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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