ENERGY INFRASTRUCTURE PLANNING: BRIEFING FOR DEPUTIES 18 OCTOBER 2002 10117/02 4:56PM OSD MUTTIT 46 SI3CR+J'F;'fl'ii9F9ftl"t 1 Derived from Multiple Sources Agenda • Summary of Tasl( • Status of Planning • Discussion of Key Issues • Discussion of Declaratory Policy l0/17/02 4:56PM OSD MUTTIT 47 8~CM'I'/R'l9F9Rff 2 Derived from Multiple Sources Sumnzary of Task • Develop a con1prel1ensive contingency plan for protecting, repairing and operating Iraqi energy infrastructure, to be used if US/allies must occupy. I Address legal, policy and operational issues. I DoD lead, with other agencies participating as required. I OSD/CENTCOM division of labor. - JCS/CENTCOM: plans for protection and repair. - OSD: plans for maintaining continuity of operations. 10117/02 4:56PM OSD MUTTIT 48 ~l!ICM~/~l8F8RN . 3 Derived from Multiple Sources Statrts of Plan11ing OSD: Reported 15 October 02. CENTCOM: Have identified key locations to protect, repair as necessary, including: - Vital facilities at Rumaila oil field. - Export tem1inal shipping berths. - Major pump stations. - Storage, metering and export terminals. Developing full range of repair contingencies (heavy to no damage). - US Army Corp of Engineers developing courses of action for sabotage and battle damage, including collateral damage done by coalition forces. - Unlikely US forces moving through area will cause damage, but if Iraqis defend oil facilities, battle damage and collateral damage could be significant. - Have identified energy-related strike areas posing risk of collateral damage. CIA has assessed sabotage and its effects on production. Fragmentary intelligence indicates Saddam has placed explosives on wells and other facilities. - Saddam's motivation not known, but could include deterring military operations, creating unfavorable battlefield environment, denying revenues to post-Saddam regime, punishing neighbors environmentally. Operational plans to be briefed in greater detail at later time. 10/17/02 4:56PM OSD MUTTIT 49 St!l€Rf!l'f#N8F'8~i 4 Derived from Multiple Sources Next Steps Energy Infrastructure Planning Group (EIPG). - Chaired by DoD. - Participating agencies are detailing individuals to DoD. • CIA officer with oil industry experience. • DOE expert from Strategic Petroleum Reserve. • DOS Iraq expert. EIPG has begun work-up of key policy issues, outlined in following slides, for Deputy and Principal decisions. • Within 2 weeks after detailees on board, will present Deputies with decision options on first priority issues. • Sotne of these issues are subsets of broader issues, n1ust be decided in that context. EIPG will: - Address need for an up-to-date survey of Iraqi oil infrastructure. - Ensure integration of policy decisions into planning process. - Keep NSC staff advised daily. 10/17/02 4:56 PM OSD MUTTIT 50 SlilCRJ!l'iV/li9F8ftP'E 5 Derived from Multiple Sources Key Policy Issues EIPG Will Bring To Deputies/Principals With Decision Options 10/17/02 4:56 PM OSD MUTTIT 51 SI!1CM'f/IN6F6Rtt 6 Derived from Multiple Sources A Gzticling Principle • All policy issues are guided by the underlying principle that Iraqi petroleum resources belong to the people of Iraq, i.e., to the nation as a whole, not to any regional entity. • Accordingly, policies should be set at a national level, for the benefit of all the Iraqi people, and proceeds must be allocated · equitably among the regions. 10/17/02 4:56 PM · OSD MUTTIT 52 i:J!i(;IY!J'I'JA)fgFgR.'\l" 7 Derived from Multiple Sources Ho}v to organize and manage? DoD 1nanagen1ent lead required, assun1ing CENTCOM Con1mander will be initial post-conflict authority in an occupied Iraq and absence of any UNSCR providing otherwise. During occupation, ovcra111nanagen1ent responsibility could be vested in an interim "Iraqi Petroleum Trust" or similar entity, under authority of US military command, that would: - Supervise and administer Iraqi petroleum industry, supported initially by US contractor team from private sector. - Be a US or coalition entity, possibly with USG agencies represented on its board (as in OPIC). - Be run by a qualified American as chief executive, reporting to SecDefthrough CENTCOM Commander. - Be governed by USG policies coordinated inter-agency and approved by President. These responsibilities could be transferred to a coalition civilian authority when such authority is formed and ready to assume control. Assumption: l(eep existing Iraqi organizations and personnel functioning to the extent possible, after purging the Saddam "machine" -- but plan for worst case that few Iraqi managers/workers available. Should be transparent n1echanism to enhance credibility and demonstrate fairness to Iraqi people and in~emational community. Issue: When/whether to include allied/coalition/third-country governments or Iraqi entities in the "Iraqi Petroleum Trust"? Whether to include non-US companies (e.g., Lukoil, others) in contractor support team? 10/17/02 4:56PM OSD MUTTIT 53 ~K{;UT!'I>lQI'QR."l 8 Derived from Multiple Sources Dill ./ 1-Jc,:)' t:J liSe ]Jetrolell11l proceeds? Use of oil proceeds consistent with current Oil-for-Food Progran1 --humanitarian needs of Iraqi people, urgent repairs to petroleum and other critical infrastructure -- may be relatively less controversial. Other possible uses, likely to be more controversial: - Recover US/allied costs of military campaign. • Costs of military operations inside Iraq? • Military operations outside Iraq? • Costs of occupation? - Pay Iraqi foreign debt? • Or defer some or all? - Some debts are controversial, such as for anns bought from fanner USSR. - Policy on eventual "Paris Club" re-scheduling? Current UNSC sanctions, if applicable to US-led occupation, would limit our authority to administer the oil industry (including importation of infrastructure, sale of petroleum products, use of proceeds). - Lawyers now analyzing legal case for and against. 10/17/02 4:56PM OSD MUTTIT 54 stlCH't¥1N8F'8ftfi 9 Derived from Multiple Sources 1¥1zat to clo ctbout current sanctions a ainst Ira ? UN Sanctions: Include restrictions on oil sector import/exports, WMD-related restrictions, and a reparations regime for Kuwait and other goven1ments affected by Iraqi invasion. • Now analyzing which UNSCRs should be revised or terminated in event of US-led temporary administration in Iraq. • Current UNSCRS require, for example, all oil export contracts to be approved by GOI and UN 661 (sanctions) Committee, and all imports to Iraq on a "Goods Review List" (dual-use technologies) to be approved by UN Committee-- sales proceeds go to UN escrow account. Could prevent us from managing petroleum resources rationally. • As applied to US-occupied territory, strong argument sanctions inapplicable as their purpose would no longer be served. • UNSC action may nevertheless be desirable, to ensure international recognition of actions by temporary administration on oil sales, infrastructure development, oil exports, and imports of items on UN Goods Review List. - Be ready with draft UNSCR at proper moment. Must address how and whether to continue funding reparations to Kuwait, other governments (including USG) and other claimants-- payments now funded by oil sales through UN Oil-for-Food program and UN Compensation Commission. Some altem(;ltives: • Fund reparations directly without channeling through UN. • A residual UN program just to administer reparations. • Encourage claimants to consider foregoing additional Gulf War reparations in light oflraqi regime change. US Domestic Law: Various restrictions on dealings with Iraq. Lawyers to analyze, advise which might need to be changed, and how. • By executive action? Sl!lC:RiB'ti'IN8F8Rf'i Derived from Multiple Sources Develop Iraqi oil prodttctioJt capacity, :;r };;~·rely oper?tte 1vltat ctlready exists? CIA estimate: Current production capacity about 3.1 million b/d, but producing only about 1.9 million b/d. Solllc prival..:-scctor estimates s~:~y production c~:~pacity lower than this and and major infrastructure investment needed to realize it. Could reach cuiTent production capacity within a few weeks if shortage of sales contracts coiTected. Could return to pre-Gulf War production capacity of about 3.5 million b/d by year-end 2003, assuming little damage to facilities. Questions: Should we take immediate steps to increase production up to current capacity? Should we undertake to increase production capacity? Considerations on increasing production capacity: Doing so during occupation presents legal issues now under study (e.g., impact, if any, of existing UNSCRs ). Would tend to bring down world oil prices over time. • (b )(1) • Would tend to increase revenues available to Iraq. • W auld tend to raise living standards in Iraq . Might be necessary to pay for both domestic needs and Iraqi foreign debt, depending on which debts were paid, and when. • Would it improve conditions for political stability, establishment of democratic institutions? Would require decisions on whether to have open competition for development rights, or to favor or disfavor investors and companies from some countries. Might exacerbate internal power struggles among Iraqi factions. 