PM MALIKI REQUESTS USG HELP FACILITATING FUEL

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002933

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/11/2016
TAGS: ECON EPET ENRG PGOV PREL IZ
SUBJECT: PM MALIKI REQUESTS USG HELP FACILITATING FUEL
IMPORTS FROM NEIGHBORING COUNTRIES

Classified By: Ambassador Zalmay Khalilzad, for reasons 1.4 (b) and (d)
.


1. (C) Summary and Action Request: Prime Minister Maliki
requested the USG approach Iraq's neighbors - Turkey, Saudi
Arabia, and Kuwait in particular - to request these countries
increase or facilitate fuel exports to Iraq in light of the
country's continuing fuel shortage. Gasoline and LPG
(cooking gas) are particularly short, with Baghdad and
northern Iraq at less than one day of supply. Septel reports
on GOI actions to address the shortage. Request the
Department instruct Embassies Ankara, Riyadh, Amman, and
Kuwait to emphasize the importance of fuel imports in Iraq's
present difficult security circumstances. Furthermore,
encourage appropriate host country interlocutors to
facilitate the increased shipments that the GOI is
temporarily funding. Please identify any actions or issues
that the GOI must address with regard to your host country
that could preclude increasing shipments. End Summary and
Action Request.


2. (C) In an August 11 meeting with the Ambassador, Prime
Minister Maliki said that Iraq's fuel situation is
deteriorating, and worried that the continuing fuel shortage
would lead to civil unrest. The PM said he has recently
received calls from religious leaders such as Grand Ayatollah
al-SISTANI and Abdul Aziz al-Hakim asking Maliki to take
urgent measures to ameliorate the situation. "Restrictions
on supply" from Turkey, Saudi Arabia and Kuwait, combined
with the poor state of Iraq's own refining capacity (NOTE:
currently operating at approximately 50% of capacity. END
NOTE) leave Iraq with extreme shortages. Although the GOI
has plans to increase production, enhance pipeline security
and diversify its fuel sources, Maliki requested the U.S.
facilitate what he called short-term assistance from Kuwait,
Saudi Arabia and Turkey.


3. (C) While the GOI has been obsessed with the need to
increase LPG imports in light of the workover that has shut
down Iraq's southern NGL/LPG plant since July 15 (NOTE: It is
due back on line August 13. END NOTE),supplies of gasoline
have also declined with, among other things, the drastic
curtailment in operations at Bayji after the interdiction of
the 26" pipeline that delivers crude oil to the refinery.
This latest breach, as well as the host of other maintenance
and infrastructure security issues that constantly plague
Iraq's oil and refined product network are hardly news. As
has happened in the past, however, the current low production
has coincided with lower-than-planned imports for a number of
reasons. A Kuwaiti refinery off-line for maintenance in June
means that shipments are only now in August starting to
rebound. The Israeli blockade of Mediterranean shipping has
blocked shipments to Iraq via Syria, according to the
Director General of the State Oil Marketing Company (SOMO).
Ongoing disagreements regarding the number of suppliers and
the status of a (relatively) small amount of arrears appear
to be dissuading the GOT from increasing supply. Ongoing
construction and an anti-corruption campaign at Habur Gate
have also affected Turkish imports. The Khor al-Zubayr
facility on the Gulf is working at capacity, making
significant increases in imports by ship difficult. Baghdad
and the Kurdish area have less than one day of supply of
gasoline and LPG (cooking gas) on hand.


4. (C) While security remains a major issue, much of the
stressed Iraqi fuel situation is of the GOI's own making.
Aside from reducing subsidies for retail fuel products, the
GOI has failed to take major steps to combat rampant
corruption in the fuel market. The GOI has been unable or
unwilling to impose order in the chaotic distribution system.
The GOI has been unwilling, until very recently, to even
consider allowing private companies to import fuel. Add
these to the decrepit refining facilities, the frequent
attacks on the country's energy infrastructure, and decreased
availability of refined fuel products in the aftermath of
hurricanes that struck the U.S. in 2005 -- making an
unreliable payer such as Iraq among the last to be served --
the precarious nature of Iraq's fuel situation is readily
apparent. On the positive side, Iraq is current on all but a
(relatively) small, still disputed amount of Turkish fuel
debt since the GOI began making all purchases via letter of
credit this spring. Regular payments of the undisputed
Turkish arrears are paid more or less on time. Finally, the
Council of Ministers voted the week of July 31 to double
funds for fuel imports for the next two months, from $213
million per month to $416 million/month.


