ACTION REQUEST: RECOMMENDED ENGAGEMENT ON

C O N F I D E N T I A L KUWAIT 000565 SIPDIS E.O. 12958: DECL: 05/31/2019 TAGS: MARR PREL EPET KU SUBJECT: ACTION REQUEST: RECOMMENDED ENGAGEMENT ON CONTINUATION OF JET FUEL SUBSIDY REF: KUWAIT 477 Classified By: Economic Counselor Oliver John for reasons 1.4(b) and (d ). ¶1. This is an action request. See paragraph 10. Key Points -------------- ¶2. (C) -- Currently the Council of Ministers is seriously considering ending discount pricing for Jet A-1 fuel supplied to the U.S. military for use in Operation Iraqi Freedom (OIF). The Council is awaiting recommendations from the Foreign Ministry and the Oil Ministry regarding the appropriate price for jet fuel supplied to the U.S. military for OIF. -- Defense Energy Support Center (DESC) has discussed possible strategies for engaging the GoK on the issue with Econoffs. Post has developed a strategy for Washington's approval. -- Consideration of the fuel subsidy issue should be made in the context of the broader assistance provided by the GoK to date, and the significance of future GoK cooperation and support for U.S. military drawdown in Iraq and other efforts in the region. Background -------------- ¶3. (C) Since the early days of Operation Iraqi Freedom (OIF) in 2003, Kuwait has provided the U.S. military with free and discounted jet fuel for its operations in Iraq. The value in foregone revenue to the GoK has been approximately USD 2.5 billion. ¶4. (C) 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. To post,s knowledge, no other country provides free or discounted fuel to U.S. forces. ¶5. (C) Post understands that the projected impact of canceling the subsidies will be on the order of USD 47 million for FY 2009 and 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 to the USG effort since 2003. ¶6. (C) In addition to free and discounted jet fuel for OIF, Kuwait has provided the USG, under the terms of the Defense Cooperation Agreement (DCA),with assistance averaging approximately 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. The cumulative value of support under the DCA and from the free and discounted fuel since 2003 is in excess of USD 10 billion. As a percentage of GDP, Kuwait,s support for the U.S. military presence is 25 times that of Germany, 16 times that of S. Korea and 65 times that of Italy. ¶7. (C) From the U.S. perspective, the GoK has provided a highly permissive operating environment for U.S. military forces, which has been indispensable for ongoing efforts in Iraq. This support has been reflected in the above mentioned cost savings but also in a very cooperative relationship with the government. This cooperative attitude has been again witnessed in the GoK response to the introduction of the H1N1 virus. To date the GoK has been very supportive of our efforts to minimize any delay in the expeditious movement of troops through Kuwait and on to Iraq, while balancing the domestic political fallout from the announcement that the H1N1 virus had been introduced, by U.S. troops, into Kuwait. ¶8. (C) Several important events in the bilateral security relationship are on the near horizon. The second ten-year installment of the DCA ends in 2011 and will either be renewed or renegotiated. The majority of troops and equipment now in Iraq will be transiting Kuwait as they redeploy. A decision will be made regarding the degree of logistical support for U.S. military efforts in Afghanistan and Pakistan that the U.S. seeks to provide from Kuwait. ¶9. (C) It is in the context of maintaining and extending the exceptionally permissive environment of military cooperation that has been developed between the USG and the GoK, that the continuation of the jet fuel subsidy issue is considered. ¶10. (C) Action request. Post proposes to approach the Ministries of Oil and Foreign Affairs to seek resumption of the fuel subsidy for a limited time. We request DOS and DOD approve this suggested approach. Proposed points -------------- -- The United States extends its thanks to the Government of Kuwait for its unparalleled support for U.S. efforts to bring stability to the Arabian Gulf region. The U.S. looks forward to continuing its close relationship with Kuwait. -- In particular, the U.S. thanks the Government of Kuwait for the discount for jet fuel that it has provided during the U.S. military effort in Iraq. -- The U.S. military effort in Iraq is nearing its conclusion. Similarly the need for further discounted jet fuel there will end soon. -- The costs for the Iraq stability effort, for the U.S. and for Kuwait, have exceeded pre-war expectations. -- As we redeploy from Iraq, we want to do so in a responsible manner which will promote regional stability. -- The U.S. requests that the GoK continue to provide discounted fuel in support of our joint effort to improve the chances for peace and stability in this region. This support will be only for the limited time remaining that U.S. combat forces will be in Iraq. ********************************************* ********* For more reporting from Embassy Kuwait, visit: visit Kuwait's Classified Website at: http://www.intelink.sgov.gov/wiki/Portal:Kuwa it ********************************************* ********* JONES