OIL EXEC DETAILS CONTINUING PROBLEMS IN

S E C R E T DAMASCUS 000515 NOFORN SIPDIS DEPT FOR NEA/ELA, NEA/FO, NEA/EX, NEA/I; NSC FOR SHAPIRO/MCDERMOTT PARIS FOR MILLER E.O. 12958: DECL: 07/16/2019 TAGS: ECON EPET ENRG PGOV PREL IZ SY SUBJECT: OIL EXEC DETAILS CONTINUING PROBLEMS IN SYRIAN-IRAQI RELATIONS REF: DAMASCUS 98 Classified By: Charge d'Affaires Ray Maxwell for reasons 1.4(b,d) -------------- Summary -------------- ¶1. (S/NF) An Iraqi-born British oil executive with access to both the Syrian and Iraqi leadership provided several examples of unresolved disputes that prevent the Syrian-Iraqi relationship from improving. He said the Syrian regime does not fully understand the depth of continuing suspicions within the Iraqi government about Syrian intentions. PM Maliki is personally reported to be outraged over the continued sheltering of former Saddam regime elements who actively support the Iraqi insurgency, and the PM views the increase in the number of foreign fighters entering Iraq from Syria as an obstacle to better relations with Damascus. Nonetheless, the Iraqi government had selected an Italian firm to begin a survey of the Kirkuk oil pipeline running east to the Syrian border. End Summary -------------- Political Disconnect between Asad and Maliki -------------- ¶2. (S/NF) Painting a vivid portrait of current Syrian-Iraqi relations, Iraqi-born British CEO of Gulfsands Petroleum Mehdi Sajjad described continuing misunderstandings by the leadership of both states in how best to improve the relationship. Sajjad, who claims access to both Syrian President Bashar al-Asad and Iraqi Prime Minister Nouri al-Maliki, said the Syrian regime is misreading the mood of PM Maliki and his closest advisors toward Syria. Maliki remains fixated on the SARG's sheltering of former Saddam regime elements and tolerance of foreign fighter networks that feed the insurgency. To Maliki, Sajjad said, the Syrian leadership is most interested in political theater and expects high-level visits will lead to economic cooperation. The SARG, he said, told Maliki during PM Otri's April trip to Baghdad that the former regime elements posed less of a threat to him under the SARG's control than if the Syrians expelled them to other countries. Maliki would prefer to see Syria expel them, according to Sajjad, but it is unclear whether he conveyed this request to his Syrian counterpart. ¶3. (S/NF) Sajjad said Bashar had made a mistake in sending Deputy Vice President for National Security Affairs Muhammad Nasif Khayr-Bayk with FM Walid al-Muallim to meet with Maliki in March 2009 before Bashar himself met with Maliki on the margins of the Arab League summit in Doha. Remembering his years of exile in Damascus, Maliki had been humiliated that Bashar's envoy was the security official to whom Maliki had once been forced to ask to extend his Syrian residency permit. In subsequent meetings, Sajjad said, Muallim had to reassure Maliki that he was Asad's sole interlocutor for bilateral issues. ¶4. (S/NF) In Muallim's last conversation with Maliki, Sajjad reported, the Syrian Foreign Minister had asked when Maliki would next visit Damascus. Maliki responded that perhaps it was time for Asad to come to Baghdad, to which Muallim said it was too soon after Syrian Prime Minister Muhammad Naji Otri's visit to Baghdad and too little progress had been made in the relationship to merit a presidential visit. For what it was worth, Sajjad said, he had personally delivered a Syrian invitation to PM Maliki to stop in Damascus on his return from Washington around July 23. Asad was eager for a face-to-face meeting in Damascus to move the relationship forward, Sajjad reported. -------------- Iraqi PM Malki Rebukes Syrian Petroleum Minister -------------- ¶5. (S/NF) In one example of the political dissonance, Sajjad said Syrian Minister of Petroleum Sufian Allaw approached Prime Minister Maliki at the mid-July Nabucco Pipeline conference in Ankara, Turkey. Allaw, whom Sajjad described as "awkward" in high-visibility political events, reportedly told Maliki Syria was ready to make the Iraqi government a deal to connect the Akkas gas field in Western Iraq with a Syrian gas processing plant and pipeline infrastructure some 35km across the Syrian border. Maliki bristled at Allaw,s blunt approach and told the Syrian he would decide when Akkas would start producing gas and with whom the Iraqi government would partner on the project. Malki reportedly told Allaw he doubted the Syrians could make Iraq as lucrative an offer for rights to Akkas as ExxonMobil, and walked away before Allaw could respond. (Note: We understand SARG officials had expressed keen interest in the Akkas gas field and electricity sharing during Iraqi Minister of Energy Wahid Kareem Hasan's June 21 visit to Damascus.) -------------- Syrian Oil Bill Growing Daily -------------- ¶6. (S/NF) Another irritant to the Iraqis, said Sajjad, was Syria's non-payment for some USD 400 million in oil that had been shipped to Syria from the Suwaylah field in western Iraq. The oil shipments began over a year ago in a trade deal whereby Syria would export electricity to western