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Cablegate: Korea Seeks Confirmation of Iraqi Warning Over Oil

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DE RUEHUL #0002 0012123
ZNR UUUUU ZZH
R 012123Z JAN 08
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 7903
INFO RUEHGB/AMEMBASSY BAGHDAD 0107
RUEHAD/AMEMBASSY ABU DHABI 0112
RUEHBJ/AMEMBASSY BEIJING 3659
RUEHKO/AMEMBASSY TOKYO 3794
RHEHNSC/NSC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC 1750
RUEKJCS/SECDEF WASHINGTON DC//ISA/DSCA/DUSDAT//
RHHMUNA/CDR USPACOM HONOLULU HI//J5//
RHMFISS/COMUSKOREA CC SEOUL KOR

UNCLAS SEOUL 000002

SIPDIS

STATE FOR S/I, NEA/I, EEB/ESC/IEC/ENR, INR AND EAP/K
NSC FOR TONG
DOE FOR INTERNATIONAL AND FE
USDOC FOR 4440/MAC/EAP/OPB/ITA/TA
COMM CENTER PLEASE PASS SCJS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG PREL IQ KS
SUBJECT: KOREA SEEKS CONFIRMATION OF IRAQI WARNING OVER OIL
EXPLORATION AGREEMENT WITH KURDISTAN REGIONAL GOVERNMENT

1. (SBU) Summary: The state oil marketing company of Iraq, SOMO,
has warned Korean refiner SK Energy that exports of Iraqi crude to
Korea could be cut off beginning in January if a Korean consortium
does not cancel an oilfield exploration agreement with the Kurdistan
Regional Government. Korea is seeking official confirmation of the
warning from the Baghdad government and considering how to respond.
End summary.

2. (U) A consortium led by the Korea National Oil Company (KNOC)
reached an agreement with the Kurdistan Regional Government in
November 2007 to explore the Bazian oil field, in the Zagros basin
in northern Iraq, according to local news reports. The Bazian field
is estimated to hold 500 million barrels, according to the press.
KNOC holds a 38 percent stake in the deal, while Korea's largest
refiner, SK Energy, holds 19 percent.

3. (SBU) On December 27, the Ministry of Commerce, Industry and
Energy (MOCIE) confirmed to ECON staff press reports that SK
Energy's Dubai office had received a warning over the phone from the
Iraqi state oil marketing company SOMO. SOMO said that if the
Korean consortium did not cancel the deal with the Kurdish
authorities, crude oil exports to SK Energy could be cut off
beginning in January 2008. Press reports say that BP and an
Austrian company have received similar warnings.

4. (SBU) Korea imported about 37 million barrels, or some 5.2
percent of its total oil requirement for 2007, from Iraq. A cut-off
of that source of supply would push up local fuel prices. MOCIE
indicated that it was working with the Ministry of Foreign Affairs
and Trade (MOFAT) to seek confirmation of the official position of
the Iraqi government. MOFAT declined to share details of its
efforts, but did say that it has asked the Korean Embassy in
Washington to gauge Washington's views. Press reports on December
30 quoted government sources as saying that that Baghdad was
standing firm on the warning.

5. (U) The leader of the Korean consortium KNOC, initially reacted
on December 26 saying that the project would continue despite the
SOMO warning. SK Energy was reported to be in a dilemma, standing
to lose either from a cut-off of Iraqi exports or from backing out
of the deal with the Kurds.

6. (SBU) Contacted again on December 31, a MOFAT official told ECON
staff that there is still no official written confirmation from
Baghdad, and indicated that diplomatic efforts continue. He
implied, however, that if the Iraqi government insists, the ROKG
would counsel the Korean companies to stand down on the Bazian
plan.

7. (SBU) Comment: One of Korea's motivations for its contribution of
troops to northern Iraq has always been to create opportunities for
Korean companies to participate in Iraq's development. The Bazian
deal was one of the principal fruits. Surprisingly, the spate of
news articles about the SOMO threat made no linkage to the
government's decision to support the extension of the Korean
military contingent in Zaytun, near Irbil. The National Assembly
confirmed a one-year extension on December 28. Seen from Seoul, it
is unclear whether some compromise on Bazian is still possible. End
comment.

Yun

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