BAGHDAD-ERBIL OIL RAPPROCHEMENT? MPS OFFER

C O N F I D E N T I A L BAGHDAD 000284

SIPDIS

E.O. 12958: DECL: 02/03/2020
TAGS: EPET ENRG ECON EINV EAID PREL IZ
SUBJECT: BAGHDAD-ERBIL OIL RAPPROCHEMENT? MPS OFFER
SKEPTICISM AND OLD IDEAS FOR NEXT STEP

REF: (A) 09 BAGHDAD 2833 (B) 09 BAGHDAD 2834 (C) 09
BAGHDAD 3196 (D) BAGHDAD 157 (E) BAGHDAD 276

Classified By: Economic Minister Counselor John Desrocher for reasons 1
.4 (b) & (d)


1. (C) Summary: Key members of the parliament's oil and gas
committee offered little hope for a quick resolution of the
disagreement between the Government of Iraq (GOI) and the
Kurdistan Regional Government (KRG) over the legitimacy of
the two KRG-negotiated oil contracts published on January 17
and over related oil sector issues. They did offer insight
into the current thinking of the GOI and the KRG and
suggested that a blue-ribbon committee could be formed to
determine whether the two KRG-negotiated oil contracts
published on January 17 are legitimate. Both MPs predicted
that no real progress would be made until after national
elections on March 7. End summary.


2. (SBU) On January 17, the KRG published on its website two
of its estimated 30 oil field development and production
contracts with oil companies working in the Iraqi Kurdistan
Region (IKR). The KRG also announced its desire to resolve
the disagreement that has prevented the export of oil
produced under these contracts (ref D). Econoffs met
separately with the chair of parliament's oil and gas and
natural resources committee, Ali Hussain Balo, and the
vice-chair of the committee, Abdul-Hadi al-Hassani to assess
initial reactions and potential responses to the KRG's
action. (Note: Balo is a member of the Kurdistan Democratic
Party (KDP). Hassani is a member of Da'wa. End note.)

Kurd Oil & Gas Chair Says Baghdad Not Ready for Resolution
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3. (C) Both Balo and Hassani said that the KRG's decision to
disclose the contracts was a crucial first step. In their
view, the GOI and the KRG ultimately have no choice but to
compromise and cooperate in a federal system of governance.
However, Balo surmised that neither side had a next step in
mind to resolve the disagreement over the contracts and that
PM Maliki and GOI Minister of Oil Hussain al-Shahristani had
no serious intention to press forward. He told econoffs the
KRG had formed a committee to collaborate on next steps and
was prepared to advance.


4. (C) Striking one of his recurring themes, Balo said the
GOI should cede more authority to the KRG and claimed the GOI
was trying to diminish the KRG. He also accused the GOI of
being bound by Iranian influence, which he implied was
counter to KRG interests. He underscored that because the
KRG does not regard the GOI oil minister as having
jurisdiction in the KRG, the KRG will not submit to his
unilateral decisions.

Shia Oil & Gas Vice-Chair Says Erbil Does Not Want Resolution
-------------- --------------


5. (C) While acknowledging the KRG disclosure of two oil
contracts as a crucial first step, Hassani characterized the
manner in which they were disclosed as an "insult," citing
what he perceived as a lack of respect and proper procedure
in the KRG's action. Hassani expressed deep annoyance that
the KRG had published the two contracts on its website as a
grand gesture but had not delivered copies directly to the
oil and gas committee, even though he had requested in
writing the contracts from KRG PM Barham Salih several times.
This characterization -- more extreme than even his most
Q This characterization -- more extreme than even his most
partisan rhetoric in past engagements with econoffs --
highlights the GOI's position that it has the authority and
responsibility to approve or disapprove the KRG contracts.
(Comment: This debate over who has the final authority to
enter contracts is central to the struggle between the GOI
and the KRG over defining federalism in the new Iraqi
government. Econoffs encouraged Hassani to look past the
fact that copies of the contracts had not been sent directly
to him and to accept the KRG's publication of them in good
faith as a reasonable response to repeated GOI demands that
they be disclosed. End comment.)


6. (C) Hassani accused the KRG of jockeying for independence
and railed against what he perceives as unnecessary ethnic
animosity and Kurdish chauvinism that undermines Iraqi unity.
Emotionally recounting losses his own family had suffered
during the Saddam Hussein regime, he declared, "We have both

(Arabs and Kurds) suffered, but now we must work together to
build a united Iraq and a world-leading oil sector." He
claimed KRG insistence that Kirkuk be incorporated into Iraqi
Kurdistan was preventing the resolution of oil sector
disagreements. If the KRG's intentions were serious, he
noted, it would turn over to the GOI all the revenues it
receives, not just those from oil exports. (Note: A reference
to both acknowledged and surreptitious revenues. End note.)

But Oil & Gas Chair Offers Possible Next Step
--------------


7. (C) Balo asserted that the GOI's PM does not have the
authority to legitimize KRG contracts alone and that the GOI
and KRG PMs together do not have the authority to resolve the
disagreement either. A broad coalition was necessary, he
said. In response to econoffs' prodding, he offered a
possible next step: the GOI and the KRG could select a group
of mutually acknowledged experts, and this group could then
select a temporary committee to decide whether the contracts
are legitimate. (Comment: Although this is a reasonable next
step, the concept of a committee to legitimize oil contracts
has been raised in other fora and is included in the draft
Oil and Gas Law, which has been awaiting passage since 2007.
However, the composition of such a committee would certainly
be a source of conflict. End comment.)


8. (C) When further prodded about who might be the mutually
respected brokers to initiate any process to resolve the
disagreement over the KRG contracts, Balo immediately
identified the chair of the prime minister's advisory
commission, Thamir Ghadhban, for the GOI and former KRG PM
Nechirvan Barzani (KDP) for the KRG. However, he added that
Barzani would send KRG Natural Resources Minister Ashti
Hawrami as his representative. Balo insisted that current
KRG PM Barham Salih (Patriotic Union of Kurdistan, PUK) could
not resolve the disagreement alone. Both Chair Balo and
Vice-Chair Hassani predicted that no real progress would be
made until after the March 7 national elections. Balo
intimated that the KRG preferred to wait because it
anticipated a new prime minister and a more favorable
resolution from him.


9. (C) Comment: Hawrami is perceived by the GOI as a hardline
partisan and has been a perpetual antagonist to GOI Oil
Minister Shahristani. For his part, Shahristani's influence
has risen with the successful 2009 oil bid rounds (ref C).
We believe Hawrami would not be accepted as a reasonable
broker. We understand that KRG PM Salih did not want Hawrami
in the new KRG government, but was compelled to keep him
because of the close relationship Hawrami has with former KRG
PM Nechirvan Barzani. Balo's identification of Hawrami, not
Salih, as the KRG's representative in resolving this contract
dispute might reflect the limits of Salih's authority over
the KRG's oil sector. By most accounts, the Barzani clan
maintains a tight grip on the KRG's oil sector, with Hawrami
as their surrogate. However, Balo, as a KDP member, is likely
to be understating the influence of Salih, who is a PUK
member, as the current power struggle between the KDP and the
PUK continues. KRG President Masoud Barzani told RRT Erbil
team leader on January 20 that he had formed the KRG
committee (the same committee referenced by Balo in his
conversation with econoffs) to collaborate on next steps to
Qconversation with econoffs) to collaborate on next steps to
respond to PM Maliki's public statements expressing the GOI's
interest in resolving the disagreement. End comment.
HILL