MFA U/S on Kuwait Air negotiations, PM visit, and

S E C R E T SECTION 01 OF 03 KUWAIT 000976

SIPDIS
NOFORN

FOR NEA/ARP, NEA/I
EMBASSY BAGHDAD FOR GRAY AND WALL

E.O. 12958: DECL: 09/11/2018
TAGS: PREL EINV EAID MASS KW
SUBJECT: MFA U/S on Kuwait Air negotiations, PM visit, and
concerns about arms sales and SOFA with Iraq (S)

Classified By: Ambassador Deborah K. Jones for reasons 1.4
(b) and (d).

Refs: A) Kuwait 947, B) Kuwait 936


1. (U) This is an action request. Please see paras 10 and 11.


2. (S/NF) Summary: Ambassador met with MFA U/S Khalid Al-
Jarallah on September 11 to review the September 8 visit of
the Iraqi Finance Minister to Kuwait and to preview the
Kuwaiti PM's September 18-19 visit to the U.S.. Jarallah
was broadly positive about the Iraqi Finance MinisterQs
visit, noting that he thought an agreement in principle had
been reached to settle Kuwait Airways claims with a USD 500
million payment, though he noted the Kuwaitis would insist
on a bank guarantee. (Note: His version differs slightly
from that of Kuwait Airways' Legal Advisor, who said that
the negotiations had run into difficulties on Kuwait
Airways insistence that the GOI provide a bank guarantee
from an international, not an Iraqi, bank. End Note.)
Jarallah told Ambassador that the GOI planned to send a
Minister of Foreign Affairs-led team to Kuwait within a
month to try and resolve a number of other outstanding
issues, including the border. He added that he hoped that
this visit would take place prior to the Prime Minister's
visit to Iraq, for which he sought U.S. security
assistance. Jarallah also expressed concern about the
U.S.- Iraq Status of Forces Agreement and future U.S. arms
sales to Iraq. Ambassador noted our ongoing interest in
significantly improving counter terrorism cooperation.
Jarallah said that the PM would likely ask about Iraq,
Iran, the peace process, Kuwaiti detainees, visas, and the
possibility of a free trade agreement. End Summary

Iraq
--------------


3. (S) Jarallah told Ambassador that Prime Minister Sheikh
Nasser Al-Mohammed Al-Sabah would be very interested in the
ongoing U.S. Q Iraqi Status of Forces negotiations, as the
results would affect Kuwaiti security. He pushed for more
details on the terms of the agreement, saying that the
Kuwaitis were frankly "confused" about its terms and
conditions. Ambassador explained briefly that the
negotiations were still ongoing, but that PM Maliki
appeared to accept the need for some type of continuing
U.S. military presence in the country following the
expiration of Article 7. Jarallah also raised the proposed
sale of U.S. military equipment to Iraq, noting that
Kuwait's Ambassador to the U.S. had learned, from an
administration source, that the U.S. planned to sell 30
F-16s to Iraq. Ambassador replied that she had briefed the
Foreign Minister about the Iraq Security Force Transition
plan, and that the process was designed to improve Iraq's
counter-insurgency capability (ref b).


4. (S) With regard to the Prime Minister's planned visit to
Iraq, Jarallah expressed serious concern about the security
situation and asked specifically what the USG could do to
provide security. He noted that the PM is likely to stay
"only a few hours" which would include lunch or dinner with
PM Maliki and would likely fly in on one of the GOK's Amiri
fleet jets.

Iraq Airways Negotiations
--------------


5. (SBU) Ambassador asked Jarallah for his read-out on the
September 8 visit of the Iraqi Finance Minister to Kuwait
to discuss the debts owed to Kuwait Airways. Jarallah said
that he thought the two sides had reached an acceptable
agreement, in principle, for the Iraqis to pay USD 500
million out of the USD 1.3 billion in outstanding Kuwait
Airways claims. He explained that the original Iraqi offer
of USD 150 million, plus an intent to funnel Iraqi
passengers to Kuwait Airways rather than Jordan or Dubai,
was unacceptable to Kuwait Airways. Kuwait Airways had
taken steps in court to enforce their claim, resulting in a
Montreal court order to seize Bombardier aircraft,
purchased for Iraqi Airways. This action, Jarallah noted,
quickly brought the Iraqis to the table to say "please
stop." The Iraqis originally insisted that the Kuwaitis
stop the Canadian enforcement action before negotiating but
agreed to talk, when the Kuwaitis responded that Kuwait
Airways still had "two days" before they needed to act on
the Canadian judgment.


