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P 181251Z SEP 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 6986
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHGB/AMEMBASSY BAGHDAD 0219
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHDC
RHEHAAA/WHITE HOUSE WASHDC C O N F I D E N T I A L SECTION 01 OF 04 ABU DHABI 003685 
 
SIPDIS 
 
SIPDIS 
 
 
DEPT FOR E, NEA/ARP 
NSC FOR DNSA DMCCORMICK 
OVP FOR KEVIN O'DONOVAN 
ENERGY FOR SENIOR FOREIGN POLICY ADVISOR MOLLY WILLIAMSON 
STATE PASS USTR FOR DONNELLY AND BELL 
 
E.O. 12958: DECL: 09/17/2016 
TAGS:          
SUBJECT: EB A/S SULLIVAN'S MEETINGS IN THE UAE 
 
REF: A. ABU DHABI 3629 
      B. ABU DHABI 3619 
      C. ABU DHABI3565 
 
Classified By: Ambassador Michel J. Sison or reasons 1.4 (b & d). 
 
 
 1. (C) Summary:  A/S Sulivan held a series of bilateral 
meetings with AE officials and U.S. business representatives 
o September 11.  ADNOC CEO Yousef Omair Bin Yousef xplained 
that Abu Dhabi was increasing its oil poduction capacity to 
4 million barrels per day ovr the next five to seven years. 
He commented tha oil prices of $70-$80 per barrel were too 
high nd that a price range of $55-60 was preferable in erms 
of longer term stability.  UAE officials all stressed the 
UAE's interest in concluding FTA negotiations with the U.S. 
They emphasized, however, that there were three main sticking 
points: energy, labor and (possibly) telecoms.  ADNOC CEO bin 
Yousef stated categorically that certain areas of the 
hydrocarbon sector would remain closed, but noted that even 
absent an agreement, U.S. companies -- as proven leaders in 
the energy field -- would "not only maintain, but increase" 
their role in the energy sector.  A/S Sullivan's 
interlocutors all expressed their interest in deepening the 
economic dialogue and in increasing the private sector's role 
in the dialogue.  End Summary. 
 
 2. (U) EB Assistant Secretary Daniel Sullivan visited the UAE 
from September 8 to September 13.   A/S Sullivan was the 
State Department lead for an interagency delegation to the 
Iraq Compact Preparatory Group meeting on September 10 and 
also co-chaired the Joint Terrorist Finance Coordinating 
Committee meeting on September 12 (septels).  In addition, 
A/S Sullivan held bilateral meetings with UAE officials and 
met with key U.S. businesses in the UAE on September 11, 
 2006.  With Deputy Secretary of the Treasury Robert Kimmit, 
A/S Sullivan participated in bilateral meetings with Abu 
Dhabi Crown Prince, Sheikh Mohammed bin Zayed Al-Nahyan, and 
UAE Foreign Minister Sheikh Abdullah bin Zayed Al-Nahyan 
(refs b & c). He met with Minister of State for Financial and 
Industrial Affairs Dr. Mohammed Khalifan bin Kharbash, Abu 
Dhabi National Oil Company (ADNOC) CEO and Secretary General 
of the Supreme Petroleum Council Yousef Omair bin Yousef, 
MinEcon Under Secretary Abdullah Al-Saleh, Mubadala CEO 
Khaldoon Al-Mubarak, and ADIA Deputy Managing Director 
Khalifa Al-Kindi on September 11.  (Meetings with Al-Mubarak 
and Al-Kindi reported septel.) 
 
Thanking the UAEG for Hosting the Iraq Compact 
------------------------------------- 
 
 3. (U) A/S Sullivan thanked his interlocutors for hosting the 
Iraq Compact Preparatory group meeting and for actively 
supporting the Iraqis to make it a successful event.  He 
passed on Secretary Rice's appreciation for the UAE's 
outstanding efforts hosting the first major international 
conference in which the Iraqi government, including five 
ministers, played a leading role.  MinState Khirbash said it 
was a pleasure to participate and he thought that the Iraqi 
delegation did "very well." He also noted that Iraqi DPM 
Barham Salih was impressive. 
 
