Cablegate: U.S. Sanctions Not Major Obstacle to Croatian Gas

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A


1. (SBU) On June 1 we visited INA, the majority state-owned
oil and gas company, to inquire about its overseas activities
in general, and its exploration activities in Syria in
particular. Zeljko Belosic, Member of the Board and
executive director for Oil and Gas Exploration and Production
noted the importance of the Syrian gas concession to INA and
a certain degree of difficulty associated with U.S.
sanctions. Belosic also listed other deals afoot and noted
that INA hoped to get back into Iraq, perhaps in cooperation
with a Jordanian or U.S. company. End Summary.

Syria is INA's Biggest Find in 15-20 Years
--------------------------------------------- ---------

2. (SBU) Belosic described INA (and its exploration
subsidiary, CROSCO) projects throughout the world, including
in Egypt, Namibia, Syria, Algeria, Tunisia, and preliminary
efforts to get back into the Russian market. The discussion
quickly turned to INA's gas concession in Syria. Belosic
noted the importance of this concession to INA -- the company
had sunk over $140 million into the project and had no choice
but to continue. It was their biggest find in the last 15-20
years. The project started in 1998, had three drilling rigs
in operation, and INA would start another 5-7 rigs next year.
That day INA was bidding on another concession block.

3. (SBU) Almost all INA's equipment and technology was
American -- it was the technology of choice, it was what was
taught in Croatian universities; INA knew and trusted U.S.
suppliers. Most of the large equipment needed in Syria was
in place or not yet procured. Thus the sanctions were
causing significant but not insurmountable problems. For
example, six months ago INA had signed a contract for
chemicals with Halliburton. The chemicals were on a truck en
route from Dubai to Syria when the sanctions went into
effect. Halliburton turned the truck around and had it
return to Dubai. In such a case, Belosic said INA does not
get its money back, but can only accept delivery in some
other country. While the monetary value of the chemicals
whose contracts could not be fulfilled was not that
significant -- some tens of thousands of dollars -- there
were warehouses full of chemicals worth several millions of
dollars that needed to be used with the new chemicals. While
replacement chemicals could and had to be located and
procured, their reaction with already purchased stocks was
unknown, and could even cause accidents if proper care was
not taken.

4. (SBU) In another case, INA had been told by the U.S.
company that sold them some equipment that they could not
provide service for that equipment. Additionally, all the
exploration rigs were American. In the middle of the night,
if a $100,000 part broke down, INA would normally call up the
American supplier, and a replacement part would be put on a
plane the same day. With sanctions, INA would have to look
for a replacement, perhaps from a licensee or U.S.
joint-venture partner, from Europe or the Far East. Each day
that a rig sat idle cost INA $20,000. Nevertheless, INA had
operated in Libya for ten years under sanctions. It was able
to operate by locating alternative suppliers, often paying
three times the normal price.

5. (SBU) Belosic felt confident that INA would overcome any
problems presented by sanctions. In fact, he noted that if
INA's U.S. "neighbors" in Syria, Occidental, Marathon and
Devon, had difficulties taking advantage of their concessions
or fulfilling their contracts, INA would be happy to make an
offer for their rights. Belosic also provided embassy
officers maps of INAs concession blocks in Syria and Egypt,
which we can supply upon request.


6. (SBU) Belosic said that, contrary to some news reports,
INA was not yet back in Iraq. It wanted to return -- it had
been the last foreign company to leave Iraq just before the
Iran-Iraq war, he said -- but the security situation was too
difficult. INA had had discussions with some Jordanian oil
officials recently, and a joint venture in Iraq was a
possibility. (Note: King Abdullah of Jordan made an official

visit to Croatia last week. End note.) INA had also
expressed interest in cooperating in Iraq to Halliburton
European representatives, asking them to pass the message
back to the relevant parties. INA had also been prepared to
attend an "oil" meeting that had been scheduled in Basra, but
which was then delayed.


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