VZCZCXYZ0000
RR RUEHWEB

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