10117/02 4:56PM OSD MUTTIT 56 11 Derived from Multiple Sources Jj- develop production capacit]J, w/1at to do abotct existing a11d 11ew developtnent contracts? TrJC]_ currently has development contracts with con1panies fron1L_[ (b-)(_ 1 > _________ __j Little or no work yet done under these contracts, reportedly because would violate UN sanctions. Question whether mere existence of contracts violates UN sanctions. Worth billions of dollars to develop reserves in billions of barrels, potential daily production in millions of barrels. Need legal analysis of these contracts, then develop policy on whether to honor, modify, abrogate, or merely defer them for new Iraqi government to address. [Need more data on contracts.] - Pro: Honoring could reduce prospect of negative UNSCRs on post-conflict US actions in Iraq. Con: • Honoring would penalize companies (e.g., US and UK) that played by the sanctions rules. • Honoring could strengthen some countries whose interests in the region may be inconsistent with ours. Will need policy and legal review on whether to open up competition for new development contracts to investors/companies from all, or only some, countries. - Excluding countries that did not support military campaign would weaken international acceptance of interim administration. • But prospect of exclusion could motivate some countries to be more cooperative now. - Unrestricted competition could help establish free market principles in Iraqi economy. May be legal considerations for or against. 10/17/02 4:56PM OSD MUTTIT 57 ii:"IQi'I\W'f8F6ftN 12 Derived from Multiple Sources (b)(1) iii€Rl51'HPl8F'8RP4" 13 Derived from Multiple Sources Declaratory Policy For now: [The United States routinely plans for all contingencies in connection with potential military actions that may or may not occur in the future. In the case of potential military action in Iraq, our contingency planning addresses the possibility that US and allied forces might be called upon to protect the Iraqi petroleum infrastructure from damage, and to maintain conditions that would permit the continuing operations of the Iraqi petroleum industry.] For later: [Iraqi energy resources belong to the legitimate government of Iraq, i.e., to the Iraqi people as a whole. The people of Iraq have suffered decades of war under an oppressive dictatorship leaving the country's economy and infrastructure in ruins. To begin addressing these problems, the United States will protect, repair and temporarily operate the Iraqi energy infrastructure, for the benefit of the Iraqi people and to ensure stability in the region. Energy revenues will be used to meet the immediate humanitarian needs of the Iraqi people and to begin the reconstruction of Iraq. For those nations that have incurred expenses associated with liberating and administering Iraq, those expenses may be offset by energy revenues after the urgent needs of the Iraqi people are met. To the extent appropriate under the circumstances, the United States intends to afford due respect to existing, legitimate . . . . . SECRB'F/R~9F9R-rf 14 Derived from Multiple Sources (b)(5) • It 1 .. - r--------------------------------i(b)(5) I PLANNING FOR THE IRAQI PETROLEUM INFRASTRUCTURE: Briefing for the Secretary of Defense 11 January 2003 (b)(5) (b)(5) 1111103 12:33 Prepared by Energy Infrastructure Planning Group lr=-;(b),...,..(S)o--------,1 j(b)(2) I > SHCR:t!Ti'?Pl9F9M (b)(5) Derived from Multiple Source DECL ON: 11 JAN 2013 OSD MUTIIT60 .. . St!CRR'f/fNOFORN Outline of Presentation • Guiding Principles • Public Diplomacy • Contingency Planning for Repair, Production and Sales • Legal Considerations • Organization and Management (Issue for Decision: Chairman/CEO Appointment,Reporting, Removal • Use of Petroleum Proceeds • Funding Enhancement: Borrow Against Future Oil Revenues? • Production Targets • Existing and New Contracts • Iraq-Syria Pipeline 1111103 12:3 3 Prepared by Energy Infrastructure Planning Group l I Derived from Multiple Sources 5 DECL ON: 11 JAN 2013 · OSD MUTTIT 64 SEC.RETh'NOFOR'N · Contingency Plans for Production and Sale • n priorities: - First, crude oil. Second, natural gas to support electrical grid. Third, refined products (import during interim if necessary). • Build on "modular" approach. - Pre-conflict: Profile all fields and facilities. Post-conflict: • Rapidly assess production level achievable with whatever still works. • Assemble building-blocks of a functioning system with whatever still works. • Use all functioning production facilities to extent safe and cost effective. • Produce first where damage is least, to maximize early output. • Sales: New USG-created organization to manage Iraqi oil assets {acronym: "IOTA") uses personnel from Iraq's State Oil Marketing Organization (SOMO) to extent available and reliable -- supplement with other nationals as needed. lOT A approves terms and conditions of sales, within policies set by h1gher authority. "Good Title": SOMO and Iraqi Central Bank currently co-sign aU oil sales contracts. • Standard terms include warranty of title. • Suggests need to maintain existence and operations of Iraqi Central Bank and SOMO. - Would continue to warrant good title to buyers. - Would reduce 1/11/03 12:3 3 Derived from Multiple Sources 6 DECL ON: 11 JAN 2013 OSD MUTIIT65 Organization and Management . • Deputies agreed to recommend establishing an organization dedicated solely to managing Iraqi petroleum industry. - Corporate organizational model ("Iraqi Oil Temporary Administration"-- "IOTA") drawing on current Iraqi Oil Ministry structure. • To "internationalize," appoint: - Chairman • American. • Current or former statesman. Chief Executive Officer. • British or other international. • Former chainnan or CEO of oil company. Vice Presidents for each functional sector within current Ministry. • Preferably Iraqis. - Board of Advisors. • Advisory only, non-binding on management. • Half composed of Iraqis, the rest could be international figures. Issues for Decision: Appointment, Reporting, Removal of Chairman, CEO. - Candidates vetted by PCC wi11 go to Deputies/Principals for consid~ration (see Back Up Slide). Chairman, CEO will recommend to USG the candidates for Board of Advisors. - Recommend: SecDefappoints and removes Chairman, CEO (with White House coordination). - Recommend: Chairman reports to top civil administrator; CEO reports to Chairman. ivil Derived from Multiple Sources 9 DECL ON: 11 JAN 2013 OSD MUTIIT68 SBCRETifNOFOR?\ Petroleum Proceeds: Possible Uses and Availability • Figures below exclude high end range of humanitarian needs and unaddressed Gulf War claims. When possible, (average) annual numbers are provided. • Humanitarian aid, military campaign and occupation costs -- about 1 year; others vary from about 2 to 10 years or more. • Bottom Line: Demands on petroleum revenue will likely exceed available funds for foreseeable future. ~~~· .. ~- ::· ·~--~--=~~~~--~~~~ . Resto-re p-rewar oil productio· n-capacitY (initial)"~~ CIA/Industry . . I . . 1 . . . . 8 ·exparici" oil capacitY. to 3.6 miJJiorl" b/ct (additional) ~~ cLAIIndu-stry ------ --------- . j . . - ------"3-- ----- 5 ·efxp- aii-(i-on capacitY.to-s.s··n-iimon blcT.(annil-ai avg) ~~-c1Ailr1Cfustr\l _···--· ----- .] - ----·····························1 ..... -- ... --~1 F:_or~ig~ l:? . ~l?.t P;:ty~~~~ _(~~-~~alt~~ _G_IA_ . . . _ . .. . __ .... ... . . ........ .. ..... . _____ ..... ____ . J . _ . . 7 __ _ .. . 15 @.Y.~!.~~r Clai!1J! (a_~~~~~!.::- ... ~.!A.lSt~t~------ .. ... _ ....... ____ · · ······---- ------ . ____ 5 .. __ ? Costs of O~~upatlo~_{~nnuall_:-- CBO .. _______ 48 .... - -----~:!~. t:;o~~~--~fM~-i~~~-€:;amp~~igr:- (tot~l) -- C_B_Qj!jquse BudgE;)t Comm., Dem S~Eiff 30 60 ITO!A~_Q~~~~P ..... ··----~ . -·· . . .. ·- ~- ......... .... . 