5. (C) The GOI is now taking action on its own behalf. Prime

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Minister Maliki told the Ambassador August 12 that he has
spoken to Turkish Prime Minister Erdogan, King Abdul Aziz and
Crown Prince Sultan of Saudi Arabia, and the Emir of Kuwait.
They pledged "full cooperation" in facilitating increased
fuel supplies for Iraq. In a meeting earlier the same day
with Deputy Prime Minister Barham Saleh, National Security
Advisor Mowafuq Rubaie Minister of Finance Bayan Jabr,
Minister of Electricity Karim Wahid (NOTE: acting on behalf
of Minister of Oil Hussein Shahristani, currently in Iran.
END NOTE),and Minister of Industry and Minerals Fawzi
al-Hariri, and the Ambassador and senior Embassy staff, it
was decided that the GOI will review measures it can take
internally to address the source of some of the problems (to
be reported septel),and that the ministers would contact
their counterparts in neighboring countries to bolster the
MoO's efforts to temporarily increase imports. The
Ambassador agreed to ask the Department to request that our
embassies in Kuwait, Turkey, Jordan, and Saudi Arabia contact
the relevant officials in their host governments to urge
support of the Iraqi request.


6. (SBU) Action requested: Request the Department instruct
posts in Turkey, Saudi Arabia, Kuwait and Jordan to seek
their host governments' support for the Iraqi request for
immediate increases in fuel sales to Iraq, report on issues
that would preclude them from doing so, and identify any
actions or issues that the GOI must address with regard to
your host country to facilitate fuel shipments.

For Ankara: In addition to the more general inquiry, we
suggest the following additional points:
-- In recent days, the number of SOMO fuel trucks crossing
into Iraq via Habur Gate has dropped to less than 100 per
day, despite requests from SOMO to increase fuel shipments.
-- KRG President Masoud Barzani has provided assurances that
there is nothing on the Kurdish side of the border to cause
the lengthy queue on the Turkish side.
-- We understand that, other than disputed arrears from
January-February 2006 that will be addressed this month at a
meeting of the Turkey-Iraq dispute resolution board, Iraq is
current on its fuel bill and is making regular payments on
its agreed arrears.
-- Please advise what, specifically, is prohibiting an
increase in SOMO shipments to Iraq from currently,
fully-funded purchases and how we can advise the GOI to
address the problem. Prime Minister Erdogan reportedly
assured Iraqi PM Maliki that Turkey would fully cooperate in
addressing the Iraqi fuel situation.
-- The GOI has agreed to quickly issue and fund letters of
credit to facilitate additional purchases. We expect Iraqi
Minister of Finance Bayan Jabr to contact his counterpart
shortly.
-- We appreciate everything the GOT has done to ensure
uninterrupted Coalition fuel supplies. Please advise what
actions can be taken to expedite shipments of Iraqi fuel via
Habur Gate.
End additional points for Ankara.

For Amman: In addition to the more general inquiry, we
suggest the following additional point:
-- We understand that Jordan may not have sufficient
trucking capacity on hand to move fuel to Iraq. Please
advise if this is indeed the case and, if so, what are the
alternatives?
End additional points for Amman.

For Riyadh: In addition to the more general inquiry, we
suggest the following additional point:
-- Request the Arar border crossing be used for fuel
shipments, due to GOI confidence in securing the area.
Please advise.
End additional point for Riyadh.


7. (C) Post appreciates Department consideration of this
request. A fuel crisis as we and the GOI enter into a
critical phase of the Baghdad Security Plan will clearly have
a negative impact on our efforts.
KHALILZAD