BASRAH REFINERY DIRECTOR ON OIL SMUGGLING AND SECURITY

C O N F I D E N T I A L BASRAH 000018

SIPDIS

SIPDIS

E.O. 12958: DECL: 3/13/2018
TAGS: EPET ENRG ECON KCRM IZ
SUBJECT: BASRAH REFINERY DIRECTOR ON OIL SMUGGLING AND SECURITY

REF: A) BAGHDAD O/I E-MAIL 01/17/2008 B) 07 BASRAH 0109

CLASSIFIED BY: Louis Bono, Regional Coordinator, Regional
Embassy Office Basrah, Department of State.
REASON: 1.4 (b)


1. (C) SUMMARY: On February 27, REO met with Qasim Mohammed Ali
Kadhim, Technical Director of the South Refinery Company, who
said Basra refinery operations have returned to its pre-fire
production levels at approximately 60 percent capacity or 90,000
barrels per day. According to Kadhim, smugglers have developed
their own underground pipelines, connecting them to main lines
to siphon oil without being detected. Kadhim described South
Oil Company Director General Jabbar Ali Lua'abi as the
industry's principal figure in the south, with broad influence
among rival groups in and around Basrah; this view was shared by
an international oil company source based in Bahrain. Despite
reports of a strained relationship between Lua'abi and Minister
of Oil Husayn Al-Shahristani, Kadhim said the two have a
productive private relationship. END SUMMARY.

2. (U) Regional Embassy Office Basrah (REO) met with Qasim
Mohammed Ali Kadhim, Technical Director of the South Refinery
Company, on February 27 to discuss Basra refinery operations
following the January fire (Ref A),prospects for foreign
investments, challenges facing the oil and gas sector, and his
insights regarding key industry players. Kadhim has over
twenty-five years of industry experience working in southern
Iraq, 17 with South Oil Company and four years in his current
position.

3. (C) Kadhim said production at the Basra refinery dropped 20%
following last month's fire. However, the refinery is now
operating at approximately 60% capacity or 90,000 barrels per
day. Based on his expertise, Kadhim claimed the fire was caused
by a rocket or mortar attack, although official investigators
have cited mechanical failure and a gas leak as the cause.
Kadhim said the refinery has been attacked in the past which,
combined with corroded equipment and lack of training, have
contributed to declining productivity and storage capacity. As
a result of existing inefficiencies, the country is flaring
natural gas and placing refined oil byproducts back in the
ground. Meanwhile, he said that Iraq is importing approximately
5,000 metric tons of LPG and 1.5 million liters of benzene per
day. Kadhim hopes the proposed two-year technical service
contracts recently proposed by the Oil Minister will help the
industry address these issues.

4. (C) Kadhim believes the greatest challenge to the industry is
infrastructure security. Depots, pipelines, and refineries
continue to be victims of smuggling. According to Kadhim,
smugglers have developed their own undergQund pipelines,
connecting them to main lines to siphon oil without being
detected. This smuggling scheme provides a continuous flow of
crude that is hard to detect with metering devices. Kadhim
added that, because the industry lacks meters or fails to use
them properly (as is the case at the port of Umm Qasr),it is
difficult to accurately gauge how much oil is lost to smugglers
-- but he stressed that it is a huge amount.

5. (C) With his twenty-five years of experience, Kadhim said hat
he has a good understanding of both formal and informal industry
relationships. He claims that South Oil Company (SOC) Director
General Jabbar Ali Lua'abi is the oil and gas sector's principal
figure in the south, adding that Lua'abi has influence Qth most
industry players, politicians and militia groups in and around
Basrah. Kadhim said Lua'abi is "a friend of all sides" and is
viewed as a person who "gets things done." Despite public
reports of a strained relationship between Lua'abi and Minister
of Oil Husayn Al-Shahristani, Kadhim said the two have a very
productive and cooperative private relationship. An
international oil company contact of the REO, who meets with
Lua'abi outside Iraq, also told us separately that Lua'abi is
considered to be the central industry figure in the south.

6. (C) COMMENT: We found Kadhim approachable, knowledgeable and
willing to talk. His description of relationships is at variance
with that of Basrah Governor Mohammed Wa'eli. (Ref B) Wa'eli
told us recently that Lua'abi is increasingly erratic, with wild
mood swings; he claimed Shahristani and Lua'abi hate each other
and that Lua'abi spends half the week in Dubai partly to avoid
dealing with Shahristani. Wa'eli claims to be the real power
behind Lua'abi, while Kadhim described the reverse. Wa'eli's
claim that he can pull Lua'abi into the REO for a meeting has so
far not panned out. We find Kadhim credible but need to meet
with Lua'abi and others to get a fuller picture of oil
relationships in the South.

HOWARD