114 167 ------ --- ·-- ---------- " ~ - ------- - - - - - --- - .... .. ~ . ............. . . -----~ .. ~-- ... - -- -· ........... - --- TOTAL ANNUAL PETROLEUM PRODUCTION REVENUE* - -----------------· ---- - --------- --- -- ---- ..... __ ,,, ............................ ,.__ ...................... BALANCE . l ... .. . . . .................. ····-·· . ... .. . .. -------~-- .. .- - ···~ ·------· ··"·-·------ -.--·-----------· -----------------~~----------------· ·· - . . ...... " --- - .. . .. . . L~J2?Ss.!~ g_!)_?_._'! m~1!~-2!l.Jtd of oil product!Qt! a_f!_d !!_f!__$18-281bf?j_?_~~e___l?!!_"q_~------- 1111103 12:33 Prepared by Energy Infrastructure Planning Group l(b)(2) I st!JCR:El'¥/Hf 9F9R"l Derived from Multiple Sources 10 DECL ON: 11 JAN 2013 OSD MUTTIT 69 • S~CR-ET/fNOFOR.'t Funding Enhancement: Borrow Against Future Oil Revenues? · Major issues: - Recent Iraqi oil revenu~s may not support major loans (i.e., billions of dollars) without new . development contracts In place to ba~k them up. . - W!lo would borrower be during temporary adminis~tion? Iraqi Central Bank? Would it still exist and function? New lender(s) likely to demand subordination of pre-existing debt and third-party guarantors (other governments'?). . - LikelY. to require rescheduling Iraq's existing foreign debt (about $82 billion at end 2002 · assunung 6% Interest rate). - Irag also owes $27 billion in unpaid claims awarded by UN Compensation Commission for GuffWar damages. 1/1 1103 12:33 Prepared by Energy Infrastructure Planning Group j I OSD MUTTIT 76 &S6R8~'8F8RH l? Derived from Multiple Sources DECL ON: 11 JAN 2013 SIBCRETftNOFORN Next Steps • Brief DC next week, PC soon thereafter. • Promptly appoint management of lOT A. • Proposal early next week that you appoint Army as Executive Agent. • Proposal to you next week for pre-positioning assessment teams, fire-fighting and other critical equipment. • Within 2 weeks present final draft of detailed continuity-of-oil operations plans for your review. 1111/03 12:33 . Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTIIT77 SB€RI!i' Fhlf'i8F'9R."\J Derived from Multiple Sour ces DECL ON: 11 JAN 2013 . 18 Back Up 1/11103 12:33 Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTIIT78 SECRii'FHPf9F'9ftPf Derlved from Multiple Sources 19 DECL ON: 11 JAN 2013 SECRE'f'J'J'NOF'ORN 1/11/03 12:33 Prepared by E~ergy Infrastructure Planning Group [ 1 ~~"M~' :'taiQUI'API 2 Derived from Multiple Sources DECL ON: 17 DEC 2012 OSD MUTTIT 101 Planning Guidance EIPG instructions to contractor -- be prepared to: Iandle full range of repair scenarios, from minor to extensive testore current production level of about 2.4 million barrels p lay (BPD) as first priority. . testore current production capacity of about 3.1 million BPD text priority. >roduce at 3.1 million BPD or other levels if so directed. )upply marketing and sales force if so directed. vfaintain operations until directed to hand over to others. 12/18/02 18:42 Prepared by Energy Infrastructure Planning Group ivide Contingency Support Plan (CSP). r ork overseen by OUSD(P)/Energy Infrastructure Planning Group (EIP< lnal product subject to USD(P) and SecDef approval. IPG received final draft CSP yesterday (11 Dec 02). rief SecDef in detail during week of 16 Dec 02. 1ction and sales targets (per EIPG guidance to .BRS) -- be prepan estore current production level of about 2.4 million barrels per day (BPI rst priority. estore current production capacity of about 3.1 million BPD as next pri< ~oduce at 3.1 million BPD or other levels if so directed. 1pply marketing and sa1es force if so directed. faintain operations until directed to hand over to others. /02 10:13 Prepared by Enerzy Infrastructure Planning Group indition of Iraqi energy infrastructure. Lictuations of world oil supply and price . .ris Club decisions on rescheduling Iraqi debt. illingness of Gulf War claimants to forgo claims. 11/6/02 5:40PM Prepared by Energy Infrastructure ranning Group l(b)(2) SfJERE'f:'fti9t'9RH Derived from Multiple Sources DECL ON: 6 Nov 2012 4 OSD MUTTIT 138 S~Cit:E'f'//NOf'OitN Revenue Amount troleum revenue will vary according to levels of production and price. tal revenue, including export revenue, could exceed $20 billion per year. If Iraq produced its approximate current capacity of 3 million barrels/day, and oil p fluctuated within a $18-28 per barrel range, it would reap $20-31 billion in annual revenue, excluding cost of production. If domestic Iraqi consumption remained constant at current level, 300 thousand barrels/day, annual export revenue would range from $18 to $28 billion. In principle, as Iraqi economy recovers, its production should rise. ution: it took Kuwait two years after the Gulf War to regain prewar producti 11/6/02 5:40PM Prepared by EnerllY Infrastructure Planning Group in Could reduce incentives for other countries to provide aid. Would divert resources from other important uses. Tota~ 1116/02 5:40 PM Prepared by Energy Infrastructure Planning Group l(b)(2) I 6 SI!!CRI!l'fWPf8F6RPt Derived from Multiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 140 sECRE'ftJPi1'3'n: Post-Conflict Reconstruction o National In tructure vel of damage resulting from military campaign cannot be precisely estimatt vance. Degree of resistance. Incidence of sabotage. A estimates of need range widely. $28-40 billion over ten years ($3-4 billion annually) if war damage comparable to ( War. Damage could be much higher than in Gulf War. 11/6/02 5:40PM Total: $3-4 billion per a Prepared by Energy Infrastructure Planning Group . l(b)(2) I SEJCRE':Fl'fN8F8RN 7 Derived from Multiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 141 sEotF:rlJPiJ':n: Post-Conflict Reconstruction o National In tructure cont. 0 Could be immediately available source of funding. Would reduce dependence on international assistance. Would reduce needs for US funds and avoid implication that USG is legally respor Could accelerate process of Iraqi independence and political stability. )fl Diverts resources from other uses. Arguably should be decided by new Iraqi government. 11/6/02 5:40 PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SI!:CRI!l'¥/;'Pi8F€J:RPi 8 Derived from Multiple Snurces DI~:CL ON: 6 Nov 2012 OSD MUTTIT 142 SF:iCRETJ~OtlORN Option: Repair Existing Energy Infrastructure ;ludes petroleum production, refining, pipeline, electricity and natural gas :ilities. us and sanctions have eroded condition of energy infrastructure . .qis have used band-aids and questionable industry practices to keep oil flow ther damaging the oil fields. Possible decline in production capacity of roughly 5-15% annually, and even more north, if current conditions persist. Iraqi cost of production per barrel is less than one-half of other producing countries region, suggesting improper production techniques. I reach pre-Gulf War production of3.5 million barrels/day, with no new dam ll cost $2-3 billion over 12-18 months. Includes well workovers, and maintaining and fully utilizing existing facilities. Might require expansion beyond existing facilities. reach 3.5 million barrels/day with war damage, costs could exceed $5 billio l: Kuwait spent $5 billion in first 12-18 months to repair damage caused by j 'otage in Gulf War, and perhaps $20 billion overall. 11/6/02 5:40PM Prepared by Ener y Infrastructure Planning Group 9 (b)(2) S'ECRJYIWN 8F8ftN Derived from Multiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 143 SECRE~h'NOFORN Option: Repair Energy Infrastructure (cont.) ) Essential for maintaining revenue stream and even partly meeting demand for fund: outlined in this briefing. Would minimize reliance on international assistance. Would facilitate any decision, by US-led administration or new Iraqi government, t increase production capacity. )fl Could be controversial, sparking allegation of US exploitation. Would divert resources from other uses. Could discourage private sector involvement. Could prejudge policy decision on increasing production. 1116/02 5 :40 PM Total: $2-5 billion per a Prepared by Energy Infrastructure Planning Group l(b)(2) I SECft:l!;'f;';'f':fBF6ltN I 0 Derived from Multiple Sources DECL ON: 6 Nov 2012 --- . --:===================;;;;;;;;;;;;;;;~~~~== OSD M UTTIT 144 St;CRE'fYfNOFOitN Option: Pay Foreign Debt ,q has made no foreign debt payments since 1990. UN sanctions regime has shielded oil reserves from claims by those holding Iraqi d ficial Iraqi government foreign debt estimated to be over $82 billion, includi erest from 1990. Principal owed is $41 billion. Excludes $37 billion principal owed to Gulf states from Iran-Iraq war. rgest governmental creditors--Russia and France. Russia is owed $16.1 billion (principal: $8 billion), or 20% of total--mostly for we France is owed $9.1 billion (principal: $4.5 billion), or 11% of debt. Japan is owed $9.1 billion (principal: $4.8 billion), or 11%. US is 6th largest creditor: owed $4.4 billion (principal: $2.2 billion), or 5%, less t] Germany and former Yugoslavia. mual debt service estimated at $7-15 billion. far no bilateral or multilateral debt rescheduling. 