BASRAH FUEL MARKET THRIVES ON SMUGGLING

C O N F I D E N T I A L SECTION 01 OF 02 BASRAH 000092

SIPDIS

SIPDIS

E.O. 12958: DECL: 6/3/2016
TAGS: PGOV PTER PREL PINS ECON EPET ETRD ENRG IZ
SUBJECT: BASRAH FUEL MARKET THRIVES ON SMUGGLING

REF: A) BASRAH 69, B) BASRAH 63, C) BASRAH 38

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CLASSIFIED BY: Mark Marrano, DEPUTY REGIONAL COORDINATOR, REO
BASRAH, DEPARTMENT OF STATE.
REASON: 1.4 (b),(d),(e)




1. (C) Summary: In a series of meetings with Poloff, petroleum
and security officials in Basrah painted a stark picture of
Basrah's fuel market and the black market in petroleum products.
Smuggling is relatively easy because of Iraq's porous borders.
There does not appear to be any organized cartel of fuel
smugglers, rather rampant profiteering by enterprising
individuals. The overall poor security situation provides
traffickers with a free license to operate. Iraqi institutions
identified key equipment shortages and weak law enforcement
mechanisms as the primary reasons why they are not able to
apprehend, prosecute, and convict smugglers. The result is an
overall climate of fear and chaos that permits traffickers to
operate with impunity. End Summary.

The Border, a Revolving Door
--------------


2. (C) On April 27, Poloff conducted a discussion with Brigadier
General (BG) Abbas Muhsin Ali, Commander of the 4th Brigade
Iraqi Border Police. BG Abbas described his area of
responsibility as the entire international border with Kuwait,
the Al Faw peninsula, and extends north to include the provinces
of Basrah and Maysan with Iran. He also stated that he has
overseas inland waterways and oil infrastructure between
Nassiriya and Zubair.


3. (C) BG Abbas commented that of all of the illicit businesses
he confronts in border enforcement, petroleum product
trafficking was the most lucrative. He identified the
marshlands as his chief area of concern, where his forces have
also discovered pyrotechnics, IEDs, and narcotics. Migrants
were well armed and dangerous, BG Abbas said, and his operations
suffered from material shortages, in particular, a radio
communications network.


4. (C) He expressed gratitude for a fleet of airboats that he
said the United Kingdom had provided for operations in the
marshes. He said that these boats would be operational by the
first week in June. The boats currently being used on the inland
waterways were regular civilian boats, not patrol craft
specifically suited for the task of combating smuggling.
(Comment: The donated airboats are similar to those used by U.S.
law Enforcement in the everglades and Mississippi delta. End
Comment.)


5. (C) In an April 17 meeting, Ayad Janni, head of the Oil
Protection Force (OPF),echoed BG Abbas' complaints of equipment
shortages to REO Poloff. Because of these shortages, the OPF
was unable to patrol the entire petroleum infrastructure in its
AOR. Equipment shortages included a lack of working patrol
vehicles, and Ayad said that he had requested additional
vehicles from the Ministry of Oil. The shortage is exacerbated
by administrative requirements to the Ministry of Oil that Janni
termed "silly," such as the requirement to provide a written
justification for any expenditure over USD 25.


6. (C) Ayad said that the greatest threat he faced was from
well-armed tribal elements and other unspecified terrorist
groups that blackmail the OPF with "protection rackets" for
critical production nodes, such as exposed pipelines, which pass
through tribal areas.


7. (C) In a May 6 meeting with the Regional Coordinator,
General Manager of the Southern Oil Company Jabbar Ali Husayn
al-Lu'aybi raised similar concerns about tribal interference in
the security of key oil infrastructure, particularly in the
vicinity of the West Qurnah oil field. (see Ref. A)

Weak Law Enforcement on Smuggling
-------------- -


8. (C) In a May 28 meeting, Assaf Husam Aldin Assaf, Judicial
Investigator at the Basrah Higher Judicial Court (protect),
discussed the issue of petroleum product trafficking with
Poloff. Assaf has a deep understanding of the legal aspects of
prosecuting oil smuggling due to his experience in current and
past court cases, as well as police investigations. He said
that the difficulty in addressing smuggling was that there was
no organized group of individuals, such as a cartel or
syndicate, conducting the smuggling operations. Smuggling was
informal, and anybody with the access to oil products and the
means to move it around could participate in smuggling. He
asserted that many senior government officials were profiting
from smuggling, including Basrah Governor Mohammed Wa'ili and

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Provincial Council Chairman Sadoon Obadi and a number of police
officers (Ref. B). He also alleged that former Prime Minister
Jaafari benefited from it.


9. (C) Assaf said that the most common method of illicit oil
(see note above) shipping was by barge or boat down the
waterways of Iraq to Iran or Kuwait, where the cargo was either
sold or re-flagged for a longer transit. The longer transits
usually terminated in the United Arab Emirates. Assaf said that
the practice of re-flagging was not new, and that the Iraqi
government informally encouraged it as a means to get around the
Oil For Food program petroleum sales caps under the Baath
regime. This has resulted in a relatively high level of
expertise in smuggling oil out of Iraq.


10. (C) Assaf shared a 2005 report on combating oil smuggling
from the "Combined Coordination Committee for Counter-Smuggling"
with Poloff. This report outlined an interagency approach for
enforcing smuggling laws and achieving convictions at a local
level. Assaf expressed frustration that the documents were
never supported by the relevant central government agencies.

No Scarcity of Fuel
--------------


11. (C) A local private fuel station in Basrah, Attamiem,
informed the REO that he sold Type 93 gasoline at 150 Iraqi
Dinars (ID)/liter and kerosene at 20 ID. He said that he
experienced occasional shortages of fuel depending on the
severity of the security situation, but these occurrences were
infrequent. He said he believed his supplier bought fuel
directly from a local refinery. When the supplier was short on
fuel and fuel shortages occurred in Basrah, he bought fuel
smuggled in from Iran and resold it at higher prices.


12. (C) Hamid Al-Moosawi (protect),a REO contact and younger
brother of a prominent moderate Shia cleric in Basrah, stated
there is "no fuel shortage" on the market in Basrah, but said
that there was a perception of fuel shortages because fuel-truck
drivers are at a high risk for hijacking. According to Civilian
Police Advisory Training Team (CPATT) data, 8 out of every 20
trucks that cross the Iraq-Kuwait border are diverted. Some are
hijacked, but others are suspected to be voluntarily turning
over their cargo to criminal interests in return for a payoff.



13. (C) Comment: Smuggling abounds in the permissive
environment of Basrah. Prime Minister Nouri Al Maliki
spotlighted oil smuggling in Basrah during his May 31 press
conference on overall security in Basrah. Although we hear
repeatedly that crude smuggling is a problem, it is not one for
which the production and export numbers provide much evidence.
Even the MoO Inspector General in a recent report on smuggling
had virtually nothing to say on the subject of crude smuggling -
aside from a one-sentence assertion in his summary that the
problem exists. In order to combat smuggling of all types, in
particular of petroleum products, security improvements need to
be coupled with the necessary economic reforms (see reftel C) to
remove fuel subsidies, and with them, the incentive to smuggle
petroleum products. End Comment.
MARRANO