FUEL CRISIS CONTINUES IN IRAQ

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 000936 SIPDIS SIPDIS E.O. 12958: DECL: 03/21/2016 TAGS: ECON EFIN ENRG EPET IR TU IZ SUBJECT: FUEL CRISIS CONTINUES IN IRAQ REF: A. BAGHDAD 766 ¶B. KUWAIT 848 ¶C. ANKARA 1392 ¶D. EMAILS ANKARA-BAGHDAD Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 ( b) and (d) ¶1. (SBU) SUMMARY: Fuel supplies, especially LPG and gasoline, remain short across Iraq. Fuel imports entering Iraq from Turkey are negligible. Supplies continue to be imported from Kuwait by truck and from UAE and Iran by sea at Khor Zubayr. A ten-car train delivered LPG to Baghdad for the first time in over three years. Refineries are producing less than half of normal production, primarily due to interdiction of crude oil supplies to Bayji from the Kirkuk oil fields. Black market fuel prices increased during March, some reaching levels over 30 times official government prices. The Council of Ministers instructed the Ministry of Oil to publish implementing regulations liberalizing fuel imports by private companies. END SUMMARY -------------- FUEL SUPPLIES ARE SHORT -------------- ¶2. (SBU) As of March 20, fuel supplies continued to be in short supply across Iraq. In Baghdad the days of supply (DOS) are critically low for LPG at 0.5 days. Gasoline shortages slightly eased to 3.0 days. Less critical, but still in short supply, diesel is at 4.2 days, while kerosene is relatively plentiful at 11.0 days. Nationally, DOS for fuels are: LPG at 3.5 days, gasoline at 2.2 days, diesel at 3.2 days, and kerosene at 4.7 days. Long lines for fuel are common, with lines at official gas stations in some locations reported to be as long as several miles. Waiting times for fuel at gas stations can range from 1 to over 12 hours. Waiting periods appear longest in central Iraq. While supplies are short in Baghdad, some limited redundancy in transport has been created via the restoration of rail shipments of fuel products from Bayji to Baghdad. The first railroad movement of fuel since the war occured on March 13, when a ten-car train of LPG reached the capital. A second train is reported to be loading diesel at Bayji, with rail movement to Baghdad expected on March 22. -------------- IMPORTS AND DEBTS -------------- ¶3. (SBU) TURKEY: There are currently only very limited fuel imports reported from Turkey. Turkish fuel shipments dwindled to zero during the first part of March, and have been limited to a few tanker trucks loads daily for the past week. Arrears owed are estimated by the Turks to be nearly $932 million, including over $292 million in disputed debts (Ref C). (NOTE: The arrears payment agreements and new fuel contracts with Turkish firms were previously reported to us by Iraqi officials as solving the arrears problem, and fuel deliveries to Iraq had been expected to restart in mid-March. This does not appear to be the case, as we understand that payment of arrears have still not been transacted. In addition, recently received letters of credit were said not to be in compliance with the bilateral agreement, so the Turkish companies sent them back to Iraq with edits. (Ref D) Given the current state of play, it is difficult to see more than limited shipments crossing the border before the early April. END NOTE) ¶4. (SBU) KUWAIT: Imports (mostly gasoline and diesel) continue to flow at a steady rate by truck from Kuwait (2.8 million gallons of gasoline last week; 11.3 million gallons this month). Fuel payments to Kuwait are reportedly paid regularly by SOMO to the Kuwaiti Petroleum Company according to Embassy Kuwait (Ref B). However there are constant complaints from security and transport companies on lack of payments by SOMO. Ministry of Finance Chief of Staff Musab al-Kateeb told us on March 21 that there is an agreement to pay Kuwait $30 million per month on arrears, and that SOMO Iraq continues to import $100 million of fuel per month. Musab suggested that arrears have built up and have reached the point where Kuwait is considering discontinuing shipments of fuel. He also told us that the responsible person at SOMO will not return his calls or emails. (Comment: Musab's apprehension about fuel stoppages is inconsistent what we have understood about the Kuwaiti fuel trade, namely, that is covered by letters of credit. We will follow up to clarify the payments situation. End Comment) ¶5. (SBU) UAE AND IRAN: The largest quantity of recent BAGHDAD 00000936 002 OF 003 imports (mostly gasoline and LPG) have arrived by sea at Khor Zubayr from Iran and the UAE. (Comment: The available