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6. (SBU) Ambassador noted her understanding that the talks
might have faltered due to Kuwait Airways desire to have an
international bank handle the fund transfer rather than an
Iraqi bank. Jarallah stayed positive on the agreement, but
noted that the Kuwaitis wanted a bank guarantee from the
Iraqis for the payment. (Note: There appears to be a
slight disconnect between the GoK and Kuwait Airways about
the status of the talks. The Legal Advisor for Kuwait
Airways told Econoff that both sides had agreed to a
proposed USD 500 million settlement, but that the Iraqis
had balked when asked to sign minutes saying that the
agreement would be accompanied by a payment guarantee
issued by an international bank. The GoI had originally
proposed an Iraqi bank guarantee. Ahmed Sadawi, the Iraqi
Advisor for Civil Aviation apparently said that the GoI had
no funding in the FY 08/09 budget to cover the payment;
funding would need to come from a FY 09/10 budget. For
that reason, Iraq would not be able to pay before March

2010. The Kuwait Airways Legal Advisor said that he
suspected that the GOI wanted a signed agreement to present
to the courts in Montreal to gain release of the aircraft.
Putting the two sides' stories together, it may be that the
GoI asked the GoK to accept its USD 500 million offer on
good faith in order to obtain release of the Bombardiers
aircraft, while awaiting the 2009 budget for actual
payment. The Kuwaitis, businessmen first and foremost,
demanded bank guarantees before taking any action. End
Note.)

Iraq to Send Committee to Work on Resolving Kuwaiti
Concerns
-------------- --------------


7. (C) Jarallah said that he had raised a number of other
Kuwaiti concerns with the Minister of Finance. These
included the Iraq-Kuwait border, demarcation of the sea
border, the continued presence of Iraqi farmers on Kuwaiti
soil, and the fact that the GoI continued to block trucks
from Kuwait and other GCC states at the border. According
to Jarallah, the Iraqi Finance Minister told him that a
committee led by the Iraqi Minster of Foreign Affairs and
including the Ministers of Defense, Oil, and Interior would
come to Kuwait to address all of these issues. Jarallah
hoped that they would within the month and prior to the
PM's visit to Iraq. With regard to the Iraqi farmers,
Ambassador asked whether the MFA had followed up on
discussions with the Iraqi side. When it became clear that
Jarallah was unaware of any GoK follow-up, Ambassador again
passed over information on an Iraqi MFA point of contact
provided by Embassy Baghdad.

Counter-Terror Concerns
--------------


8. (S/NF) Ambassador and U/S Jarallah discussed the
upcoming Prime Ministerial visit to Washington and New
York. She noted that the USG wanted to acknowledge and
honor the strong relationship, but added we would likely
highlight our interest in improving our counter terror
cooperation. She suggested that there was frustration on
both sides that the liaison relationship was not more
productive, and that we would need to look creatively at
ways to improve it. She also noted Washington's interest
in having Kuwaiti leadership speak out more forcefully
against terrorist activities and work more closely with
their neighbors to secure the borders. All of these
actions, she stressed, were in both countries mutual
interest. Jarallah said the Kuwaitis shared U.S. concerns
about terrorism and were worried about the activities of
people within their borders as well. He said the GoK was
doing the best it could, though he acknowledged the need to
do more. He welcomed closer cooperation, noting that the
GoK was "ready to cooperate in any way."

The Prime Minister's Agenda
--------------


9. (C) Jarallah said that the Prime Minister would be
raising issues of his own, and that it was important to
have high-level frank discussions about mutual concerns.
On a regional level, he noted, the PM would want to discuss
Iraq, Iran, and the peace process. On a bilateral basis,
he suggested the PM would be interested in the remaining
Kuwaiti detainees, visas, and the possibility of an FTA,
noting that Ambassador had advised against pushing for an
FTA. Ambassador reiterated that there was no possibility
of concluding an FTA at this time. Jarallah asked

KUWAIT 00000976 003 OF 003


Ambassador whether the USG had an opportunity to react to
the various agreements that MFA had provided. Ambassador
clarified that the agreements on the table were: A
chemical weapons challenge inspection agreement, a Critical
Energy Infrastructure Protection MOU, and the Broadcasting
Board of Governors agreement. Jarallah stated that the PM's
advance team would be in Washington by the weekend and
would be contacting the Department on Monday.

Action Request
--------------


10. (SBU) For NEA/ARP: Please advise as to status of the
three agreements referenced by Jarallah.


11. (S/NF) For Baghdad: Please advise what actions can be
taken to enhance security for the post-Ramadan visit of the
PM to Baghdad.

JONES