reported
October 19 that the Minister intends to sign the necessary
paperwork, but this approval and processing the actual
payment through the Ministry of Finance may take several more
days. If all goes according to plan, the Federal Reserve
Bank of New York should receive a payment order by Monday
October 24.


6. (C) Comment: The lack of redundancy in the electrical
grid caused by a series of attacks on electrical towers
leaves the system vulnerable to outages that, in turn, cause
the refineries to go offline. Pipeline interdictions,
regardless of cause, interrupt both the flow of crude to the
already under-producing refineries and the delivery of
product to markets. Iraq's imports, necessary to meet the
over 50% of the country's demand unmet by domestic
production, are increasingly unreliable - no surprise, given
the GOI's attempts to float its fuel import arrears.

Satterfield