KRG PM BARZANI TAKES ISSUE WITH GOI OIL MINISTER

S E C R E T BAGHDAD 000352

SIPDIS

E.O. 12958: DECL: 02/05/2014
TAGS: ECON EPET PGOV PREL EINV IZ POL
SUBJECT: KRG PM BARZANI TAKES ISSUE WITH GOI OIL MINISTER
SHAHRISTANI, HINTS AT PROGRESS ON HYDROCARBONS LEGISLATION

REF: A. BAGHDAD 00194

B. BAGHDAD 04014

Classified By: EMIN Ambassador Marc Wall, reasons 1.4 (b,d)


1. (S) Summary: At a 4 February meeting with EMIN Wall, KRG
PM Nechervan Barzani expressed his displeasure with GOI
Minister of Oil Husayn Al Shahristani for his lack of
competence, focus and willingness to work on KRG-GOI oil
issues and was puzzled with inquiries by Shahristani during a
recent meeting about KRG-Israeli contacts. Barzani expressed
his belief that the drop in world oil prices had introduced a
more conciliatory tone to the hydrocarbons debate between the
KRG and the GOI, but continued to assert the KRG's desire for
an equal say in how Iraq's oil resources will be managed.
Barzani also reported progress on the linking the DNO
(Norwegian) field to the GOI pipeline, but noted that an
agreement still needed to be reached on the division of
export revenue. End Summary.

ISRAEL ON THE AGENDA?
--------------


2. (S) During a February 4 visit to Erbil, EMIN met with KRG
PM Nechervan Barzani. The main topic was hydrocarbon issues,
and began with reference to the November 24 2008 visit of
Iraqi Oil Minister Shahristani to Erbil for talks with
Barzani (ref B). Barzani said he had expected his talks with
the Oil Minister would focus on a possible agreement to allow
crude oil export from the KRG region, but was surprised that
in the end Shahristani devoted most of the talks to other
issues. Specifically, Shahristani repeatedly inquired on the
nature of the KRG's dealings with Israel and the Mossad,
leading Barzani to quip that he wanted to ask "are you the
Minister of Oil or Intelligence?" (Note: Shahristani earlier
told us that the main focus of his visit had not been the
crude oil export agreement, but had never specified what the
other topics had been. He implied, however, that the
discussion had covered the range of contentious issues
between the central and regional governments. See ref B. End
Note)

FORCING THEIR HAND?
--------------


3. (SBU) Barzani expressed his belief that global oil prices
had made the GOI "less arrogant" and more willing to seek a
real solution to hydrocarbons legislation. Barzani mentioned
that he was happy with the current price of oil, as he
believed it was forcing the GOI to seriously focus on an
agreement to export KRG oil. As a sign of this new
direction, he mentioned that the GOI recently sent a letter
to both the Norwegian private oil company DNO and the KRG,
expressing the GOI,s desire to reach an agreement between
the GOI, DNO and the KRG to permit exports from the oil field
DNO is developing, but without specifying details. Note: The
DNO psc with the KRG was signed prior to adoption of the
Iraqi constitution. End Note.


4. (S) Barzani then continued his broadside at Shahristani,
stating that he had no confidence in Shahristani's
understanding of the oil sector or his willingness to
negotiate an agreement that would permit much-needed
increased oil exports. As an example of this, Barzani
described a previous conversation with Shahristani on the
DNO-KRG export situation, in which Sharistani suggested the
KRG pay DNO out of its 17% share of oil revenue, an option
not acceptable to Barzani. (Note: Post,s understanding of
the DNO-KRG PSC agreement is that it would cost the KRG more
it,s 17% share of the export revenue to cover its
contractual obligation to DNO.)


6. (S) Barzani further noted that "the KRG will not accept
Baghdad's overall control of oil" and expressed a desire to
QBaghdad's overall control of oil" and expressed a desire to
coordinate and remain on equal footing with the national
government on how the resources are extracted.


7. (S) Per ref B, Deputy Oil Minister Mu'tasam informed us
that he had proposed the MoO negotiate directly with the PSC
operators to arrive at new agreements that would replace the
PSCs with the KRG. Mu'tasam lamented then that there had
been no movement on the proposal, although all concerned
parties were agreed that the approach could potentially
resolve the central government-KRG impasse. During a
conversation on February 5, Mu,tasem continued to lament
that the political will was lacking on both sides to come to
an agreement on a pricing mechanism that would facilitate
exports.

CROCKER