SYRIA,S INVOLVEMENT IN IRAQ,S FUEL TRADE

C O N F I D E N T I A L DAMASCUS 003965

SIPDIS

SIPDIS

NEA/ELA
NSC FOR ABRAMS/DORAN/SINGH
TREASURY FOR GLASER/LEBENSON
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 02/22/2015
TAGS: EFIN EPET KCOR JO KU SY TU IZ AE
SUBJECT: SYRIA,S INVOLVEMENT IN IRAQ,S FUEL TRADE

REF: STATE 105085

Classified By: CDA Michael Corbin for reasons 1.5 b/d.


1. (U) Syrians are involved in both the legal and illicit
trade in oil and oil derivatives from Iraq. On the legal
side, the Syrian Oil Marketing Bureau (OMB) imports 10,000
barrels per day (BPD) of crude oil and 1,000 BPD of residual
fuel-oil (RFO) from Iraq. In exchange, the Syrians export 60
megawatts of electricity, gasoline, and kerosene to Iraq.
The Syrians use the RFO from Iraq to run at least one of
their 13 power stations, though a number of others are
dual-fired and are reportedly capable of burning RFO in place
of natural gas.


2. (C) Individual Syrians are also pursuing contracts with
SOMO to import RFO to Syria. Mohamed al-Ayech, commercial
manager of al-Ayech Establishment, told us recently that he
has been working on a contract to transport 100,000 barrels
per month of RFO to Syria but has been hamstrung by the
inefficient Syrian bureaucracy which compels him to obtain
permits from multiple SARG entities before importing. He
commented to us that a number of other Syrian entities are
pursuing similar contracts based on their historical business
relationships and the below-market prices for RFO in Iraq.
Ayech said that once he starts importing RFO, it will be
transported using Iraqi trucks since it is impossible for him
to recruit Syrian trucking companies willing to haul from
Iraq.


3. (C) In addition to the legitimate RFO imports, there are
an increasing number of transactions that have less obvious
legitimacy. Leading Syrian businessmen in various sectors
have told us they have received unsolicited letters from
Iraqi entities offering oil or oil derivatives at discounted
prices. One long-time embassy contact, Hisham Akkad, recited
to us how Iraqis associated with various political parties
have offered him crude oil at ten dollars below market value
if he could find a buyer. Akkad insisted that the
transaction was legal and opined, without elaborating, that
it was one of the techniques used by the GOI to maintain
coalition loyalty. Akkad didn,t specify how much oil he
could obtain at the discounted rate but implied it could be
significant, and that the larger inhibitor would be finding a
qualified buyer.


4. (U) In the most clearly illegal category, the Syrian press
occasionally runs stories reporting on Iraqi gasoline tankers
being seized while selling product illegally in Syria. There
was one story reporting on two tankers in the suburbs of
Damascus being seized while selling to cars, most of which
had Iraqi license plates. Other news reports have been on
seizures in areas closer to the border, which has led post to
assume gasoline smuggling in Syria is more localized and
smaller scale than the oil or RFO businesses.


5. (C) Comment. The size and extent of the illicit Iraqi
fuel trade in Syria is unknown, but the clear trend is that
it is increasing. The RFO trade is the most visible since a
portion of it is clearly legal, but it is the discounted
prices reportedly being offered on all products that piques
Syrian business interest. Syrians have been in the Iraqi oil
trading business previously under the "oil for food program"
with Saddam Hussein. Still, it is doubtful the Syrian
business community is playing any larger role in crude oil
sales today than taking a commission for locating a buyer, as
described by Akkad above. Ayech insists that illicit fuel
sales would be difficult for any Syrian to put together
without the highest level of connections because of the
increased security on the border and the three separate
checks any vehicle traversing the two legal crossing points
must pass through. Though illicit gasoline sales appear to
be the most lucrative and easiest to execute, we have seen
little evidence to date that many are occuring. Gasoline
sells in Syria at roughly two dollars a gallon and the
country still produces more of the commodity than it consumes.
CORBIN