SIGNIFICANT OBSTACLES IMPEDING SYRIAN-IRAQI

C O N F I D E N T I A L DAMASCUS 000098 SIPDIS DEPT FOR NEA/ELA, NEA/I; NSC FOR MCDERMOTT; DEPT PLEASE PASS TO DEPT OF ENERGY E.O. 12958: DECL: 02/01/2019 TAGS: ENRG EPET ETRD PGOV PTER IZ SY SUBJECT: SIGNIFICANT OBSTACLES IMPEDING SYRIAN-IRAQI PIPELINE PROJECTS Classified By: Charge d'Affaires Maura Connelly for reasons 1.4(b,d) -------------- Summary -------------- ¶1. (C) An Iraqi-born British oil executive with access to top-level petroleum industry and regime officials in Syria described several obstacles delaying progress on Iraqi-Syrian petroleum projects of potentially great significance to the Syrian economy. First, he detailed contracting problems on both sides of the Iraqi-Syrian border. On the Syrian side, he explained that the French company Total, in partnership with Syrian Petroleum Company (SPC),preferred to subcontract the pipeline construction projects to Chevron. Chevron, as a U.S. company, is apparently reluctant to work with SPC due to U.S. sanctions, and Total/SPC are hesitant to award the project to a less-experienced company. Next, he listed political impediments to any economic cooperation, including an outstanding GOI claim against the SARG of USD 112 million, the Iraqi Oil Minister's personal animus towards the Asad regime, and to a lesser extent, foreign fighters entering Iraq from Syria. End summary. -------------- Optimistic Press Report Doesn't Reflect Reality -------------- ¶2. (C) President and GM of Gulfsands Petroleum Mahdi Sajjad (protect) discounted a recent regional press report of a meeting between Iraqi Oil Minister Hussein al-Shahristani and Syrian Ambasador to Baghdad Nawaf al-Fares. According to the article, Shahristani and Fares had discussed joint Iraqi-Syrian plans for the rehabilitation of the Kirkuk-Banyas oil pipeline and construction of a gas pipeline from the Akkas field in western Iraq to Syria. (Note: One of the oldest pipelines in the Middle East, the Kirkuk-Banyas pipeline stretches from northern Iraq to Syria's Mediterranean port of Banyas. The pipeline has not been fully functional in years, and was rendered inoperable by fighting in 2003. End note.) While Sajjad did not doubt that Ambassador Fares and Minister Shahristani had met, he dismissed subsequent rumors that the meeting was an indication of progress on Iraqi-Syrian petroleum cooperation. ¶3. (C) Sajjad said the Maliki government had taken a policy decision in the fall of 2008 to renovate the Iraqi side of Kirkuk-Banyas in anticipation of eventually cooperating with Syria to complete the pipeline. At that time, he said, the Iraqi Oil Ministry had awarded the contract to a Russian company, but PM Maliki had since grown frustrated with the Russians' slow pace of work and inability to complete some pre-construction deliverables. Consequently, Sajjad judged that the French company Total had emerged as the Iraqis' preferred partner in the Kirkuk-Banyas project. Total, he said, intended to subcontract much of the project to Chevron, a U.S. company. The Iraqis, however, were miffed that Total offered to send their third-ranking corporate officer to discuss the project instead of CEO Christophe de Margerie and cancelled the meeting. (Note: According to Sajjad, the CEOs of most Western oil companies have already visited Iraq. End note.) -------------- Chevron Squeamish about Returning to Syria -------------- ¶4. (C) On the Syrian side of the project, Sajjad said that Total's September 2008 MOU with Syrian Petroleum Company (SPC) -- signed during the Sarkozy visit to Damascus -- would seem to put Total in the lead to receive any eventual contract. Practically, however, he explained that Total wants to sub-contract the entire pipeline to Chevron, and the U.S. company does not want to be involved in any project with SPC as a partner. Consequently, Sajjad is lobbying SPC and Total to give Gulfsands the sub-contract to complete the Syrian portion of the pipeline. Total and SPC are reluctant to consider Gulfsands due to the company's relatively small size and lack of experience, he said, but he held out hope that Gulfsands might yet prevail. (Comment: Sajjad has reason to be optimistic about SPC. His Syrian business partner in Gulfsands is Presidential first-cousin -- and OFAC designee -- Rami Makhlouf. End comment.) -------------- Political Obstacles Also Loom Large -------------- ¶5. (C) In addition to contracting difficulties, Sajjad asserted, there are two political obstacles still preventing greater economic cooperation between Iraq and Syria. The largest obstacle, in his opinion, is a GOI claim of approximately USD 112 million that the SARG still refuses to pay. Sajjad described the amount as inconsequential, but said the GOI is holding firm on principle that Syria should not be entitled to "the Iraqi people's money." The SARG's position is that Syria is paying millions of dollars annually to subsidize Iraqi refugees, and until the GOI compensates Syria directly for the refugee aid it will keep the claimed amount. ¶6. (C) The second obstacle to improved relations, he said, is Iraqi Oil Minister Hussein al-Shahristani. He described Shahristani as extremely vindictive and, without providing background details, said the Minister held a personal grudge against the Asad regime. (Note: Sajjad also said that Shahristani has two sons employed by Shell, a circumstance that he claimed had precluded Shell from receiving more GOI contracts -- presumably to avoid allegations of nepotism too blatant even for Iraq. End note.) ¶7. (C) When asked if the issue of foreign fighters was still an obstacle preventing greater economic cooperation, Sajjad said somewhat, but much less of an obstacle than the aforementioned two. He claimed that the Iraqi and Syrian security services had begun cooperating, and both sides were encouraged by some initial successes. He reported that the SARG had recently tipped off the GOI to foreign fighters entering Iraq from Syria, and that the GOI had reciprocated by alerting Syrian security to several foreign jihadis attempting to leave Iraq for Syria, whom the SARG eventually arrested. -------------- Comment -------------- ¶8. (C) With rapidly declining oil reserves and increasing domestic demand for natural gas, Syria's economy -- and therefore the Asad regime -- stands to benefit significantly from any petroleum deal with Iraq. The Syrian desire for Iraqi oil and natural gas -- and the regime's perception that the USG wields great influence over GOI contracting decisions -- presents us with a potential lever as we contemplate strategies for engagement. CONNELLY