FT.com  |  October 8, 2012

Iraq Sends Crucial Fuel Oil To Syria

By Lina Saigol in London and Michael Peel, Middle East correspondent

Black smoke is seen from Homs refinery, December 8, 2011. Photo: Reuters/Sana

Iraq is quietly shipping vital supplies of fuel oil to Syria in a deal that has triggered concern in Washington and exposes Damascus's difficulties keeping its economy afloat in the face of a growing civil war and economic sanctions.

Nouri al-Maliki's Baghdad government agreed in June to supply 720,000 tons of fuel oil to Syria in monthly shipments as part of a one-year, renewable supply contract, according to commercial documents seen by the Financial Times.

In June and July, Baghdad’s oil ministry delivered two shipments of fuel oil, which is used for power generation, worth US$14m in total, to President Bashar al-Assad’s regime. Syria paid in cash, the documents show.

While the figures to date are relatively small, the deal highlights the ad hoc efforts Mr Assad’s embattled regime is having to make to keep shortages at bay as the war spreads. It also underlines the more active role Iraq is now playing in the region.

The revelations come a month after US officials complained publicly that Baghdad was allowing aircraft carrying Iranian arms to fly over its territory en route to Syria. A state department official said the fuel shipment did not violate US and EU sanctions but he indicated surprise at Iraq’s involvement.

Iraq abstained from an Arab League vote in 2011 to suspend Syria’s membership and impose sanctions; it has also rejected attempts to bring down the Syrian regime by force, fearing a wider crisis in the region. Iraq’s Shia-dominated government is close to Iran. Tehran is the Syrian regime’s chief Middle Eastern ally.

“Perceptions matter, so we encourage countries trading with Syria to be open about their legal and non-sanctionable exchanges,” a US state department official said. “If this is going to continue, we think the Iraqis should be up front about it.”

The deal showed the Syrian regime was desperate for fuel and was depleting what is left of its hard currency cash reserves to import it, the official added.

The documents show that the state-backed Syria Trading Oil Company (Sytrol), which handles Syria’s fuel imports, agreed to pay cash into an account with the Trade Bank of Iraq before each delivery, or provide an irrevocable letter of credit.

Iraq offered Syria a discount of 50 per cent below the market price, plus a $5 discount per metric ton, according to the contract. Syria paid $505.909 per ton for the fuel, compared with today’s market price of $800 per ton.

Mr Alaa Kidher Kadhum, one of the signatories for Baghdad’s state oil marketing organisation, or SOMO, sits on the board of the Trade Bank of Iraq, according to the documents. Mr Kadhum did not respond to questions from the FT nor did any official from the Iraqi oil ministry. Hoshyar Zebari, the foreign minister, said he did not know of any such deal. Syrian officials also did not comment.

The contract, dated June 28 and written in Arabic on Iraqi oil ministry letterhead, specifies the fuel oil would be loaded in trucks at Iraq’s North Refinery Company, via Syria’s western border.

The EU and the US have had sanctions against Sytrol since 2011, which bar any EU or US company from importing, purchasing or transporting Syrian oil, including refined products. The US imposed fresh sanctions on Sytrol in July 2012, specifically for having provided gasoline to its strategic ally Iran.

Original article here.