AMBASSADOR'S MEETING WITH MINISTER OF OIL

S E C R E T SECTION 01 OF 04 BAGHDAD 004351

SIPDIS

SIPDIS

REL GBR

E.O. 12958: DECL: 11/24/2026
TAGS: ECON ENRG EPET IR IZ PREL SY TU
SUBJECT: AMBASSADOR'S MEETING WITH MINISTER OF OIL
SHAHRISTANI

Classified By: AMBASSADOR ZALMAY KHALILZAD, E.O. 12598 REASONS 1.4 (A)
AND (D)


1. (S) Summary. Ambassador met evening of November 22 with
Minister of Oil Husayn al-Shahristani to discuss the outlook
for the November 23 GoI Energy Committee discussion of the
Hydrocarbon Law. Shahristani expressed optimism that a
breakthrough with the Kurds can be reached if the U.S. makes
it clear to the KRG that they need to drop the most
unreasonable of their demands on contracting. He also argued
that the revenue sharing issue would be relatively simple to
resolve. Shahristani took the Ambassador,s point that a
breakthrough on the law would be a major positive step to
reinforce momentum on national reconciliation. With both
Massaoud and Nechirvan Barzani expected in Baghdad in the
next days, the timing was good to try to make decisive
progress. Shahristani agreed enthusiastically with the idea
to create a separate list of projects in the Kurdish region
that would be agreed as part of a hydrocarbons compromise.
Such a list of priority projects, that would benefit the
Kurds both on the production and infrastructure side as well
as downstream job-creating opportunities, could be a critical
confidence building measure that could facilitate the Kurds,
dropping their insistence on ultimate contract-signing
authority. Shahristani invited Econ MinCouns to attend the
Energy Committee meetings on the Hydrocarbon Law.


2. (S) Shahristani also discussed his recent trip with the PM
to Turkey, which he described as very successful and
reassuring to Maliki. He expressed support for the idea of a
trilateral gas working group among the GoI, the GoT and the
USG, pointing out that speedy development of gas deposits in
Iraq's Kurdish region would make economic sense, given
cooperation with the Turks, and could help facilitate a
consensus within Iraq on hydrocarbon development strategies.
Shahristani also discussed the political situation at length
with the Ambassador, especially relations with Syria and
prospects for reducing sectarian violence. He urged that a
new group of Sunni leaders be cultivated. Shahristani
offered insights into the bad chemistry between Maliki and VP
Tariq al-Hashemi. End Summary.

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Turkey Trip and Kirkuk
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3. (S) Shahristani began the conversation by describing
Maliki,s recent trip to Turkey. Shahristani said the
relationship between Maliki and PM Erdogan had developed
quickly, with the Iraqis being pleasantly surprised at
Erdogan,s flexibility on the water sharing issue.
Shahristani said that Erdogan had made clear that the Iraqis
should count on the water they are entitled to and that
Turkey would not make trouble on that issue. In exchange,
Turkey was looking for cooperation on the PKK, and GoI
support to resolve the Kirkuk issue in a way that keeps
Kirkuk out of Kurdish control. Shahristani added that he
recognized that the KRG approach to Kirkuk was not driven by
desire to control the oilfields, since the Kurds had agreed
to a per capita distribution of all oil proceeds, but he
noted that the Turks had made clear to Maliki that they would
resort to "other means" if it looked like Kirkuk would fall
into Kurdish hands. Shahristani also praised Erdogan,s
political acumen, and said that the Iraqis had been very
impressed by the economic progress that had been made under
the AK Party,s leadership. He compared Erdogan,s task of
balancing competing political forces, including the General
Staff, with the task that Maliki faces, saying these complex
political factors gave the two leaders much in common.


4. (S) Shahristani said that he would be prepared to make
development of the Kurdish gas fields a priority if the Turks
were interested in getting Iraqi gas into their gas pipeline
system. He acknowledged U.S. interest in developing
alternative gas supply possibilities for the European market.
He also thought that Iraqi gas from the Akkas field could be
routed through Syria to link up with a Turkish pipeline.