11/6/02 5:40PM Prepared by Ener Infrastructure Planning Group (b)(2) Total: $7-15 billion per ai St!CRI!!1WN8F91<2> I Total: $48 billion per a Sl!l€Rt!'ii';'PU'Jf'6KN 15 Derived from Multiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 149 Recover US/Allied Costs of Occupation (cont.) ) Occupation benefits Iraqi people and should be paid by Iraqi resources. Probably permissible under any applicable legal theory (legal review still ongoing). •n Would be highly controversial internationally. Could generate domestic Iraqi opposition. Would reduce resources available for other urgent needs. Even if all revenues devoted to this category, it would only cover about half of proj monthly costs. Would deviate from UNSC decisions to exclude costs of military operations from I Gulf War compensation obligations. 1116/02 5:40PM Prepared by Ene Infrastructure Planning Group (b)(2) SElC:R:Etf'/fPi8F8Rf'f 16 Derived from Mu1tiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 150 S~CRRT>'INOFORN Recover US/Allied Costs of Military Campaign timated costs of campaign vary. CBO estimates $20 billion for deploying troops to Gulf and returning troops home, $6-9 billion in combat expense per month. House Budget Committee, Democratic staff, estimates up to $60 billion total. Llf War of 1991 cost $58 billion. tentiallegal distinction between operations inside and outside Iraq (subject c going legal review). Operations inside Iraq: legally permissible. Operation outside Iraq: legally controversial. 1nsparency in accounting also essential here. 1116/02 5:40 PM Prepared by Ener Infrastructure Planning Group (b)(2) Total: $30-60 billion per aj 17 SECftE't'/fl{8F8RP~ Derived from Multiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 151 ~ sRe::::Us!Allied Costs of Military Campaign , (cont.) ) Iraqi resources should pay for campaign that liberated Iraqi people and removed international threat emanating from the country. n ' Would be very controversial. Could erode international support for US policies, and could affect support for futu interventions. Would divert resources from other needs. 1116/02 5:40 PM Prepared by Energy Infrastructure Planning Group l(b)(2) I Sl!!elt:F.:'f/I'Pf8F8R'I 18 Derived from Multiple Sources DECL ON: 6 Nov 2012 OSD MUTTIT 152 SECREr/fNOFOa"t Summary I Balance Sheet :mands on petroleum revenue will substantially exceed available funds for ·eseeable future. nnbers below exclude potentially large humanitarian needs, unaddressed Gu ar claims, and potential repairs to petroleum infrastructure beyond 12-18 mo er conflict. When possible, (average) annual numbers are provided. RANGE OF FINANCIAL DEMANDS (in $ billions)! . . . .. "~~ -~- . . . . . . . . . ., , .. ·'''"•'' ,, ''""' -----------------~---~·!-~---- Humanitarian Aid " ' uuu"'""'"''"""' "''"" ' " ' " ' ' '-''"-"""'--n• "•"''" '-""""""" ""'-" _, " <> " ' "" ' ' ~ Reconstruction of \!Var-[)amaged Eco. (anniJal c:JY9)) _8(2pair Energy lnfr~structure (irlitial) ...... , J:greigl'l.Q~l.?tf~Yrnent (annual) Gulf War t;::~airn!?J<1 > (b )(1) 02 10:13 Prepared by EneriZY Infrastructure Planning Group l(b){2) l Derived from Multiple Sourc DECL ON: ll DEC 2011 OSD MUTTIT 156 ENERGY INFRASTRUCTURE PLANNING: Iraq Sanctions Regime DECISION BRIEFING FOR DEPUTIES November 8, 2002 3:00PM 11-12-02 11:22 IN Prepared by Energy Infrastructure Planning Group l(b)(2) I SE€M:Eli/Ri8P8RPI Derived from Multiple 5 DECL ON: 8 NOV 2012 OSD MUTTIT 157 BCRE'i'HNOFOftN Agenda • Review of Issues Addressed This Month • Issues for Today • Decisiot1s Needed 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I Sl!leRJi3'f/Ri8P8HN Derived from Multiple S DECL ON: 8 NOV 2012 OSD MUTTIT 158 :CRI3'FlfNOF'OltN Issues to be Addressed This Month Jrganize and manage USG administration of Iraqi petroleum resoun Ltse petroleum proceeds? do about current sanctions against Iraq? ~ ~ Iraqi oil production capacity, or merely operate what already exists )p production capacity, what to do about existing and new developrr. · to use control of Iraqi oil to advance in1portant US foreign policy affected by energy issues? )ry policy? 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I Derived from MultipleS DECLON: 8 NOV 2012 OSD MUTTIT 159 /CRB'tYJNOt'OR:N Issues for Today t to do about current sanctions against Iraq? Guiding principles for addressing current sanctions. What to do about UN sanctions. What to do about USG sanctions .. 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SS6RS''F#Pl9F8ft.."'# . Derived from MultipleS DECL ON: 8 NOV 1011 OSD MUTTIT 160 ~CltE't'NNOFORN Guiding Principles ~possible any desired .financial and legal transactions th 'e for immediate humanitarian and reconstruction needs ~future business activity. zter dis information that US ob;·ective is to control Iraq's ~age relations with Congress and the UN to encourage ve cooperation. 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I seeR:"/IN6P61Ut Derived from MultipleS DECL ON: 8 NOV 2012 ··---------- ----··- ·- .. OSD MUTTIT 161 ECH'fftNOt'OitM United Nations Sanctions )pe UN sanctions imposed pursuant to various United Nations Security Counc Resolutions beginning with Resolution 66"1, dated 6 August 1990. A listin the twenty-three resolutions is in the appendix on page 17. UN member states required to effect broad trading and funds transfer bans against Iraq with certain humanitarian exceptions, including the OFF prog1 Iraq may use oil proceeds to purchase non dual-use items. Contracts prest approved unless they contain dual-use items on "Goods Review List" (GR UNMOVIC and IAEA review all contracts and may approve those with fl( GRL items. Contracts with GRL items are referred to UN Sanctions Committee for a decision. Reparations to Kuwait, other governments (including USG) and other claimants are now funded through UN OFF program and UN Compensati< Comn1ission. Existing resolutions mandate that UN-member states deposit into Iraq's ill escrow account any funds used to pay for petroleum products exported "fr~ the territory of Iraq. Prepared by Enejf Infraslructure Planning Group (b)(2) I iiGRii':I'J~9P9RN Derived from Multiple ~ DECL ON: 8 NOV 2012 ~3:00PM · - -- ·- .=: -·· ·_:_ · _____ ........;..; _____ _ OSD MUTTIT 162 ~CitE~/INOFORN United Nations Sanctions (con't) . :tons Ootion l - Seek broad lifting of all UN sanctions, except those dealing with arms tr: particularly WMD. • Likely require termination or suspension by Security Council. Most recent precedent was of remaining sanctions on Yugoslavia, 10 September 2001. • Will require negotiations to obtain necessary support (9 of 15 members, no veto by pennru members). • Assuming a US occupation and regime change, argwnent that sanctions should be remove' their purpose would no longer be served. • Plan for phase out of UN escrow account. Reparations to Kuwait, other govenunents (incl USG) and other claimants eventually would be funded directly without channeling througl Encourage claimants to consider foregoing additional Gulf War reparations in light of Iraq regime change. Pros Cons e moving Iraq to a new era~ ease nanitarian suffering caused by Saddam 's :management of OFF resources. >r rational use of proceeds from oil sales. • Could take time and political capital to obu Security Council approval. :3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SEEM1'/7N8F8AN Derived from MultipleS DECL ON: 8 NOV 2012 OSD MUTTIT 163 ECR£'¥/fNOPORN United Nations Sanctions (con't) 1tions (con't) Option 2 - Construct new UNSC approved regime through an omnibus resolution, allowing for new situation, including a US/Coalition period of occupation. Possible scope of new UN program: • Continue Oil for Food program in some form. • UN continues to manage reparations, if they continue. • UN continues sanctions on anns and WMD. Pros n some international community consensus. s some continuity in regime transition. .s US claim that we are not going in for the Cons • Could limit our options in managing petrol resources . • Could take time and political capital to obt Security Council approval. • Could provide UNSC more control over oi revenue. ~3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SEE!