TWO GOI OFFICIALS ON IRAN CROSS-BORDER OIL FIELDS

C O N F I D E N T I A L BAGHDAD 000160

SIPDIS

E.O. 12958: DECL: 01/22/2020
TAGS: EPET ENRG ECON EINV EAID PREL IZ
SUBJECT: TWO GOI OFFICIALS ON IRAN CROSS-BORDER OIL FIELDS

REF: A. (A) BAGHDAD 0112

B. (B) 09 STATE 23310

Classified By: EMIN John Desrocher for reasons 1.5 b,d


1. (C) Summary: Ministry of Oil officials will continue
technical-level talks with Iran over cross-border oil fields,
and remain open to formal discussions of oil field
unitization. To conclude such talks, MOO officials would
welcome greater support from other parts of the GOI,
including the Ministries of Finance and Foreign Affairs. The
MOO Legal Director-General Laith Al-Shaher assesses that
progress towards a cross-border agreement has been halted for
now by the political debate over border demarcation. Prime
Minister's Advisory Commission Chairman (and former Oil
Minister) Thamir Ghadhban dismissed the idea that a dispute
over the border is stalling talks, saying that while the
Iranian government claims it is ready for a unitization
agreement, "they do not really want it." In the meantime, he
said, development of cross-border fields can move forward
even in the absence of an agreement between the two
countries. He thought that reaching a formal agreement would
be a better solution, but, he said, "that would require a
greater level of maturity." End Summary.


2. (C) In a January 17 meeting with the GOI Ministry of Oil,
Legal Director-General Laith Al-Shaher told Emboffs that he
expects a joint Iraq-Iran technical group on cross border oil
fields to meet again in January. (Note: The technical group
was stood up in July 2009 and reports indicate it has met
approximately five times since then. End note.) He was
disappointed by the Fakka (aka Faqui) oil field incident (in
which Iranian forces briefly occupied and raised an Iranian
flag over Fakka well number 4, claiming it is on Iranian
soil) and noted that it has set back progress in discussions
on border fields.


3. (C) Laith said that unitization of cross-border oil fields
is the goal of the technical group, but talks on unitization
must now be put aside until border demarcation takes place.
(Note: Unitization provides for the exploration and
development of an entire geologic structure by a single
operation so that drilling and production may proceed in the
most efficient and economic manner.) Laith noted that
progress on border demarcation will require support from both
the Ministries of Foreign Affairs and Finance (the latter to
pay the estimated USD 500,000 cost of the demarcation
survey). (Note: In a January 13 meeting, the MFA told
emboffs that the Finance Ministry has provided the funds (ref
A). If correct, word of this decision has not yet reached the
Ministry of Oil. End Note.)


4. (C) Laith implicitly criticized both ministries for
failing to adequately support the effort: MFA has never sent
a lawyer to the talks, he claimed, and Finance balks at
paying for the survey. Laith said a lawyer should definitely
be part of the delegation, though he does not want to
participate personally, citing security concerns. (Laith
claimed to have received death threats in the past from "our
friends" in Iran, and said he would not feel safe traveling
in that country.) Regarding the USD 500,000 cost for the
survey, Laith told Econoffs that the MOO has offered to pay
the costs out of its own budget, if MOF cannot identify and
disburse the funds. (Comment: Laith spoke as if no
impediments to resolving the cross-border fields issue
remain, but we assess that politics, rather than technical
concerns or funding, is the true obstacle in this case. End
comment.)


5. (C) Emboffs emphasized the USG interest in secure Iraqi
borders and in a non-violent resolution of the current border
dispute. We reiterated the USG desire to see Iran rejoin the
community of responsible nations, and our continuing efforts
to seek a diplomatic resolution to pressing international
concerns over Iran's misbehavior. Until that resolution is
reached, however, we noted (pursuant to ref B) that major new
energy deals with Iran suggest to the Iranian government that
it is "business as usual" with the international community
despite Iran's continuing pursuit of a nuclear weapons
capability and failure to cooperate fully with the IAEA.
Therefore we strongly oppose any arrangement that would allow
Iran to boost revenues from its hydrocarbon resources. We
have advised U.S. firms not to invest in cross-border fields
with Iran due to Iran Sanctions Act concerns, and the GOI has
been made aware on numerous occasions of USG concerns about
third country companies developing those fields as well.
Despite these concerns, the GOI offered cross border fields
in both its first (Fakka field) and second (Badrah field) oil
license bid rounds. The Fakka field was never awarded, but
the Badrah field was awarded in December 2009 to a consortium
led by Russia's Gazprom. That contract has not been signed
yet, but the MOO reports that Gazprom has accepted the
contractual terms offered and is prepared to sign within the
next two weeks. Development of that field will require
billions of dollars in capital investment and could yield up
to USD 8.5 million dollars per day in revenues (assuming
170,000 bbl/d at $50 per barrel),some portion of which will
likely be shared with Iran.


6. (C) Asked in a January 20 meeting about border disputes
with Iran, the Chair of the Prime Minister's Advisory
Commission (and former Oil Minister) Thamir Ghadhban told
Emboffs that border incidents with Iran are nothing new and
are likely to continue into the future. Iran is "eager to
enforce the Algiers Accord" he said. At the same time he
implied the Fakka well incident might have been unplanned,
alluding to "factions within Iran" and noting that Iran is
usually "very sensitive to Shi'a public opinion" in Iraq. He
dismissed any dispute over the border per se, noting that
even though some markers were disturbed during the Iran-Iraq
war, "the land border is well defined and settled by both
sides." He declined to speculate on the motives behind the
Fakka incident, but noted that theories include a link to
Iraq's recent successful bid rounds; as a diversion of
attention from internal Iranian political problems; or an
expression of anti-American sentiment.


7. (C) Asked about unitization agreements, Ghadhban said that
"of course" development of cross border fields could move
forward even in the absence of an agreement between the two
countries. Each would develop its side of the field while
agreeing to leave the other alone. Ghadhban said the Iranian
government claims it is ready for a unitization agreement,
"but they do not really want it." In the meantime, he said,
the two sides can continue to meet to share data and hold
technical discussions. He thought that reaching a formal
agreement would be a better solution, but, he said, "that
would require a greater level of maturity."
HILL