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Oil Overview
--------------


5. (S) Shahristani gave a quick overview of his plans to
re-structure the Ministry of Oil and the tremendous untapped
potential for hydrocarbons in Iraq. He said he has drafted
provisions to reorganize MinOil, spinning off not only the
Iraq National Oil Company but also operating companies from
the ministry for gas, pipelines, and export facilities

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management. Shahristani noted that while there were 80
discovered fields in Iraq, there were 500 identified
structures. The rate of discovered oil to structures was
very high in Iraq, making the prospects especially promising.
He noted that of the 80 discovered fields, 11 were
supergiants, 10 giants and about the same number
exceptionally large, suggesting that about half the
discoveries in Iraq could be expected to be of significant
potential. He also acknowledged that there is perhaps the
greatest potential in the Sunni regions of western Iraq. He
felt that the Sunnis were skeptical of federalism not because
they were afraid of being cut out of oil revenues, but
because they were concerned about holding Iraq together;
their concerns were political, not economic. Shahristani
noted that the Akkas field could be very quickly brought into
production as a way to show that Sunni regions could profit
from national oil resource development.


6. (S) Shahristani was enthusiastic about the prospects for
all the regions of Iraq profiting from oil. His plan was to
allow any region or governorate or even sub-unit that
produced 100,000 bbl/day to form its own regional operating
company, since such production implied revenues of ca. $2
bil. p.a., sufficient for economic operation. Shahristani
proposed a very simple formula for allocating costs to
producers under a revenue sharing mechanism. Since it costs
on average $1 per barrel to produce oil in Iraq, producers
would receive $1.50 per bbl for their output, with the
remainder going to the federal budget for allocation.
Shahristani said that he had no difficulty with the Kurdish
proposal to create an offshore oil trust fund, but that he
did have problems with their argument that they should be
able to draw on their share of such a fund at any time,
saying that this would lead to chaos in allocating funds for
regular national budget operations.

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Iran, Syria and Politics
--------------


7. (S) Shahristani said that President Talabani had asked him
to accompany him to Tehran. Shahristani felt that Talabani
had a good relationship with the Iranians, even though he was
close to the U.S., because "unlike Massaoud, Talabani had
never stabbed the Iranians in the back." He agreed with the
Ambassador,s suggestion that Talabani should use his
connections with Tehran to get more Iranian cooperation on
halting sectarian violence. Shahristani contrasted Tehran
with Damascus, saying that even when Khamenei had made
promises of cooperation to Maliki, he was unable to deliver
because he did not have complete control over all the
elements of the regime. At least when the Syrians promised
something, Shahristani argued, they had enough discipline to
deliver it. He agreed with the Ambassador,s assessment that
Maliki had been disappointed in Khamenei,s unfulfilled
offers of cooperation and had learned not to trust Tehran.
Shahristani put forward the idea that Iran and Syria could be
moved to cooperate if they were given U.S. assurances of a no
regime change policy. The Ambassador responded that what the
U.S. sought was a change in the behavior of the two regimes.

--------------
Baathist Bogeymen
--------------


8. (S) Shahristani felt there could be a good basis for a
dialogue with Syria and Iran to get them to stop their
support for AQI and other insurgents if we acknowledged that
the root of the problem in Iraq was the Baathists. He cited
the success of the Anbar tribal initiative in combating AQI
as one example of how progress could be made, but argued the
Baathists are using AQI and other national patriotic groups
to continue the insurgency. Eliminate the Saddamist
Baathists and the AQI problem and remaining Sunni insurgent
elements would be relatively easy to deal with, he argued.
The Ambassador responded that the U.S. analysis does not
share the view that Baathists are the driving force at this
time in Iraq,s woes. Yes, the Baathists are a major problem
but sectarian violence is now the main problem and ways need
to be found to reduce the killing. Shahristani said he was
open to a more detailed discussion of the problem, as was
Maliki, but that he continued to believe the Baathists in
Syria represented the center of gravity in the civil unrest
in Iraq and if they could be eliminated the sectarian
situation could be addressed by finding different Sunni
leaders to promote reconciliation. He argued for a carrot
and stick approach by the U.S. to Syria. He also argued that
with progress on that front, Najaf would be encouraged to

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take a stronger stand and help reduce the sectarian violence,
but reciprocal assurances were needed. Shahristani said that
PM Maliki would be prepared to take brave steps against the
Jaysh al-Mahdi if Syrian support for the Baathists could be
stopped and Najaf used its influence to reduce sectarian
killings. With a clear campaign against the Baathists,
Maliki would have a free hand to confront Moqtada al-Sadr and
JAM in several months.