*El¥/i'ij8F8RP~ Derived from Multiple ! DECL ON: 8 NOV lOlJ OSD MUTTIT 164 United Nations Sanctions (con't) tions ( con't) Option 3 - Do not change UN sanctions. • A. Argue UN resolutions inapplicable because of changed circumstan apply Hague Regulations. lraqi oil out of the ground may be seized and sold. Iraqi oil in the ground may be extracted and seized at pre-war levels of production. Extracting and seizing oil at greater than pre-war levels of production, w1 not expressly forbidden, could be controversial. E.g., development of ne· fields. Pros Cons flexibility for managing oil production. o negotiate sanctions issues with UN during cupation. Can be delayed until transition to new t. • Will hurt US claim that we are not going in for the • Only delays addressing UN sanctions. Transition to new govenunent from military occupation might be delayed until UN sanctions issues are addressed. • Undermines UNSCR process. • Opposition/complaints from countries and bl.isines have unpaid or unfunded contracts pending under 0 ~3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I Derived from Multiple S DECL ON: 8 NOV 2012 OSD MUTTIT 165 fBCREFitNOPORN United Nations Sanctions (con't) tions (can't) Option 3 • B. Operate under existing UN sanctions, apply OFF program. Under the Oil-for-Food program, we can, through the UN: » Produce and sell oil. )> Pay contracts to rehab, fight fires, etc. » Distribute revenues for humanitarian purposes, reparations and reha payments. We cannot seek private investment because overall UN embargo would remain. Pros Cons 1 some international community consensus. ; some continuity in regime transition. ; US claim that we are not going in for the • Could limit our options in managing petrol1 resources. • Could provide UNSC more control over oil revenue. 3:00PM Prepared by Ene Infrastructure Plarming Group (b)(2) Derived from MultipJe S DECL ON: 8 NOV 2012 OSD MUTTIT 166 · ---- ------------ . US Sanctions Based on EO 12722 & EO 12724 :ope Declared by President via executive orders. Treasury implemented in consultation with State. Comprehensive embargo includes: • Freezing all property in which Iraq has an interest. • Prohibit US persons from trading with Iraq or items oflraqi-ori • Exceptions granted (in the form of licenses) consistent with for1 policy and the United Nations oil-for-food program. Termination in whole or in part of Executive Orders 12) & 12724 would require 15 day advance notice to Congr~ . 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SB€RM¥1f'i18F9Wf Derived from Multiple S DECL ON: 8 NOV 2012 OSD MUTTIT 167 ~CKE't'tiNOfi'ORN US Sanctions Based on EO 12722 & EO 12724 ptions Orders. Option 1- Broadly remove the provisions of the Execu1 • Rescission or modification of Executive Orders. • Suspension of implementing regulations. Pros Cons ~ptions for tailoring a response. ~s all executive branch restrictions on activity with Iraq. 1ot require cumbersome licensing process. ~0 provides for a clean start. • Will require Congressional notification. • Can achieve same results at lower executi\i levels via licenses. ~3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I Derived rrom Multiple 5 DECLON: 8NOV201l OSD MUTTIT 168 BCRE'F/INOFOR~ US Sanctions Based on EO 12722 & EO 12724 ptions (can't) Option 2 - General licenses from Treastrry authorizing transactions. • Accomplished by regulatory change. • State Department defense export controls would be unaffected. Pros Cons • A new EO would provide for a clean start. ,t require new EO. t require Congressional notification. :tllow for control of types of transactions d receive waivers. ! 3:00PM Prepared by Ener Infrastructure Plarming Group (b)(2) SEGR:El'¥/+PI8F8RN Derived from Multiple l DECL ON: 8 NOV 2012 OSD MUTTIT 169 ECitE'ffiN6FORN US Legislative Sanctions pe The Iraq Sanctions Act, Iran-Iraq Arms Non-Proliferation Act, and section~ the Foreign Assistance Act, Foreign Operations Appropriations Act and Ar Export Control Act impose US restrictions on transactions with lraq. A de1 listing of these sanctions is in the appendix on page 23. Changing the restrictions can be accomplished by legislation and executive branch determinations or waivers . . tons Option 1 -Omnibus legislation that addresses all sanctions. • Pros - Clean start with new regime. • Cons - Congressional process might be cumbersome. - Most goals can be achieved by executive branch without involving Congress. :3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SEeftElfWN8P8RN Derived from Multiple ~ DECL ON: 8 NOV 2012 ·---·-·-·--·-- - -- - · ·-- - --------- ------------- OSD MUTTIT 170 leCltE'fi/NOfi'OitN US Legislative Sanctions (con't) ions (con't) Option 2 - Go to Congress only when legislative relief is really necessary. • Pros • Cons - Involves Congress only when necessary. - Only one piece of legislation (see option 3 below) may require Congressional action. - Legislature is still involved, so process might be cumbersome. Option 3 - Act under executive authority alone. • It appears that only one piece of legislation will require Congressional action; Executive act sufficient for everything else. It is Section 507 of the Foreign Operations Appropriations A< This law prohibits the obligation or expenditure of funds made available under that Act to fi: directly any assistance or reparations to Iraq. It specifically prohibits direct loans, credits, insurance and guarantees of the Export Import Bank. • Pros - Avoids possible cumbersome legislative process. • Cons - Does not address Section 507 constraints. - May inhibit accomplishment ofUS objectives and limit flexibility. 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SBCRe'f//f'l 8F8RN Derived from Multiple S DECL ON: 8 NOV 2012 OSD MUTTIT 171 -----------------------· ---- -· teC:ttE'f'/INOfOltN Decisions Needed tiding principles. hat to do with UN sanctions? hat to do with Executive Orders 12722 & 12724? rhat to do with US Legislative sanctions? .3:00PM Prepared by Energy Infrastructure Planning Group ·I (b)(2) I SS€1t'f:"F/fN8F81tPt Derived from Multiple S DECL ON: 8 NOV 2012 ··------------------- OSD MUTTIT 172 Listing of UN Resolutions on Iraq Sanctions )61 ( 1990) of 6 August 1990 imposed economic sanctions on Iraq, including a full trade embargo barring all imp to Iraq, excepting only medica] supplies, foodstuffs, and other items of humanitarian need, as determined by the ~ ~tions committee, which was also established by Resolution 661. The sanctions committee is chaired by the Amb: h the delegations of Mauritius and Bulgaria providing vice chairmen. (Note: All 15 Council Members sit on the s ~ (1991) of3 April1991, the cease-fire resolution, declared that the full trade embargo against Iraq would rem: odic reviews every 60 days (para. 21) and every 120 days (para. 28) of Iraqi compliance with the obligations im1= ~87. h1, (1991) of 19 September 1991 allowed for a partial lifting of the embargo, which would have enabled Iraq to : oceeds for hwnanitarian purposes. In return, Iraq would have been subject to strict UN monitoring of the contrac1 of humanitarian goods bought \Vith the oil revenues. !§§. (1995)of 14 April 1995 enables Iraq to sell up to $1 billion of oil every 90 days and use the proceeds for hum 1e country. On 20 May 1996, the UN and the Government oflraq concluded the Memorandum ofUnderstanding practical arrangements for the implementation of the oil-for-food agreement. The sanctions committee subsequer 1996 the Procedures for the implementation of Resolution 986. On 9 December 1996, the Secretary-General rep' mcil (S/1996/1015) that all the steps necessary to ensure the effective implementation of Resolution 986 had bee1 ~s a result, Resolution 986 went into effect at 00.01 hours Eastern Standard Time on I 0 December 1996. The firs ived in Iraq on 20 March 1997. lOSt (1996) of27 March 1996 established the export/import monitoring system for Iraq. Iraq and countries expot JNSCOM (United Nations Special Commission) and the IAEA (International Atomic Energy Agency) regarding 'items to Iraq. Such items are subject to inspection upon their arrival in Iraq as well as at the site where the item~ 2 3:00PM Prepared by Energy Infrastructure Planning Group SEE!IUl1'//fi8F8JtN Derived from Multiple l(b)(2) I DECL ON: 8 NOV 201: . - - --. ·-·--··-·------- OSD MUTTIT 173 Listing of UN Resolutions on Iraq Sanctions (con't) 1111 (1997) of 4 June 1997 decided that the provisions of Resolution 986, except those contained in paragraphs • 1 in force for another period of 180 days beginning at 00.01 hours, Eastern Daylight Time, on 8 June 1997; furthe torough review of all aspects of the imp]ernentation of this resolution 90 days after the entry into force of paragra to the end of the 180 day period, on receipt of the reports referred to in paragraphs 3 and 4, and expressed its inte1 f the 180 day period, to consider favorably renewal of the provisions of this resolution, provided that the reports 1 1S 3 and 4 indicate that those provisions are being satisfactorily implemented. 