Cablegate: Talking Points On Iraqi Suspension of Oil Exports

R 041823Z DEC 00
FM SECSTATE WASHDC
TO ALL DIPLOMATIC AND CONSULAR POSTS
SPECIAL EMBASSY PROGRAM
AMEMBASSY BELGRADE
AMEMBASSY DUSHANBE
AMEMBASSY FREETOWN
USOFFICE PRISTINA

UNCLAS STATE 229666

SIPDIS

E.O. 12958: N/A
TAGS: EPET ENRG PREL IZ
SUBJECT: TALKING POINTS ON IRAQI SUSPENSION OF OIL EXPORTS

1. BACKGROUND: ON DECEMBER 1, IRAQ SUSPENDED OIL EXPORTS
WHICH FUND THE UN OPERATED OIL-FOR-FOOD PROGRAM. IT DID SO
EVEN THOUGH THE SECURITY COUNCIL AGREED TO ALLOW SHIPMENTS
TO CONTINUE UNTIL UN OFFICIALS COULD CONCLUDE A PRICING
MECHANISM THAT REFLECTS A FAIR MARKET VALUE FOR IRAQ'S
DECEMBER EXPORTS. AT PRESENT, IT APPEARS THAT THE MARKET
HAS DISCOUNTED IRAQ'S MOVE. THE PRICE OF CRUDE OIL FOR
JANUARY DELIVERY FELL $1.80 DECEMBER 1 AND CLOSED AT $32.02
A BARREL.

2. OVER THE PAST YEAR, POSTS HAVE ENGAGED HOST COUNTRIES
ON A VIGOROUS DIALOGUE CONCERNING THE OIL MARKETS. WE
BELIEVE THAT THIS LATEST IRAQI PROVOCATION COULD IMPACT
LESS DEVELOPED COUNTRIES, AND EMERGING ECONOMIES IN A
NEGATIVE MANNER IF REDUCED OIL SUPPLIES LEAD TO LARGE PRICE
INCREASES OR SIGNIFICANT MARKET INSTABILITY. WE ARE WORKING
WITH MAJOR OIL PRODUCERS AND WITHIN THE INTERNATIONAL
ENERGY AGENCY TO MITIGATE THE OIL MARKET IMPACT. POSTS MAY
DRAW ON FOLLOWING TALKERS, WITH HOST GOVERNMENTS OR IN
PUBLIC, AS APPROPRIATE:

Q: IRAQ HAS MADE GOOD ON ITS THREAT TO CUT OIL SHIPMENTS.
IS THE U.S. CONCERNED ABOUT THE EFFECT ON GLOBAL MARKETS?

A: IRAQ'S SUSPENSION OF OIL EXPORTS IS AN ATTEMPT TO COERCE
THE INTERNATIONAL COMMUNITY. IRAQ SUBMITTED PROPOSED OIL
PRICES TO THE UN FOR DECEMBER THAT WERE SIGNIFICANTLY LOWER
THAN WORLD MARKET PRICES. THE UN PANEL OF OIL EXPERTS -
THE INTERNATIONAL OVERSEERS - RECOMMENDED AGAINST APPROVING
THOSE PRICES. THE UN'S IRAQ SANCTIONS COMMITTEE
UNANIMOUSLY AGREED. WE CANNOT ACCEPT IRAQ'S USE OF OIL AS
A POLITICAL TOOL.

THE UNITED STATES IS WORKING WITH THE INTERNATIONAL ENERGY
AGENCY MEMBERS AND MAJOR OIL PRODUCERS, ON AN OIL SUPPLY
RESPONSE WHICH, IF NEEDED, WOULD COMPENSATE FOR THE OIL
VOLUMES WHICH IRAQ IS THREATENING TO WITHDRAW FROM THE
WORLD MARKET. THIS RESPONSE WOULD INCLUDE DRAWDOWNS FROM
STRATEGIC PETROLEUM STOCKS AS APPROPRIATE.

THE UNITED STATES AND THE IEA ARE READY TO TAKE ACTION TO
ADD SUPPLY VERY QUICKLY IF THE SITUATION WARRANTS.

IRAQ SHOULD NOT BELIEVE THAT A CESSATION OF OIL EXPORTS
WILL GAIN IT ANY LEVERAGE WITH THE UNITED NATIONS. WE CALL
ON IRAQ TO WORK WITH THE UNITED NATIONS TO QUICKLY REACH AN
AGREEMENT ON THE OIL PRICING ISSUE.

Q: WHY HASN'T THE UN APPROVED A NEW PRICING STRUCTURE FOR
DECEMBER? WHAT'S THE U.S. VIEW ON THIS?

A: IRAQ SUBMITTED PROPOSED PRICES TO THE UN FOR DECEMBER
THAT ARE SIGNIFICANTLY LOWER THAN WORLD MARKET PRICES. THE
UN PANEL OF EXPERTS - THE INTERNATIONAL OVERSEERS -
RECOMMENDED AGAINST APPROVING THOSE PRICES. THE UN'S IRAQ
SANCTIONS COMMITTEE UNANIMOUSLY AGREED. WE SUPPORT THIS
JUDGEMENT. IRAQ'S PROPOSED PRICING MAY NOT BE ADEQUATE TO
MEET THE HUMANITARIAN NEEDS OF THE IRAQI PEOPLE AND WOULD
CREATE THE OPPORTUNITY FOR UNAUTHORIZED PAYMENTS OUTSIDE
THE OIL-FOR-FOOD PROGRAM.

WE BELIEVE THIS ISSUE SHOULD BE RESOLVED CONSISTENT WITH
THE INTENT OF UN RESOLUTIONS, WHICH WERE DESIGNED TO MEET
THE HUMANITARIAN NEEDS OF THE IRAQI PEOPLE.

3. MINIMIZE CONSIDERED.
ALBRIGHT

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