DEMARCHE REQUEST: CONTINUATION OF UN ARRANGEMENTS

C O N F I D E N T I A L SECTION 01 OF 02 STATE 123985

SIPDIS

E.O. 12958: DECL: 11/21/2018
TAGS: PREL
SUBJECT: DEMARCHE REQUEST: CONTINUATION OF UN ARRANGEMENTS
(INCLUDING IMMUNITIES) FOR THE DEVELOPMENT FUND FOR IRAQ

Classified By: NEA DAS Richard Schmierer. Reason 1.4 (b) and (d).


1. (SBU) This is an action request. Drawing on points in
paragraph 5, Embassy should discuss actions required to
extend the UN arrangements for the Development Fund for Iraq
(DFI) with the Government of Iraq (GOI) at the highest
appropriate level and as soon as judged practicable. Embassy
should draw on points in paragraph 5.


2. (C) The objectives of this demarche are to:

-- Confirm GOI understanding that it must take the lead in
requesting and obtaining continued UN-mandated arrangements
(including immunities) for the Development Fund for Iraq
(DFI) and Iraq,s hydrocarbon exports and proceeds from such
exports after the expiration of UNSCR 1790;

-- Stress how little time remains before the arrangements
expire on December 31, 2008.

-- Reiterate that continuation of UN-mandated protections for
the DFI and Iraq,s hydrocarbon exports and proceeds are
only possible via a UN Security Council (UNSC) Chapter VII
resolution, and will require continuation of other
arrangements related to the DFI, including continued
international monitoring; and

-- Urge the GOI to take action soon to increase its chance of
success in obtaining an extension of DFI and hydrocarbon
exports and proceeds protections.


3. (C) Background only: The extension of privileges and
immunities for the DFI and Iraq,s hydrocarbon exports and
revenues is of key interest to the GOI and has been a subject
of extensive discussion during the negotiations on the
continued U.S. presence in Iraq. The United States has
committed itself to assisting Iraq to obtain a UNSC
resolution extending the arrangements now in place, including
immunities, but cannot offer guarantees of success. Iraq
will need to make a strong case to Council members on the
merits, and adequately justify its request in a letter from
the Prime Minister to the Council. Iraq must also take
concrete steps to court the Council's good will. These
include follow-through on its USD 25 million contribution to
the UNAMI compound, resolving Oil for Food claims (see
reftel),settling other Saddam-era claims, and meeting with
Kuwait under the auspices of the UN Compensation Commission
(UNCC) to discuss the remaining UNCC claims and payments.
The GOI,s recent pledge of USD 25 million for the
construction of a new UNAMI compound in Baghdad is a good
first step, but must be followed by swift delivery of the
funds and additional funding from the GOI as construction
begins. On Oil-for-Food claims, a P5-agreed letter giving
"final notice" to the GOI of the need to resolve outstanding
Oil-for-Food claims should shortly move to the President of
the UNSC for action.


4. (C) While Iraq is likely to be focused on protecting the
DFI and other assets from lawsuits, and the execution of
legal attachments, the entire package of arrangements related
to the DFI and Iraq,s hydrocarbon exports will need to be
extended. The U.S. commitment to support the GOI in its
efforts to secure continued protections includes the entirety
of these arrangements, namely: 1) the requirement to deposit
Iraqi oil revenues into the DFI account, except for the 5% of
Iraq,s oil revenues that is dedicated to satisfying
outstanding UNCC claims; and, 2) the existing monitoring
regime through the International Advisory and Monitoring
Board.


5. (C/rel to Iraq) Embassy should draw on the following
points in discussion with the GOI:

-- We understand that the GOI desires continued UN-mandated
protections for the DFI and Iraq,s hydrocarbon (oil and gas)
exports and revenues from those exports, and that the GOI
accepts that this must occur via a Chapter VII UNSC
Resolution. The Security Council can only bind the
international community to protect Iraq's assets under
Chapter VII of the UN Charter.

-- As was agreed in the negotiations on the Security
Agreement, the United States will support Iraq,s request for
a Chapter VII UNSCR to extend the existing arrangements for
the DFI and Iraq,s other assets beyond December 31, 2008.


STATE 00123985 002 OF 002


-- The GOI should understand that it must take the initiative
in obtaining this resolution, that the time for accomplishing
this in New York is rapidly running out, and that significant
obstacles remain - obstacles that the GOI is best positioned
to address.

-- In formulating its action plan and developing its request
to the Security Council, Iraq must address the perception
among some Council members that Iraq no longer merits special
protection for its assets. Common negative arguments
juxtapose the wealth of Iraqi natural resources with the
generous award of 80 percent Paris Club terms on Iraqi
sovereign debt. Skeptics also juxtapose Iraqi claims of
success and normalization, including assertions that it no
longer requires UNSC oversight over remaining foreign troops
and wishes to end all Chapter VII resolutions, with its
continuing desire for UNSC oversight and protection of
Iraq,s oil and revenues.

-- Considering these arguments, we assess that other states'
support will be predicated on characterizing an extension as
"temporary and transitional." Iraq will need to show how
potential asset seizures could threaten reconstruction and
thus stability.

-- Iraq will need to explain to the UNSC that it believes
continued protections are necessary to facilitate the
development of its fragile national economy and its
reconstruction efforts, which are essential to maintaining
security and stability. Iraq may also need to consider
including in its justification its cause for concern about
the vulnerability of its assets (e.g., its view on potential
claims),and steps it is taking to resolve these concerns, so
that the special arrangements for Iraq may end.

-- Support will also certainly rest on the GOI's ability to
generate good will among UNSC members. This would include
Iraq making a full and fair contribution to the costs of
UNAMI's new Baghdad compound, (2) settling all outstanding
Oil-for-Food claims, and (3) meeting Kuwait under the
auspices of the UN Compensation Commission on the future of
the remaining UNCC claims and payments.

-- While these arguments present a number of difficulties,
our judgment is that addressing Russian concerns and
interests will be key. The Russians have a veto and have
already signaled that they do not support a Chapter VII
resolution for DFI only (that is, an Iraq resolution without
an MNF mandate). Because of the high involvement of Russian
firms in the Oil-for-Food program, resolving outstanding
Oil-for-Food claims will likely be of great interest to the
Russian government.

-- Assuming Iraq can obtain Russia,s willing abstention,
nine positive votes will still be required. Although by no
means assured, our best estimate is that there is currently
support among as many as six UNSC members: the United
States, the UK, France, Belgium, Italy, and Croatia. Thus,
Iraq will need to work to sway in its favor at least three of
the remaining members, votes and avoid vetoes by Russia or
China.

-- In order that we may coordinate our support, please keep
us informed about your contacts with the Russians and other
Council members. We urge you to take these actions as soon
as possible, and we stand ready to assist you in these
efforts.
RICE