Oil Prices Too High at $70-$80 
------------------------------ 
 
 4. (C) On September 11, A/S Sullivan told ADNOC CEO bin 
Yousef that the USG appreciated the moderating role the UAE 
plays in OPEC and asked whether bin Yousef had any thoughts 
as to the likely outcome of the September 11 OPEC meetings 
being held the same day.  Bin Yousef stated that he did not 
expect much to change at the meeting, noting that -- in 
reality -- OPEC production quotas are not being observed or 
implemented.  He acknowledged that the market was tight and 
opined that prices in the $70 to $80 range were too high and 
that $55-$60 would be a more reasonable level, particularly 
in terms of long-term market stability for both producers and 
consumers.  Bin Yousef added that overly high prices would 
eventually impact global economic growth negatively, which 
was not in the interest of either producers or consumers.  He 
expressed surprise that the current round of high oil prices 
 
ABU DHABI 00003685  002 OF 004 
 
 
had had limited impact on economic growth.  A/S Sullivan 
agreed, but underscored that sustained prices in the $70 or 
above range would likely affect growth negatively.  Bin 
Yousef noted that this could not last forever, adding that 
were the price to spike to $100 a barrel, it would impact 
growth. 
 
 5. (SBU) In response to A/S Sullivan's question about OPEC's 
spare capacity, bin Yousef stated that supply and demand were 
roughly in balance, but acknowledged that there was little 
spare capacity to serve as a cushion.  He noted that 
"speculators" were driving prices and that they reacted to 
rumors or crises.  Problems in Nigeria and Venezuela were 
reflected in the futures markets.   He also expressed his 
concern that speculators could drive the price down as well 
as up.  Bin Yousef stressed that producers and consumers had 
an incentive to cooperate, since oil is a "strategic 
commodity" and both would benefit from stability at a "fair 
value." 
 
 6. (C) A/S Sullivan asked bin Yousef to elaborate on ADNOC's 
stated plans to expand production to 4 million barrels per 
day (mb/d).  Bin Yousef explained that ADNOC currently 
produced about 2.8 mb/d in crude and condensate, having added 
110,000 b/d in production in 2006.  By mid 2008, ADNOC will 
add 130,000 b/d of condensate to its production. bin Yousef 
noted that, "realistically speaking," it would take 
five-seven years for ADNOC to increase its capacity to 4 m/d 
and that the plans being implemented might "slip a year or 
two." The major bottleneck is the shortage of qualified 
energy, procuring and construction (EPC) contractors.  The 
current run of high oil prices, he noted, had caught everyone 
by surprise and producers were competing for trained people. 
 
 7. (C) A/S Sullivan expressed appreciation to bin Yousef for 
ADNOC's decision to sign agreements with ExxonMobil for a 28% 
stake in the Upper Zakum offshore oil field, noting that 
American companies in general bring more sophisticated 
technology and services to the marketplace in the energy 
sector.  Bin Yousef agreed with A/S Sullivan,s comments and 
said that he was pleased that Abu Dhabi had decided in favor 
of Exxon and praised Exxon as an industry leader.  Bin Yousef 
added that Exxon is likely "to stay with us in the long term." 
 
Free Trade Agreement 
--------------------- 
 
 8. (C) During the meetings, A/S Sullivan's interlocutors 
stressed the UAEG's interest in concluding an FTA with the 
U.S. but acknowledged that the UAE had sensitivities in areas 
such as energy, labor and telecoms.  ADNOC CEO bin Yousef 
stated categorically that certain areas of the hydrocarbon 
sector would remain closed, but noted that even absent an 
agreement, U.S. companies -- as proven leaders in the energy 
field -- would "not only maintain, but increase" their role 
in the energy sector.  He stressed that, just as the U.S. had 
its strategic concerns, so too, did the UAE.  Bin Yousef 
assured A/S Sullivan that "the highest authority" in Abu 
Dhabi had made a "strategic decision" to engage with U.S. 
companies in the energy sector, adding that ADNOC was 
exploring new areas of cooperation.  He stressed that "even 
areas that are currently closed will be opened up."  Rather 
than opening up the energy sector generally, he explained 
ADNOC would reach out to leaders in the field through 
negotiations.  He specifically referred to ExxonMobil, 
Bechtel, and Fluor. 
 
