IRAQI OIL SECTOR UNDER STRESS

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 005132

SIPDIS

E.O. 12958: DECL: 12/31/2015
TAGS: ECON ENRG EPET IZ
SUBJECT: IRAQI OIL SECTOR UNDER STRESS

REF: A. A) BAGHDAD 4998

B. B) BAGHDAD 5073

C. C) KIRKUK 302

Classified By: Charge d'Affaires David C. Litt for Reasons 1.4 (B) and
(D)


1. (SBU) SUMMARY: Fuel supplies in Iraq remain scarce, and
the country may face regional outages. Deputy Prime Minister
Chalabi, as acting Minister of Oil, was informed of the
deteriorating fuel situation and urged to act by A/DCM and
the acting IRMO director. National refinery capacity has
dropped sharply due to pipeline interdictions, reports of
intimidation, and scheduled maintenance. Imports of refined
fuels have restarted across the Turkish border, and crude
exports via the Iraq-Turkey Oil Pipeline to Ceyhan were
reported. Basra Governorate is still resisting the IMF
mandated fuel price rise for gasoline. END SUMMARY.

--------------
FUEL STATUS
--------------


2. (SBU) Fuel supplies across Iraq remain short as of
December 26. Baghdad days-of-supply (DOS) levels for diesel
decreased from 1.3 to 1.1, kerosene decreased from 19.7 to
18.4, and gasoline decreased from 4.4 to 4.2. Liquid propane
gas (LPG) availability improved, with DOS increasing from 3.6
to 4.3. At the national level, days-of-supply for diesel
decreased from 4.7 to 4.4, kerosene decreased from 8.3 to
8.1, gasoline decreased from 6.2 to 6.0, and LPG increased
from 15.3 to 15.6.

--------------
REFINERIES AND PIPELINES
--------------


3. (SBU) Bayji Refinery is shut down due to its product
storage tanks being full. The 22-inch product line from
Bayji to Baghdad was repaired. However, no product was moved
to Baghdad during December due to intimidation of pump
station operating crews. On December 25 the 22-inch pipeline
was noted to have a new leak in the vicinity of the Thar Thar
Canal. Movement of fuel products by truck from Bayji was
also halted due to intimidation. Locals with guns are
reportedly not allowing 36 government trucks and 300
privately-owned trucks to drive into the fuel off-load dock
in the distribution yard to load up on refined product and
deliver fuel to Baghdad. The Director General of
Distribution has requested MNF-I provide security escorts for
the fuel trucks to get half the distance to Baghdad. One of
the Ministry of Oil (MOO) Directors General has requested
support from MNF-I to fly up and review the refinery for an
assessment.


4. (SBU) Daura refinery has seen a decline in production due
to the refinery only receiving crude oil by truck from the
Naft Khaneh and Kirkuk oil fields. Daura Refinery is
currently operating at about 31 percent capacity. The
18-inch strategic crude oil pipeline to Daura needs to be
repaired after an interdiction in the south. The repair
crews reportedly have been threatened and left the work site.
MNF-I security forces are available for link-up with the
repair crews when the crews are convinced to return to the
repair site. The Director General (DG) for the Oil Pipeline
Company will provide MNF-I an update on pipeline repairs and
has established local tribal security. Daura refinery will
continue to get crude oil by truck to maintain refinery
operations, but it will not be enough to sustain full
refining capacity.


5. (SBU) Basra refinery is at 50 percent refining capacity
due to half of the plant having been shut down for scheduled
maintenance.


6. (SBU) Total refinery capacity is now reduced to only 25
percent of installed national refining capacity, including
the current production of all the small isolated refineries
in Iraq.

--------------
FUEL PRICE DISPUTE CONTINUES IN SOUTH
--------------


7. (SBU) The DG for Distribution has asked assistance from
the U.S. Embassy to persuade the Prime Minister to force the
Basra Governorate and three other southern provinces to allow
distribution employees to emplace the new gasoline prices on
the retail sales pumps in the south. Basra Governorate
currently will not allow the MOO employees to place the new
gasoline prices on the pumps in the south. The DG stated he
feels as though the Oil Minister is no help in the price
dispute. Despite lack of cooperation in changing gasoline
prices, new prices for LPG, kerosene, and diesel have been
implemented in the south.

--------------
IMPORTS AND EXPORTS
--------------


8. (SBU) Fuel imports from Turkey have resumed, and the
trucker strike impacting fuel imports during the period
December 17-24 was settled with the help of the Turkish
Government. Additional fuel imports are currently crossing
from Syria, Iran and Kuwait into Iraq. According to
international news reports, Iraq transported 350,000 barrels
of oil to the port of Ceyhan, Turkey during December 22-24.

--------------
DPM CHALABI INFORMED OF OIL SECTOR PROBLEMS
--------------


9. (C) DPM Chalabi is currently acting Minister of Oil while
the Minister of Oil is out of the country. A/DCM and IRMO
Acting Director met with Chalabi on December 26 to inform him
of the Bayji refinery distribution and Basra fuel price
problems. We recommended to the DPM that the MOO DG for
Distribution take charge of the Bayji refinery from apparent
criminal elements obstructing the distribution of fuel
products. DPM concurred and agreed to send the DG for the
Oil Protective Forces (OPF) and the DG for Distribution to
Bayji refinery to make an on-the-ground assessment of the
situation on December 27. We recommended that the DPM
attempt to use the OPF forces to restore order prior to
requesting additional support from the MNF-I and the Iraqi
Army. The DPM said that, if necessary, he would go to Bayji
refinery himself. The DPM agreed to chair a meeting of the
Steering Group for Critical Infrastructure Integrity on
December 28 to review the situation. The DPM was also
informed of the resistance to the increase in fuel price for
gasoline in the Basra Governorate. We recommended the GOI
implement the fuel price increase for gasoline across the
entire nation, including the Basra region.

--------------
COMMENT
--------------


10. (SBU) COMMENT: The trend for fuel availability in Iraq
is negative unless the distribution restrictions at Bayji
refinery are alleviated. Spot outages of fuel are expected
during the next two days, particularly in Baghdad, with
diesel fuel being the first to be exhausted, followed by
gasoline.


11. (C) DPM Chalabi informed us on December 27 that refined
product is now being trucked out of Bayji refinery. He said
he had directed that trucks from Baghdad be sent to Bayji to
pick up fuel for delivery to Baghdad and that local truck
drivers were filling tankers for regional deliveries.
Chalabi explained that he had asked the Governor of Tikrit to
send police forces to the refinery to solve the fuel
distribution obstruction problem. Chalabi acknowledged that
he needed to monitor the situation at Bayji and promised to
review his actions and update us at the meeting of the
Steering Group for Critical Infrastructure Security on
December 28. END COMMENT.
KHALILZAD