KUWAIT MULLING END TO OIF JET FUEL SUBSIDIES

C O N F I D E N T I A L KUWAIT 000477 SIPDIS E.O. 12958: DECL: 05/11/2019 TAGS: MARR PREL EPET KU SUBJECT: KUWAIT MULLING END TO OIF JET FUEL SUBSIDIES Classified By: Economic Counselor Oliver John for reasons 1.4(b) and (d ). ¶1. (C) Kuwait Petroleum Corporation Managing Director Abdullatif Al-Houti said that there was a reasonable likelihood that Kuwait would discontinue its discount pricing for Jet A-1 fuel used by U.S. forces in their operations in Iraq. Houti said that the Ministry of Foreign Affairs and the Ministry of Oil were preparing a recommendation on the issue for the Council of Ministers. He said that a final decision was unlikely before the appointment of a new government following the May 16 parliamentary elections. End summary. ¶2. (C) During a May 11 meeting with Econoff, Kuwait Petroleum Corporation Managing Director for International Marketing Abdullatif Al-Houti said that Kuwait's Council of Ministers (Cabinet) had requested the Ministry of Oil and Ministry of Foreign Affairs to make a recommendation concerning the continuation of Kuwait,s provision of discounted Jet A-1 fuel to the United States military for use in its operations in Iraq. Houti said, given the current low price of jet fuel, there was a reasonable likelihood that the Council of Ministers would decide to charge the U.S. military market prices for this calendar year. He added that he did not expect a final decision before the formation of the new government, slated for early June. (Note: In 2008, the GoK proposed market pricing for OIF fuel, but ultimately settled for a discounted price of $53.00 per barrel, which expired at the end of 2008. The cost of the subsidy to the government of Kuwait in 2008 when oil prices reached record levels was USD 528 million. End note.) Historical Background -------------- ¶3. (C) In the early days of Operation Iraqi Freedom (OIF) in 2003, Kuwait provided the U.S. military with free jet fuel for its operations in Iraq. In 2004, Kuwait began to signal it was no longer willing to provide free fuel for OIF and since March 2005, it has provided jet fuel at a discount. For the period March 2005 through January 2009 this discount yielded a savings to the U.S. government of USD 1.428 billion on the purchase of 1.141 billion gallons of Jet A-1 fuel. Post does not have figures for the value of the free jet fuel provided from 2003 to 2005 but a reasonable estimate would likely be in the range of USD 1 billion. In addition to free and discounted jet fuel for OIF, Kuwait has provided the USG with in excess of USD 1 billion in benefits annually since 2003 including waived port fees, waived ground support fees for military aircraft, cost-free use of bases, convoy escorts, security, customs waivers for imports and exports and 7,000 gallons of free jet fuel per day. ¶4. (C) Comment: The GoK has provided significant subsidies for U.S. military operations in Iraq over the past 6 years. It appears that the GoK is now edging toward ending the fuel subsidies, at least, arguing that the current low oil prices obviate the need for them. Post understands that the FY 2009 projected impact of cancelling the subsidies will be on the order of USD 47 million. The impact of market pricing for OIF jet fuel is projected to be just under USD 200 million for the period ending on December 31, 2010 when U.S. combat presence in Iraq is to have ended. This amount represents roughly two percent of the total support that Kuwait has provided since 2003 )- valued at approximately USD 10 billion -- to the USG effort. End comment. ********************************************* ********* For more reporting from Embassy Kuwait, visit: visit Kuwait's Classified Website at: http://www.intelink.sgov.gov/wiki/Portal:Kuwa it ********************************************* ********* JONES