data does not permit us to disaggregate imports from the two countries, but we will pursue more precise accounting. End Comment) 8.7 million additional gallons of gasoline are expected by sea from Iran during March. A recent delivery of Iran-originated fuel appears to have been a major factor in easing critical shortages of gasoline in Baghdad. -------------- REFINERIES -------------- ¶4. (SBU) Refineries in Iraq are producing at reduced rates. Bayji, the largest refinery, is at 15% of capacity due to interdiction of the 26-inch pipeline from Kirkuk. No crude oil is flowing from the northern oil fields to Bayji, and the refinery is being kept "warm" by a slow feed of crude from the IT1A storage facility north of Bayji. Bayji can be kept "warm" for another 3-4 days before it must shutdown from lack of crude oil. If the refinery is fully shut, it will take 5-7 days to regain full processing capacity even after sufficient crude oil has been received. Daura is at 83% of capacity, while Basra is at 62% and increasing after the completion of long-term maintenance. The LPG plants in north and south Iraq, respectively at 43% and 83% of capacity, are meeting less than 30% of national demand. -------------- BLACK MARKET FUEL PRICES -------------- ¶5. (U) Official government fuel prices have remained fixed at $.38/.63 per gallon for regular/premium gasoline, $.06 per gallon for kerosene, $.23 per gallon for diesel, and $.40 for a 12 kilogram cylinder of LPG. However, black market prices have jumped during March. Gasoline in Kurdistan and Ninawa ranges from $1.77-$3.50 per gallon. In central Iraq and Baghdad gasoline is sold on the street at $2.50 per gallon. Southern Iraq has the lowest prices for gasoline, with a range of $1.50-$3.15 per gallon. Prices for diesel vary widely city by city, with a range of $.80 to $1.90 per gallon. Kerosene is the most inexpensive fuel at $.30-$1.15 per gallon. LPG, which is used as the most common cooking fuel in Iraq, is critically short and in the greatest demand, priced at $12.00-18.00 per 12 kg container, over 30 times the official price. Costs of fuels were reported to have gone up 61% during the month of February according to the CPI (Consumer Price Index) government figures, and the fuel portion of the CPI is expected to rise again in March. (Note: The CPI includes both official and black market consumption. End Note) -------------- IMPORT FUEL REGULATION PENDING -------------- ¶6. (SBU) After considerable advocacy and text assistance from the Embassy, the Council Ministers on March 15 approved the liberalization of fuel imports and instructed the Ministry of Oil to set regulations governing the measure. The text we provided to the Council of Ministers drew heavily on a bill submitted to the Transitional National Assembly that failed to be approved late last year after some prolonged parliamentary wrangling. We have not been able see the final version passed by the Council of Ministers. However, we were told by DPM Chalabi that it substantively differs from our suggested text only in the inclusion of language permitting the vetting of would-be importers for terrorist/insurgent ties. If that is the case, the instructions should permit the import and subsequent sale at market prices of 92 octane gasoline, high quality diesel and automotive lubricants. This measure has been announced to the press by PM Ja'fari and some limited press coverage has followed. (Note: Embassy is intending to draw increased press attention to this measure in an effort to prompt more rapid action by the Ministry of Oil and to ensure that the instructions do not take an odd shape on the way to final implementation. End Comment) -------------- COMMENT -------------- ¶7. (C) We have just begun to get import data from the State Oil Marketing Organization (SOMO) that breaks down country of origin on trucked product. Unfortunately we have not yet developed a consistent way to track by country of origin for fuel coming into Khor Zubayr. What we do know is that so far this year the average amount of gasoline coming into Khor BAGHDAD 00000936 003 OF 003 Zubayr has more than doubled from 584,000 gallons/day to 1,26 million gallons/day. And the most important news of the week may well be the liberalization of fuel imports. If implementing instructions are faithful to the text provided by the Embassy, this measure would be the first major opening of this critical sector to the market. However, given the hesitancy of our normal contacts to share text with us, we are not inclined to chalk this up as a victory quite yet. KHALILZAD