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

S E C R E T SECTION 01 OF 03 BAGHDAD 002454 
 
SIPDIS 
 
NOFORN 
 
E.O. 12958: DECL: 06/08/2015 
TAGS: PREL PGOV PINS ECON EPET EAGR KDEM KISL IZ
SUBJECT: THE DEPUTY SECRETARY'S MAY 19 MEETING WITH IRAQI 
DEPUTY PRIME MINISTER CHALABI 
 
 
Classified By: Charge d'Affaires James F. Jeffrey for reasons 
1.4 (b) and (d) 
 
¶1. (U) PARTICIPANTS: 
 
U.S. 
---- 
DEPUTY SECRETARY ZOELLICK 
CHARGE D'AFFAIRES JAMES JEFFREY 
DCM DAVID SATTERFIELD 
AMBASSADOR JONES 
CHRISTINE DAVIES 
ROBERT WALLER 
ADAM ERELI 
SCOTT CARPENTER 
 
IRAQ 
---- 
DEPUTY PRIME MINISTER AHMED CHALABI 
 
¶2. (S/NF) SUMMARY: In a May 19 meeting with the Deputy 
Secretary, Deputy Prime Minister Chalabi noted limited 
 
SIPDIS 
progress on the constitution and voiced concern about meeting 
the August 15 deadline and including Sunnis in a credible 
way.  He also opined that sectarian violence is a more 
serious problem than is portrayed publicly and said he has 
met Sunni leaders to discuss jointly condemning sectarian 
strife.  Chalabi noted Iraq also faces serious economic 
challenges.  Chalabi agreed with the Deputy Secretary on the 
need to adjust pricing structures, but noted legislative 
opposition to the idea.  Other problems include bureaucrats 
who are reverting to socialist tendencies and the undeveloped 
agricultural and banking sectors.  END SUMMARY. 
 
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CONCERNED ABOUT CONSTITUTION AND SECTARIAN VIOLENCE 
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¶3. (S/NF) In response to the Deputy Secretary's questions on 
Iraq's political process, DPM Chalabi said he feared Iraqis 
were making little progress on the constitution.  Sunni 
participation was weak and there was no agreement on a 
mechanism for their credible inclusion.  Chalabi asserted he 
is pushing the United Iraqi Alliance (UIA) to add 14-15 
members to the existing 55-member constitutional committee of 
the Transitional National Assembly (TNA).  PM Ja'fari is on 
board and the Sadrists could be persuaded as well, however 
SCIRI leader 'Abd al Aziz al-Hakim remains opposed to the 
idea.  Sunni Deputy Prime Minister 'Abid Mutlak al-Jabburi 
has credible names to include on the committee and Chalabi 
claimed he is also working to persuade the Iraqi Islamic 
Party and the Muslim Ulama Council to sign on to the expanded 
committee.  (Note: Leaders of the Sunni Iraqi Islamic Party 
have separately told Poloffs they support the idea.  End 
note.)  Chalabi mentioned he will see Muslim Ulama Council 
spokesma Haet al-Dhari next week, with whom Chalabi said 
he has personal rapport because of past political connections 
between al-Dhari's father and Chalabi's brother. 
 
¶4. (S/NF) The Deputy Secretary stressed the importance of 
making the August 15 constitution deadline to avoid giving 
opportunities to terrorists to exploit.  He asked whether the 
TNA was making progress to meet the deadline.  Chalabi 
replied that he is concerned about the slow speed - the 
process needs organization and a plan, but the committee had 
no "movers" to set action plans.  Using the TAL as a basis 
would accelerate the process somewhat, although he believes 
the Kurds' internal squabbling is also delaying movement. 
 
¶5. (S/NF) On the Deputy Secretary's question about sectarian 
violence, Chalabi said it was a very serious problem that was 
under-reported.  Chalabi claimed approximately 15-20 people 
are killed each day; Iraqis are moving out of their 
neighborhoods to escape this increasing violence.  Chalabi 
believes terrorists are inciting sectarian violence to 
de-legitimize the government and derail the democratic 
process. 
 
¶6. (S/NF) Controlling entrances to Baghdad would help to 
contain infiltrating terrorists, suggested Chalabi. 
Extremists are killing Shia on their way to Karbala and 
Najaf; as payback, the Shia are killing Sunnis in Baghdad. 
(NOTE: Charge pointed out the Ministry of Interior has a new 
plan to patrol the 23 entrances to Baghdad; however, the plan 
does not extend to Babil province, which lies between the 
Shia heartland and Baghdad.  END NOTE)  Chalabi opined that 
encouraging citizens to use the highway rather than the 
smaller, more dangerous roads would also diminish the number 
of incidents. 
¶7. (S/NF) Chalabi underscored the importance of getting Sunni 
and Shia leaders to condemn the sectarian strife.  He is 
holding discussions with Sunni Endowment leader Adnan 
al-Dulaymi and the Iraqi Islamic Party on issuing a joint 
statement denouncing sectarian strife.  Chalabi is not sure 
the Muslim Ulama Council (MUC) will join the initiative given 
their recent public statements that have heightened tensions. 
 Chalabi highlighted the problem of Sunni leadership.  His 
efforts to date have been focused on bringing Sunni religious 
and tribal leaders into the process, but Chalabi noted the 
bulk of Sunnis are not in these categories.  There needs to 
be outreach to the professional and technocratic cadre.  Only 
one Sunni minister, the Minister of Women's Affairs, Azhar 
Abd al Karim al-Shaykhli, fits into this category, opined 
Chalabi. 
 