1115 (1997) of21 JWle 1997 decided not to conduct the reviews provided for in paragraphs 21 and 28 ofresoluti after the Special Commission submits its next consolidated progress report due on 11 October 1997, after which ~resume in accordance with Resolution 687. 1129 ( 1997) of 12 September 1997 decided that the provisions of Resolution 1111 should remain in force, excep :ed to permit the import of petroleum and petroleum products originating in Iraq, including financial and other es: : directly relating thereto, sufficient to produce a sum not exceeding a total of one billion United States dollars wi ~0 days from 00.01 hours, Eastern Daylight Time, on 8 June 1997 and, thereafter, a sum not exceeding a total of< :s dollars within a period of60 days from 00.01 hours, Eastern Daylight Time, on 4 October 1997; and decided fi ns of paragraph 1 shalJ apply only to the period of implementation of Resolution 1111. 1134 (1997) dated 23 October 1997 expressed the firm intention, iflraq does not comply with paragraphs 2 and: 1115, to adopt measures which would oblige al1 States to prevent without delay the entry into or transit through tl fall Iraqi officials and members of the Iraqi armed forces who are responsible for or participate in the instances c of paragraphs 2 and 3 of Resolution 1115. It decided not to conduct the reviews provided for in paragraphs 21 ar 587 until after the next consoJidated progress report of the Special Commission, due on 11 April 1998, after whic I resume in accordance with Resolution 687, beginning on 26 April 1998. ~3:00PM Prepared by Energy Infrastru~ture Planning Group l(b)(2) I st:ettt:'ffl'ff6P6ftN Derind from Multiple ! OECL ON: 8 NOV 1012 <- ·--- --------------------- OSD MUTTIT 174 ------------------------···---··- ... BCR:E'IWNOPORN Listing of UN Resolutions on Iraq Sanctions (con't) 1137 (1997) dated 12 November 1997 imposed travel restrictions on all Iraqi officials and members of the Iraqi were responsible for or participated in the instances of non-compliance including the denial of entry to Iraq to SJ n officials on the gro~nds of their nationality and the denial of entry to sites designated by the Special Commissit :o Special Commission inspectors on the grounds of their nationality. The resolution decided that the review PfO\i 21 and 28 of Resolution 687 shall reswne in April 1998 in accordance with paragraph 8 of Resolution 1134, pro~ ment of Iraq shall have rescinded its decision of 29 October 1997 to impose conditions on cooperation with the S n . . 1143 {1997) of 4 December 1997 the Security CounciJ decided that the provisions of Resolution 986, except tho h paragraphs 4, 11 and 12, shall remain in force for another period of 180 days beginning at 00.01 hours, Eastern December 1997 . . 1153 (1998) of 20 February 1998 the Security Council decided that the provisions of Resolution 986, except tho n paragraphs 4, 11 and 12, shall remain in force for a new period of 180 days beginning at 00.0 l hours, Eastern S te day after the President of the Council has informed the members of the Council that he has received the report 1eneral requested in paragraph 5 of Resolution 1153, on which date the provisions of Resolution 1143, if still in f 1ate, except as regards sums already produced pursuant to that resolution prior to that date . . 1158 (1998) of 25 March 1998 the Security Council decided that the provisions of Resolution 1 143 shaH remain b.e provisions of Resolution 1153, except that States are authorized to permit the import of petroleum and petrole1 iginating in Iraq, including financial and other essential transactions directly relating thereto, sufficient to produc ng a total of 1.4 billion United States dollars within the period of90 days from 00.01 hours, Eastern Standard Til ~. 2 3:00PM Prepared by Enr lnfmstructure Planning Group (b)(2) I Derived from Multiple DECL ON: 8 NOV 201: OSD MUTTIT 175 ECRE'ffH'iOii'OR"i Listing of UN Resolutions on Iraq Sanctions (con 't) >o 1175 (1998) of 19 JW1e 1998 authorized States, subject to the provisions of paragraph 2 of the resolution, top« anding the provisions of paragraph 3 (c) of Resolution 661, the export to Iraq of the necessary parts and equipme :t.q to increase the export of petroleum and petroleum products, in quantities sufficient to produce the sum establi1 1 2 of Resolution 1153. By the same resolution, the Committee established by Resolution 661, or a panel of expc J by that Committee may approve contracts for the parts and equipment and up to a total of 300 million United S1 tay be used for that purpose. m 1175 also noted that the distribution plan approved by the Secretary-General on 29 May 1998, or any new distJ :ed by the Government of Iraq and the Secretary-General, will remain in effect, as required, for each subsequent 1 >f the temporary humanitarian arrangements for Iraq and that, for this purpose, the plan will be kept under consta ~d amended as necessary through the agreement of the Secretary-General and the Government oflraq and in a m 1t with Resolution 1153. DO 1194 (1998) of9 September 1998 decided not to conduct the review scheduled for October 1998 provided for hs 21 and 28 of Resolution 687, and not to conduct any further such reviews until Iraq rescinds its above-mentior of 5 August 1998 and the Special Commission and the IAEA report to the Council that they are satisfied that the; : to exercise the full range of activities provided for in their mandates, including inspections. DD 1194, the Security Council also reaffinned its intention to act in accordance with the relevant provisions of Rc 1e duration of the prohibitions referred to in that resolution and notes that by its failure so far to comply with its n ns Iraq has delayed the moment when the Council can do so. !!.!!!!! ( 1998) of 24 November 1998, the Security Council decided that the provisions of Resolution 986, except those in paragraphs 4, 11 and 12, shall remain in force for a new period of 180 days beginning at 00.0 l hours, Eastern Standard 1 1ber 1998. The resolution also decided that paragraph 2 of Resolution 1153 shall remain in force and shall apply to the ntioned 180-day period. 2 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I Stl€RfJ't¥fP48F8RPf Derived from Multiple DECL ON: 8 NOV 201: OSD MUTTIT 176 ECRE'f'ffNOt'ORN Listing of UN Resolutions on Iraq Sanctions (con't) :ion 1242 (1999) of21 May 1999, extended the oil-for-food program for a further 180 days starting on 25 May IS :ion 1266 (1999) of 4 October 1999 decided that paragraph 2 of Resolution 1153, as extended by Resolution 124~ ified to the extent necessary to authorize States to permit the import of petroleum and petroleum products origina ;luding financial and other essential transactions directly related thereto, sufficient to produce an additional sum, that provided for by Resolution 1242, equivalent to the total shortfall of revenues authorized but not generated w ions 1210 and 1153, 3.04 billion United States dollars, within the period of 180 days from 00.01 hours, eastern st 125 May 1999. ~ (1999) of 10 December 1999, extended the oil-for-food program for a further 180 days starting on 12 .er 1999 (phase VII). tion 1284 (1999) of 17 December 1999, stressed the need for a comprehensive approach to the full implementati' rant Security Council resolutions and Iraq compliance with these resolutions. The resolution established the Unite :Monitoring, Verification and Inspection Commission (UNMOVIC) to undertake the responsibilities of the fonnc )M, which was charged with monitoring the elimination of weapons of mass destruction in Iraq. The resolution al d the ceiling on Iraqi oil exports and provided for additional specific arrangements for facilitating humanitarian s including the conditional suspension of the sanctions regime. tion 1302 (2000) of8 June 2000, extended the "oil for food" program for a further 180-day period beginning 9 Ju 'he Council repeatedly extended the program for 180-day periods over the following years. tion 1409 (2002) of 14 May 2002, adopted a revised Goods Review List of military-related goods or commoditie! vas to enter into effect on 30 May 2002. From that date onward, States are authorized to sell or supply any comm uded on the Goods Review List, while the Council would regularly conduct thorough reviews of the Goods Revi~ 2 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SEoCREif'//N8F81U( Derived from Multiple l DECL ON: 8 NOV lOt~ OSD MUTTIT 177 ----~------·---·-·-·-· ... -... . ~CltE'fftNOPOitN US Legislative Sanctions at is the sanction and how do we change it? Iraq Sanctions Act 1 Restricts the ability of the Executive branch to enter into, support or license vari transactions involving Iraq. • Provide advance notice to Congress ofth~ President's intent to terminate sancti< 1 Or, President can grant a national security interests waiver. Iran-Iraq Arms Non-Proliferation Act 1 Imposes mandatory sanctions on any person or government that transfers goods technology so as to contribute knowingly and materially to efforts by Iran or Ira acquire CBW or nuclear weapons or destabilizing numbers and types of certain advanced conventional weapons. 