9. (S) Shahristani claimed that Maliki had no trouble
cooperating with Sunnis in the government if they were
capable, like Planning Minister Baban. The Ambassador probed
Shahristani on why Maliki,s relationship with VP Tariq
al-Hashemi seemed so bad. Shahristani argued that Maliki had
learned from his experience with the Dawa Party that no one
could unite the Shia tribes and groups from the outside;
there could be no single controlling force. That was the
reality of Iraqi politics. Consequently, Maliki did not
believe that VP Hashemi could ever be the single spokesman
for the Sunni in any event, and therefore the PM wanted to
reach out to other Sunni leaders. Hashemi in turn viewed
these efforts with suspicion, damaging the relationship
between the two leaders. Shahristani urged that we work
together to develop a new core of Sunni leaders.

--------------
Cabinet Changes
--------------


10. (S) Shahristani said that Maliki was planning to replace
all the Sadrist ministers in the cabinet. Shahristani
thought that the agriculture minister was not bad, and was
indeed critical of Moqtada,s leadership. The health
minister was also not as bad as his reputation. The almost
complete infiltration of the Health Ministry by Sadrists made
it impossible for the minister to gain control of the
ministry. Shahristani also confirmed that Deputy PM Zobaie
would be replaced, as well as Interior, but not the defense
minister.

-------------- --------------
U.S.-Iraqi Relations and the Hydrocarbons Law
-------------- --------------


11. (S) The Ambassador underlined that progress on the
hydrocarbons law would be an important step in supporting
national reconciliation and that the American public was
anxious to see some progress being made by the GoI.
Shahristani acknowledged that the Maliki government needed to
do a better job of producing results that would show more
progress. He offered to accompany the PM to his meeting with
the President to brief on hydrocarbons since he thought the
oil sector would be a good starting point for a better
national dialogue of reconciliation. Shahristani said that
the presence of international oil companies in Iraq - for
which the Hydrocarbon Law is a prerequisite - would send a
strong international signal that Iraq is moving in the right
direction. He acknowledged that the GoI had about 12 months
to show real progress, and was confident that a Hydrocarbon
Law could be adopted quickly that would allow for a round of
bids to be completed and the IOC,s starting to work in Iraq
within a year. He said that on contentious issues with the
Kurds, like arbitration and decision-making by the Federal
Petroleum Council, compromises could be found. Shahristani
invited Econ MinCouns to attend the GOI Energy Committee
discussions, beginning November 23, on the Hydrocarbon Law.
The Committee is chaired by Deputy PM Barham Salih.


12. (S) Shahristani returned to his point that the Kirkuk
question needed to be resolved in a way that reassured the
Turks. An oil deal and resolution of Kirkuk in a way that
also reassures the Sunni could open the way for more
reconciliation on sectarian differences. He listed MoI
reform and combating Baathists in the military as two other
key issues, and noted that getting action against the JAM
would ultimately also involve getting Iranian acquiescence,
since Tehran provided the money for JAM. Shahristani also
expressed some frustration with the U.S., confirming that he
would no longer attend meetings of the Infrastructure
Security Group since the meetings were a waste of his and the
Electricity Minister,s time. The meetings were taken up
with presentation of plans and did not result in clear
actions. Shahristani also intimated that Maliki is losing
patience with National Security Advisor Rubaie,s repeated
presentations of plans that lead nowhere. Shahristani urged
the Ambassador to use his influence to improve confidence
between the PM and U.S. military leaders, noting that he has
heard Maliki frequently express frustration with his

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inability to have control over his own forces. The
Ambassador responded that now Iraqi special forces are under
the PM,s control and that the U.S. was sensitive to
Maliki,s concerns.


13. Comment: Shahristani,s stated optimism on resolving the
hydrocarbons impasse has been borne out by progress in the
Energy Committee over the past two days (septel). Sources
inside the Oil Ministry confirm that Shahristani, who has
been outside Iraq for much of the last six weeks, has backed
the re-structuring of the ministry that would accompany the
Hydrocarbon Law. End Comment.
KHALILZAD