IRAQ AGAIN FACING KEROSENE SHORTAGE IN WINTER

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003550

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/17/2026
TAGS: ENRG EPET IR IZ TK
SUBJECT: IRAQ AGAIN FACING KEROSENE SHORTAGE IN WINTER

BAGHDAD 00003550 001.2 OF 002


Classified By: CDA DANIEL SPECKHARD, EO 12958, REASONS 1.5 (B) AND (D)

1.(C) In a September 17 meeting with the Econ
Minister-Counselor and the IRMO Senior Oil Consultant, Dr.
Falah J. Alamri, Director General of the State Oil Marketing
Organization (SOMO),warned that Iraq faces a potentially
serious shortage of kerosene this winter. Kerosene is Iraq's
principal home heating fuel. Since production can not keep
up with demand in the winter months, it is necessary to begin
stockpiling kerosene in the summer. Alamri claimed that
gasoline shortages this summer caused a reallocation of
dollars from kerosene to gasoline, resulting in reduced
kerosene imports. As a result, Iraq has only 30,000 metric
tons (MT) in storage now, as opposed to 150,000MT a year ago.

2.(C) Alamri said that daily demand for kerosene during the
cold season (length undefined) is 14,000MT per day. National
production capacity is 6,000MT/day. (Note: Current production
is slightly below 6,000). Currently, SOMO is importing
350/day from Kuwait and 400MT/day from Syria. Both figures
are half or less of the nominal, contracted quantities.
Alamri said that imports from Iran have not yet begun due to
a technical specification problem, and imports from Turkey
have stopped pending payment of charges for past shipments.
Currently, Iraq is consuming all of the kerosene that it
imports and produces, so no additions to the stockpile are
being made for winter use. The impending shortage of
kerosene for 2006 follows shortages in 2003, 2004 and 2005.

3.(C) Alamri's goals are to increase imports from Kuwait to
1,500MT/day and from Syria to 1,000MT/day, start importing
1,600MT/day from Iran and resume shipments from Turkey. Even
if the import targets from Iran, Kuwait and Syria are met,
SOMO will still be short 3,900MT/day during winter months.
This figure would be reduced by the quantity of kerosene
purchased from Turkey, but Alamri realizes that he must first
negotiate a settlement with the Turks for past, overdue fuel
payments in order to restart shipments.

4.(C) (Note: Alamri's figures are at variance with IRMO data,
which indicates a winter demand of 8500MT/day, but the
shortfall remains similar. Since January 1, 2006, combined
production and imports equaled demand for only one week.
Imports never exceeded 2800MT/day. For five weeks in
mid-summer Iraq imported no kerosene, and weekly production
fell to as low as 18% of weekly demand.)

5.(C) Alamri explained that in February of this year, SOMO
and the GOT negotiated payment of $950 million past due fuel
charges from 2005. SOMO agreed immediately to pay $650
million in 9 monthly installments, with the balance subject
to further verification. SOMO has since agreed that they owe
$200 million of the remainder, leaving approximately $100
million still to be resolved. Although, according to Alamri,
the Prime Minister has ordered the Ministry of Finance to
release the $200 million, MOF is still refusing to do so.
Alamri said that he is going to Turkey next week to try to
resolve this issue, but he will not have the $200 million and
will be attempting to barter HFO (which Iraq already exports
to Turkey) for kerosene with Turkish fuel companies. (Note:
Several days after our meeting, Alamri told the IRMO senior
oil consultant that he had found $50 million within MoO's
budget to help pay the $200 million. Alamri said that he
will propose to the GOT that he pay the $50 million now and
the remainder in four installments (also from MoO funds).
Nevertheless, the MOF is increasingly the focal point of
Iraq's inability to execute its budget. Post will be
following up with MOF to press for release of the $200
million, irrespective of Alamri's efforts to solve the
problem with MoO dollars.)

6.(C) Comment: In a separate meeting with Minister of
Electricity Karim Walid Hasan, the minister said that MoE's
winter peak is equal to its summer peak, even though there is
a huge demand for power in the summer to run air
conditioners. Husan attributed the winter peak to the use of
electric space heaters. This means that a kerosene shortage
does not exactly translate to a lack of home heating of equal
magnitude. Given the chronic electricity shortages, however,
homeowners are probably not able to rely on electricity as
their sole source of home heating. End Comment.













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SPECKHARD