1 No action necessary. Does not impact oil. 2 3:00PM Prepared by Energy Infrastructure Plarming Group l(b)(2) I Sl!:eltt:'t';,_. 5f'5R !'( Derived from Multiple l DECL ON: 8 NOV 201~ OSD MUTTIT 178 ECitE'fffNOPOJ.tN US Legislative Sanctions (con't) Section 620A of the Foreign Assistance Act of 1961, (FAA) 1 Prohibits assistance under the FAA, the Agricultural Trade Development and Assistance Act of 1954, the Peace Corps Act, or the Export-Import Bank Act to country if the Secretary of State has determined that the government of that coUJ has repeatedly provided support for acts of international terrorism. • Rescission of Determination by the Secretary after the President submits to the Speaker of the House and the Chairmen of the SFRC and HIRC that a fundamer 1 change has taken place in the leadership and policies of Iraq. Section 507 of the Foreign Operations Appropriations Act, 2002 • Prohibits the obligation or expenditure of funds made available under that Act t~ finance directly any assistance or reparations to Iraq. It specifically prohibits di loans, credits, insurance and guarantees of the Export Import Bank. • Legislative change required. No waiver authority included. Section 523 of the Foreign Operations Appropriations Act, 2002 1 Prohibits funds appropriated under this act from being obligated to finance indit any assistance to terrorist states. • President can grant a national interest waiver. 2 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SB€Rfl't'h'f~8P8RP4 Derived from Multiple: DECL ON: 8 NOV 201; OSD MUTTIT 179 ~CRR'i'l/NOF'OR"N US Legislative Sanctions (con't) Section 527 of the Foreign Operations Appropriations Act, 2002 • Prohibits funds appropriated for bilateral assistance under this act or prior appropriations acts from being made available to Iraq. • President can grant a nationai security or humanitarian waiver. Section 620G of the FAA • Requires withholding assistance under FAA from any foreign government that provides assistance to a state sponsor of terrorism. • President can grant a national interests waiver. Section 40 of the Arms Export Control Act (AECA) • Prohibits a variety of transactions with terrorist countries, including denial oflh for export of munitions items. • No action necessary. Does not impact oil. Section 40A of the Arms Export Control Act • Prohibits the sale or licensing for export of defense articles or services to a forei country that is not cooperating fully with US antiterrorism efforts. • No action necessary. Does not impact oil. 23:00PM Prepared by Ener Infrastructure Planning Group (b)(2) Derived from Multiple i DECL ON: 8 NOV 201: ·-·- -- ·----------·------------------------- OSD MUTTIT 180 ECRE¥/INOFORN US ~egislative Sanctions (con't) Section 531 ofthe Foreign Operations Appropriations Act, 2002 • . Prohibits assistance under the Act or the AECA to any country not in complian< with UN Security Council sanctions against Iraq. • President can grant a national interests waiver. Section 620t of the FAA • Prohibits assistance under this or any other act to any country which has severe1 diplomatic relations with the US. 1 Section 620H of the FAA • Requires withholding assistance under the FAA from any government that prov lethal military equipment to a terrorist state. • President can grant a national interests waiver. Section 570 of the Foreign Operations Appropriations Act, 2002 • Provides that Economic Support Funds may be made available for programs benefiting the Iraqi people and to support efforts to bring about a political trans in Iraq. • No action necessary. 12 3:00PM Prepared by Energy Infrastructure Planning Group l(b)(2) I SE€RE:li'/P~6P6RN Derind from Multiple DECL ON: 8 NOV 201 OSD MUTTIT 181 SECR~~/fNOfORN ENERGY INFRASTRUCTURE PLANNING: Organizing and Managing Iraq's Petroleum Resources DECISION BRIEFING FOR DEPUTIES Updated: 10 January 2003 SECRE'f'H~\8F8RP[ 1/10/03 18:38 Prepared by Energy Infrastructure Planning Group iECL O N: 10 Jan 2013 I SECKE'fWNOFORN Current Organization of Iraqi Oil & Gas Industries j Oil Ministry I l I I Undersecretary for Exploration, Undersecretary for Northern Undersecretary for Domestic Distribution of and Southern Production, Downstream Sector & Gas Products and Gas Drilling, Oil Projects I I I Public Companies + General Managers I I I I Oil Exploration Co (OEC) North Oil Compar1y (NOC) North Refineries Company I I I Iraq Oil Tankers Co (lOTC) South Oil Company (SOC) South Refineries Company I I j Oil Products Distribution Co Oil Projects Company Central Refineries Company I I I Petroleum Pipelines Company Iraqi DriJiing Company North Gas Company I I Gas Filling Company (GFC) South Gas Company I Undersecretary for the State.Oil Marketing Organization I State Oil Marketing Organization (SOMO Subsidiaries + Department Heads I First Crude Oil Department I Second Crude Oil Department I Petroleum Products Department I Shipping Department I 1/10/03 18:38 Energy Department SISCR:SlWN8F8H:N Derived rrom Multiple Sources 6 DE.CL O N! lO Jan 2013 Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTTIT 186 SECRST,~OFORP ·Oil Organization Option: Iraqi Oil Ministry Model I "Chief Executive Officer" or "Chairman" ~....--~,D-ep_u_ty_"_(_or-~-,c-E_O_"_i....~..; t_o_p_i_s_"_C_h_a-irm_a_n_"_) ----.;-------------jL.._B_o_ar_d_o_f_A_dv_i_s_or_s__. I I Vice President for Exploration, Domestic Distribution of Products and Gas I I Vice President for Northern and Southern Production, Drilling, Oil Projects I I Vice President for Downstream Sector and Gas Industry I Public Companies + General Manager of State Companies I Vice President for the State Oil Marketing Organization I SOMO Subsidiaries + Department Heads Structure • Patterned after existing structure oflraqi Oil Ministry using a CEO (minister) and vice presidents (directors). • This organization assumes that much of the oil infrastructure is in place and many of the existing personnel can remain. • Establish a Board of Advisors to provide guidance to the CEO and to facilitate transparency to Iraqi public and international community. It could consist of representation from people oflraq, coalition countries, industry advisors and USG. Pros • Facilitate transition to future ministry. • Less intrusive. Allows Iraqis more input. Cons • May not be feasible if much ofthe infrastructure is destroyed and many of the personnel cannot be used. • SOMO may be too tainted to be retained. 