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Cablegate: Oil Minister and Others On Future Production And

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RR RUEHBC RUEHDA RUEHDH RUEHKUK
DE RUEHGB #0403/01 0471022
ZNR UUUUU ZZH
R 161022Z FEB 10 ZDK
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 6636
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHC/OPEC COLLECTIVE
RHEBAAA/USDOE WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 02 BAGHDAD 000403

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EPET ENRG ECON EINV EAID PREL IZ
SUBJECT: OIL MINISTER AND OTHERS ON FUTURE PRODUCTION AND
EXPORTS AND OPEC

REF: (A) 09 BAGHDAD 3196 (B) BAGHDAD 151

BAGHDAD 00000403 001.2 OF 002


1. (U) Summary: At a recent seminar, Oil Minister Shahristani
predicted the global oil market will need Iraq's increased
production resulting from the ten oilfield development and
production contracts from Iraq's 2009 oil bid rounds. The
head of Iraq's State Oil Marketing Company (SOMO) predicted
that Iraq will achieve production of 7-8 million barrels per
day (Mbpd) in 7 years. Shahristani affirmed the Government
of Iraq's (GOI's) new policy of maximizing revenues from oil
exports, not oil exports themselves. He said that OPEC will
not dictate Iraq's oil production policy and that Iraq's OPEC
production quota should be no less than Saudi Arabia's quota.
End summary.

"7-8 Mbpd Production in 7 Years"; the "World Will Need It"
--------------------------------------------- --------------

2. (U) Speaking at an Iraq Institute for Economic Reform
(IIER) seminar, Oil Minister Hussain al-Shahristani provided
insight into Iraq's evolving crude oil production and export
strategies. He predicted that the global oil market will
need at least an additional 10 Mbpd of oil from Iraq, when
Iraq is capable of supplying that amount. In response to
audience questioning, Shahristani conceded that export plans
will depend on the development and production plans prepared
by the international oil companies (IOCs) for the ten
oilfields awarded in the 2009 bid rounds. (Comment: We
understand that these development and production plans are
due in about a month. End comment.) Shahristani predicted
that Iraq will be able to maintain peak production for the
next 20 years, implying that yet unproven oil reserves would
sustain that peak.

3. (U) Speaking after Shahristani, State Oil Marketing
Company (SOMO) director-general (DG) Falah Alamri predicted
that Iraq will achieve oil production of only 7-8 Mbpd in
seven years. (Comment: SOMO is responsible for all of Iraq's
oil exports. A number of oil industry experts are currently
predicting only 6-7 Mbpd in about seven years, but even these
lower predictions always come with caveats about potential
constraints. End comment.)

But "Maximize Revenues, Not Exports," and "IOCs Must Comply"
--------------------------------------------- ---------------

4. (U) Shahristani affirmed the GOI's new policy of
maximizing revenues from oil exports, instead of maximizing
oil exports without regard to their affect on oil prices (Ref
B). Anticipating audience questions about how this policy
might affect the IOCs and the contracts they were awarded
from the 2009 bid rounds, he said the IOCs will be allowed to
produce only what Iraq needs to maximize revenues. If Iraq's
needs limit the amount of production allowed under the
contracts, restrictions would be applied equitably to all the
IOCs, Shahristani said. He underscored that all ten
contracts allowed the GOI to limit production and that the
GOI must pay only for oil that is actually produced, not for
oil production allowed under the contracts.

"OPEC Will Not Dictate Our Oil Production Policy"
--------------------------------------------- ----

5. (U) In response to audience questioning, Shahristani
insisted that OPEC (Organization of the Petroleum Exporting
Countries) will not dictate Iraq's oil production policy.
"OPEC decisions are by consensus, so nothing with which Iraq
disagrees will become binding," he said. Shahristani
Qdisagrees will become binding," he said. Shahristani
reiterated that OPEC should allow production by members who
most need it. He said Iraq is in great need as it rebuilds
its economy. He pointed out that other OPEC members have
benefited from higher production quotas over the past two
decades while Iraq's oil production has been well below prior
levels. Shahristani also emphatically stated that Iraq's
OPEC production quota should be no less than any other
country. However, he said no discussions of quota with OPEC
will be necessary until 2011.

6. (U) Comment: Shahristani intimated that it is now Iraq's
turn to benefit from more lenient OPEC production quotas.
Iraq has had no OPEC production quota for almost 12 years
(since April 1998), and practically no OPEC production
restriction for almost 19 years (since April 1991). To have
an OPEC quota that is no less than any other country, Iraq's

BAGHDAD 00000403 002.2 OF 002


quota would need to equal Saudi Arabia's quota, which is
currently 8.095 Mbpd. However, in the past, OPEC has
sometimes attempted to maintain parity between the quotas of
Iraq and Iran. Iran's current quota is 3.662 Mbpd.
Regarding whether quota discussions with OPEC were necessary,
Shahristani presumably meant that Iraq's actual production
increases will be insufficient to warrant discussions until
2011. Since OPEC's secretary general has reportedly said
Iraq may not need a quota for five years, OPEC also seems to
be in no hurry to engage in quota discussions. End comment.

"New Crude and Refined Oil Export Markets Will Be Needed"
--------------------------------------------- ------------

7. (SBU) The SOMO DG noted that Iraq will need to develop
more markets for its crude oil exports after 2011, assuming
reasonable production increases from the ten oilfield
contracts. He expressed a strong desire to increase oil
exports to neighboring countries. In response to audience
questioning, Shahristani said the GOI wanted to eventually be
an exporter of refined oil products. (Comment: We assess
that domestic needs will preclude such exports for the
foreseeable future and most likely for at least five years.
End comment.)

"Iraqi National Oil Company Inevitable and Necessary"
--------------------------------------------- --------

8. (U) Also speaking at the IIER seminar, Abdul-Hadi
al-Hassani, vice-chair of parliament's oil and gas and
natural resources committee, predicted that an Iraqi National
Oil Company was inevitable and necessary to Iraq's future.
He also lamented Iraq's dependence on oil exports and argued
that Iraq must develop other economic sectors.
FORD

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