Iraq in return for regular shipments of Iraqi oil. Both sides were initially satisfied with the deal until Syria became unable to produce enough electricity to meet its requirement to export to Iraq. (Note: The SARG instituted power rationing for nearly 10 months so far in 2008-2009. End note.) The Iraqis, he said, had exacerbated the Syrians' dilemma by continuing to ship oil even though they weren't receiving electricity. Consequently, Syria owes an estimated USD 400 million for unreciprocated oil shipments -- an amount that continues to grow by the day. According to Sajjad, Iraqi politicians believe Syria will never pay for the oil and justify their non-payment as "compensation for supporting Iraqi refugees" living in Syria. -------------- Commercial Bank of Syria -------------- ¶7. (S/NF) Sajjad commented on the continuing dispute over a sum of USD 110 million in Saddam-era Iraqi oil proceeds that had once been held by the Commercial Bank of Syria (CBS). (Note: These proceeds were generated from the illegal sale of Iraqi oil during the oil-for-food years, an activity that contributed to the Treasury Department's 2004 designation of CBS as an institution of primary money laundering concern under Chapter 311 of the Patriot Act. End note.) He said once Saddam's regime had fallen, the SARG had allowed Syrian businessmen who were owed money by Iraqi customers to file claims with CBS and CBS had paid the claims from the Iraqi oil account. Shaking his head, Sajjad said no Iraqi authorities had been present to hear or adjudicate the claims and, in his opinion, the Syrian businessmen had significantly inflated the actual amounts they were owed. Consequently, the Iraqi government considers the Syrian claimants to be "thieves." Ironically, the Director General of CBS said publicly in May that he hoped U.S. sanctions against CBS would be lifted as the issue of the Iraqi money had been resolved. -------------- Kirkuk-Banyas Project Underway -------------- ¶8. (S/NF) Regarding the Kirkuk-Banyas pipeline, Sajjad said an Italian company named SIPA would begin surveying the pipeline from Kirkuk to the Iraqi-Syrian border in August ¶2009. He speculated most of the antiquated pipeline would need to be replaced. He said the U.S. company Occidental Petroleum was interested in the project, but it was afraid of running afoul of U.S. sanctions by bidding on a project that would require cooperation with Syria. Sajjad said Rami Makhlouf -- his business partner in Gulfsands -- told him the Syrian side of the 32-inch, 1960s-era pipeline was operational and that Syrian Petroleum Company (SPC) was actively using it to move oil within the country. Sajjad related the Italian petroleum companies were confident U.S. sanctions against Syria would soon be relaxed and they hoped to position themselves to be the first back into the Syrian market. -------------- Comment -------------- ¶9. (S/NF) If Sajjad's anecdotes are accurate (he has reported reliably in the past),recent improvements in Iraqi-Syrian relations may have been superficial at best. Both sides appear destined to remain frustrated by the lack of moves by the other on important issues. Part of the gulf may stem from lack of clear communication. We have heard from Sajjad and others that PM Maliki tends to avoid confrontation when speaking with Syrian officials, and that Syrians read Maliki's positive tone as a reflection of his positive views on the relationship. In that light, Bashar's efforts to engineer a Maliki visit to Damascus on his return from the U.S. may demonstrate a misinformed reading of the mood in Baghdad. He may believe the SARG's statement that Syria will no longer support the Saddamist Iraqi Baathists has mollified Maliki and the Iraqi government. On the other hand, the SARG is notorious for trying to maximize concessions from others while paying little itself; this may be a calculated effort by Bashar to hold on to all of his "cards" while playing a waiting game with Iraq. ¶10. (S/NF) Whatever reasons lie at the root of mutual Syrian and Iraqi dissatisfaction, the U.S. interest in initiating U.S.-Syrian-Iraqi security cooperation argues for a more direct approach to Asad to lay out what is at stake. While we cannot speak for PM Maliki, we should utilize the most effective channels to convey our growing frustration with Syria's continuing support for foreign fighter networks and former regime elements. If Asad demands proof, our case would be more persuasive (and his room for maneuver would shrink) if we could give it to him. The goal of such interventions should be to frame the choice facing the Syrian government. We believe Syrian and U.S. interests in better relations with each other and with Iraq would be best served by concrete steps on security cooperation, pursued in tandem with steps to improve relations in other areas. Absent Syrian willingness to take such initial steps, the SARG should understand that we would interpret Syria's continuing support of foreign fighter networks and the Iraqi insurgency as a signal of its true intentions and as a lack of any real interest in meaningful re-engagement with the U.S. MAXWELL