¶8. (S/NF) Iraqis would soon find the Shia/Sunni divide less 
important than the division between Arabs and Kurds, 
predicted Chalabi.  Mosul is "explosive" due to Kurdish 
encroachment, and Arabs also fear the Kurds are taking over 
the city of Sinjar in Ninewa province.  Chalabi noted that a 
key task is to instill in Kurds the notion they are part of 
Iraq, while restraining them from assuming disproportionate 
power. 
 
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ECONOMIC PRIORITIES: PROVIDE SERVICES, UP REVENUES 
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¶9. (S/NF) Chalabi remarked on Iraq's abysmal economic 
situation, with $36 billion spent since the fall of the 
regime resulting in no improvements.  He said problems are 
clearly not fixed by "throwing money at them," and the 
corruption problem has exacerbated conditions.  (NOTE: 
Chalabi noted the Board of Supreme Audit recently released a 
report on corruption within the Defense Ministry.  END NOTE) 
 
¶10. (S/NF) Chalabi said government priorities should be to 
provide services: electricity, sewage, and water.  For 
electricity, the current goal is four hours on, one hour off. 
 Iraq has the reserve capacity of 11,000 megawatts, but it 
currently generates only 4,200 megawatts.  Two years have 
failed to improve this output, complained Chalabi.  As a 
short-term solution, the government has focused on using 
expensive fuel.  Currently Iraq is importing 4 million liters 
per day of diesel fuel costing $150 million/month to power 
generators. 
 
¶11. (S/NF) The Deputy Secretary suggested that Iraq could 
harness the estimated $5 billion of natural gas currently 
flared to power electricity generators rather than crude oil 
- and thus free up oil for export.  Fuel pricing structures 
need to be adjusted, added the Deputy Secretary.  Chalabi 
agreed, noting that gasoline is basically free (50 dinar or 3 
cents per liter) and diesel is even cheaper than gasoline. 
Electricity is also free since the collection process is more 
expensive than the governmental income that would be gained 
by collecting tariffs, complained Chalabi.  One idea is to 
charge citizens for extra usage after a minimum amount. 
Chalabi said he and the Finance Minister support adjusting 
pricing structures, but the UIA remains reluctant.  He 
suggested the USG could help educate UIA parliamentarians by 
leading a seminar for the TNA on economic incentives. 
Chalabi would also like to cut food subsidies, at least 
partially.  Ending subsidies for soap and beans, for example, 
would save $500 million per year. 
 
¶12. (S/NF) Iraq's second economic priority should be to 
increase revenues through oil exports, but Iraq suffers from 
both production and export problems, noted Chalabi.  Iraq 
only exports 1.4 million barrels per day.  Iraq could 
increase exports from Kirkuk, but would need security for the 
pipeline.  For example, the oil pipeline through Mosul is 
under threat, and it would require 18 fully trained and 
equipped battalions to protect it.  Iraq loses $600 million a 
month because the northern export lines are unprotected and 
not functioning.  In addition, Iraq's oil refining capability 
is half what it needs to be; the country needs 20 million 
liters gas per day and must import 10-11 million liters per 
day. 
 
¶13. (S/NF) The country's economic problems are exacerbated by 
an increasing tendency (on the part of bureaucrats rather 
than ministers) to revert to socialist practices, continued 
Chalabi.  Because of their experience, the bureaucrats' 
default response defies to enact protectionist tariffs and to 
restrict the percentage of foreign investment.  Not one 
economic activity in Iraq is profitable, including 
agriculture, which is heavily subsidized, yet their 
inclination is to increase subsidies to address the problem, 
complained Chalabi. 
 
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ADDITIONAL SECTORS: AGRICULTURE, BANKS, JOB CREATION 
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¶14. (S/NF) Chalabi noted two issues affecting the 
agricultural sector: land ownership and irrigation.  Iraq 
needs to farm large tracts of land to have a profitable 
agro-sector.  However, there is still a law preventing 
private land ownership of more than 800 hectares.  Modern 
irrigation techniques are needed, but such improvements are 
capital intensive.  Banks present a unique challenge with 
less then 500 operating branches in Iraq -- one branch per 
40,000 Iraqis. 
 
¶15. (S/NF) The Deputy Secretary asked about the usefulness of 
micro-credit loan programs in Iraq, to which Chalabi 
responded that such a program would help greatly since it "is 
impossible to get loans now."  Chalabi said agriculture and 
services were key elements to creating jobs, much more than 
manufacturing.  Expanding housing would also create immediate 
jobs.  Most land belongs to the government, which it could 
section off for residential areas that would create jobs in 
construction.  Further, increasing home ownership would 
contribute to political stability.  Chalabi also asked to 
increase the number of scholarships to the U.S. and 
subscriptions to useful periodicals. 
 
¶16. (U) The Deputy Secretary's office cleared on this cable. 
 
¶17. (U) Minimize considered for REOs Basrah, Hillah, Kirkuk, 
and Mosul. 
Jeffrey