1110/03 18:38 Prepared by Energy Infrastructure Planning Group [<2 > I OSD MUTTIT 247 ~l!i€1UFFHP48F81Ui Derived from Multiple Sources 1 0 DECL ON: IOJAN 2013 • • • • • SECft:E'f'h'NOFORN Funding Enhancement: Borrow Against Future Oil Revenues? Could explore using future oil revenues as collateral for loans . Precedents: Russia, Iran, Ecuador have borrowed using oil revenues as security . Iranian practice could be a model; Iranian Central Bank has borrowed billions of dollars: - As direct bank loans secured by future oil sales. - By treating developer capital "invested" under exploration and development contracts as :'loans," repaid witb future oil produced (developer gets oil as loan payment, no "ownership" tn reserves). Iraq's existing major claimants--Russia~ France, Ja_Ran, Kuwait, Saudi Arabia--would be urged to postpone claims in favor oftnese loans. Their incentives to do so? - Current UN sanctions regime already takes precedence over these claimants. Major issues: - Lawyers would need to assess any actual plan for international law compliance. - Recent Iraqi oil revenuys may not support major loans (i.e., billions of dollars) without new development contracts tn place to back them up. - Who would borrower be during temporary administration? Iraqi Central Bank? Would it still exist and function? - New lender(s) likely to demand subordination of pre-existing debt and third-party guarantors (other govemments1). - Likely to require rescheduling Iraq's existing foreign debt (about $82 billion at end 2002 assuming 6% interest rate). Practicable? Complications? - Iraq also owes $27 billion in unpaid claims awarded by UN Compensation Commission for Gulf War 1110/03 21:12 Prepared by Energy Infrastructure Planning Group I ~K2) I Derived from Multiple Sources 11 OECL ON: 10 JAN 2013 OSD MUTTIT 248 SECRE'i'lfNOFORN IraqiProducuonGoa~: Initial Objective of up to 3.1 million bid Bring production up to prewar capacity of about 3.1 million barrels/day (bid). We have contingency plans to do this (see Slides 5 and 6). • Current actual production: 2.4 million b/d. - Annual revenue with $18-28/barrel average price range: $16-25 B. • Current production capacity: 2.8 - 3.1 million b/d . - Investment needed to sustain: $1-8 B over 6-20 months, depending on damage level (based on CIA and industry estimate). • Iraq a member of OPEC but has not been in quota system since Gulf War. - Traditional OPEC quota at parity with Iran, or currently 3.18 million b/d. 1110/03 21:12 Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTTIT 249 Sf3CREli'/N8F8RN Derived from Multiple Sources 12 DECL ON: IOJAN 2013 SECR-ETNNOFORN Iraqi Production: Possible Mid-Term Objective of 3.6 million bid? Enable Iraq to regain its historical capacity?. • 3.6 million b/d. - Likely to require heavy maintenance of existing fields and possible development of new fields. - Reachable about one year after obtaining 3.1 million b/d. - Cost: additional $3-5 billion over 3.1 million b/d level (industry estimate). - Would put Iraq output at current Iranian output levels of 3.6 million b/d. 1/10/03 21:12 Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTTIT 250 SIS CR: KFJ.'HQf.QR" l>erwed from Mu1tiple Sources 13 DECL ON: 10 JAN 2013 SECRE'FI+NOFORN Iraqi Production: Possible Long-Term Objective> 5 million bid? Put Iraq on path to achieve economically reasonable increase in capacity? • Would exceed 5 million b/d. - Requires development of new fields. - About 5 million b/d reachable within 3-5 years with investments of around $30 B (CIA and industry estimate). - Consistent with long-term plans of Iraqi Oil Ministry for 6-8 million b/d with investment of$30-40 B (CIA and industry estimate). - Could force questions about Iraq's future relations with OPEC. 111 0/03 21 : 12 Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTTIT 251 SI5CRE!lWPUi)f8R:P4 Derived from Multiple Sources 14 Dt:CL ON: 10 JAN 2013 SECRE'FffNOFORN Increasing Iraqi Production Beyond 3.1 million bld: Considerations Advantages • Hastens Iraqi rehabilitation and stability. • Supported by many in Iraqi opposition. • May put long-term downward pressure on price. • May help consumers. • Diversifies/increases global oil supply and spare production capacity in long-term, if no price war. - Strengthens global economic security. - Only 3. 7 million b/d of global spare capacity (CIA), or 5o/o of demand. - Saudis have 2/3 of global spare capacity. Disadvantages • Politically controversial, especially if new fields are developed. • Might trigger a price war, which would likely decrease Iraqi oil revenues and could drive out higher-cost producers, thus reducing diversity of supply. • Some would argue that new Iraqi government should decide. • Could force unwelcome questions about our intentions towards OPEC. l/10/03 21:12 Prepared by Energy Infrastructure Planning Group [PEC starts price war, making revenue streams unpredictable. ting : 3-5 yrs.; development contracts would extend beyond d U S d . . . f "1 l(b)(5) xpecte .. a ministration o 01 sector. · L__ _____ _ ttracts: Russian considerations would come into play. M/03 15:40 Prepared by Ener Infrastructure Planning Group i~Gili'¥/Rl9fQRN Derived from Multiple Sources (b)(2) DECL ON: 30 JAN 2013 OSD MUTTIT 284 t. sEF~";;J[;;' Enhancement: Borrow Against Future Oi , Revenues? olore using future oil revenues as collateral for loans? . rjor issues: rr! Perception of mortgaging the legacy of the Iraqi peopl~ Credibility of the debt. - Who would borrower be during temporary administration? Iraqi Central Bank? Would lenders accept? · - Recent revenues may not support major loans (i.e., billions of dollars) without new development contracts in place to back them up. Posture of existing creditors. - Likely to require rescheduling Iraq's existing foreign debt (about $82 billion at end 2002 assuming 6% interest rate). Practicable? Complications? - New lender(s) likely to demand subordination of pre-existing debt and third-party guarantors (other governments?). :4/03 15:40 Prepared by Energy Infrastructure Planning Group l(b)(2) I - SE€U£'1';; ri8118RN Derived from Multiple Sources DECL ON: 30 JAN 2013 ' -·--·- - - ==~~iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii OSD MUTTIT 285 --------------- ....... Contract Policy? •ting deals: 1ive due consideration to contracts previously approved by UN - Four production maintenance ''fee-for-service" contracts (three Russian, o Turkish) currently approved by UN under OFF.I<5> >eals pending removal of UN sanctions? - Iraq has signed about four capacity expansion contracts (Chinese CNPC, Syrian Oil Co., Petro Vietnam, Tunisian ETAP) that await lifting of UN sanctions. l<5> - Iraqi opposition opposed to honoring deals made by Saddam unless clearl in Iraqi interests. v deals: As a rule, base only on economic return, open ·ompetition, and sound business practices? Jevelopment contract issue? ~ikely need to contract with foreign companies -- if only to naintain existing capacity. 4/03 15:40 Prepared by Ene Infrastructure Planning Group (b)(2) Slil€REfnN816RN Derived from Multiple Sources DECL ON: 30 JAN 2013 OSD MUTTIT 286 (b)(5) SRCR:EI' OSD MUTTIT 287 -== ·---·--···-- SEICRE'f' OSD MUTTIT 288 SECH'f (b)(5) St!:CR£'F OSD MUTTIT 289 SECH'f OSD MUTTIT 290 SI3CRET/7'NOFORN ENERGY INFRASTRUCTURE PLANNING: UPDATE FOR THE SECRETARY OF DEFENSE 16 NOVEMBER 2002 11/16/02 11:26 Prepared by Ener y Infrastructure Planning Group (b)(2) 6~CIUilWPlQFQRPI 1 Derived from Multiple Sources OE:CL ON: 16 NOV 2012 OSD MUTTIT 291 SECRET/fNOFOR't Agenda • Summary of Task • Summary of Key Issues • Backup Slides Guiding Principles Status of Work Next Steps 11/16/02 11:26 Prepared by Energy Infrastructure Planning Group l(b)(2) I OSD MUTTIT 292 2 SISCRISTI/Pf8F8RP' Derived from Multiple Sources DECL ON: 16 NOV 2012 SECRET/fNOfdiOILl\t Summary of Task • SecDefPlanning Guidance Memo 30 Sep 02: Develop a comprehensive contingency plan for protecting, repairing and operating Iraqi energy infrastructure, to be used if US/allies must occupy. Address legal, policy and operational issues. - OSD/CENTCOM division of labor. • CENTCOM: plans for protection and repair. • OSD: plans for maintaining continuity of operations. • DoD lead, other agencies participating as required. 11/16/0211:26 3 ~K~IUiT1 ~1 QfQRJ>I Derived from Multiple Sources DECL ON: 16 NOV 2012 OSD MUTIIT 293 SECRE'fh'NOFOitN Summary of Key Issues • Organizational: How USG should organize and manage its administration of Iraqi petroleum industry? - Specially created, dedicated organization (short-hand: "Iraqi Oil Trust")? - Who heads, what kind of board, accounting and transparency? • Legal: What a military government can and cannot do? - Rules for development, use, oversight of energy resources? - How current sanctions work, how to change them? • Operational: Spending and development policies? - How to use proceeds (what gets paid for, what does not)? - Develop more production capacity, or just operate what's there now? - How to handle existing and future contracts for development and services? • Foreign Policy? - What key US foreign policy goals could/should be advanced by administration of petroleum industry? - Declaratory policy (how we explain what we are doing and why)? 11116/02 11 :26 4 !SECR~Th'PI8F8R:P4 Derived from Multiple Sources DECL ON: 16 NOV 2012 OSD MUTTIT 294 SECR:E'fWNOFORN BACKUP SLIDES 11116/02 11:26 Prepared by Energy Infrastructure Planning Group i