 9. (SBU) In his meeting with A/S Sullivan, MinEcon U/S 
Al-Saleh said that he still thought that an FTA was possible, 
but that he was less optimistic than he had been a year 
earlier.  He cited three major obstacles to reaching an FTA: 
energy, labor, and (possibly) telecoms.  He explained that, 
constitutionally, energy resources belonged to the individual 
emirates not the UAEG.  The UAEG did not have the authority 
to make commitments on energy resources.  Turning briefly to 
telecoms he noted that the UAE's new second 
telecommunications company needed time to establish itself in 
the market and needed a transition period before facing 
international competition.  He explained that the UAE, as a 
country where nationals were in a clear minority, had 
 
ABU DHABI 00003685  003 OF 004 
 
 
demographic problems that affected its willingness to 
compromise on labor issues. 
 
 10. (C) Al-Saleh noted that the July investment discussions 
in London allowed both sides to look at ways that might 
address both parties' concerns about the energy sector.  If 
these ideas proved practical, the Ministry of Economy could 
present the proposal to ADNOC (as the biggest energy player 
in the UAE) and seek its concurrence.  He said that, in the 
GCC-EU FTA negotiations, the EU had accepted the UAE's 
constitutional limitations on energy (implying a carve-out). 
A/S Sullivan noted that the UAE,s bilateral investment 
treaties (BITs) had not carved out the energy sector and 
inquired as to the discrepancy.  Al-Saleh replied that some 
previous BITs did include the energy sector, but noted that 
these were not as comprehensive as the proposed U.S.-UAE FTA 
with its provisions for 3rd party arbitration, national 
treatment, etc.  In addition, Al-Saleh noted, he was not 
aware that there had been any disputes under existing BITs on 
energy sector issues.  He added that future BITs would likely 
exclude the energy sector. 
 
11.(SBU) MinState Kharbash acknowledged that the U.S.-UAE FTA 
negotiations had reached a difficult point, but added that 
both sides had the will to see it through.  MinFin A/US 
Khalid Al-Bustani noted that there were some sensitive issues 
in the negotiations.  For its part, the UAE had brought the 
issues "to the highest authority, whereas he expressed 
concern that the U.S. had not done the same.  He stressed 
that the UAE, Bahrain, and Oman all had different economies 
and needed to be treated differently.  A/S Sullivan stressed 
that the USG faced certain congressionally mandated 
constraints on its FTA negotiating authority. 
Constitutionally, he explained, the U.S. Congress has the 
authority over trade.  It lends this authority to the 
administration to negotiate agreements, but puts conditions 
on that loan. 
 
 12. (SBU) A/S Sullivan underscored that in certain areas USG 
negotiators have little flexibility because they understand 
where Congressional limits reside.  In this regard, he noted 
that a completed negotiation that did not pass Congress would 
be a scenario more troubling than no agreement at all. 
Nevertheless, he emphasized that the USG still very much 
wanted to complete the FTA negotiations and he encouraged his 
UAE interlocutors to work on creative solutions to resolve 
remaining issues. 
 
Deepening the Economic Dialogue 
------------------------------- 
 
13.(SBU) In the course of their discussions, both MinState 
Kharbash and U/S Al-Saleh discussed their interest in 
deepening and perhaps formalizing the UAE,s economic 
dialogue with the U.S.  MinState Kharbash and A/S Sullivan 
agreed that the private sector role in such a deepened 
dialogue needed to be increased.   U/S Al-Saleh noted that 
the relationship was strong, but put in a plea for technical 
assistance in certain areas: including intellectual property 
rights enforcement and export controls.  In the area of IPR, 
he said that the UAE would appreciate cooperation in 
addressing the problem of counterfeit goods.  Al-Saleh said 
the UAE has IPR laws, but would like to work together to 
improve their enforcement.  He explained that the Ministry of 
Economy had recently assumed responsibilities for all IPR 
matters and needed technical assistance and training.  On the 
issue of export control laws, he said that Legislative 
Committee was looking at a draft law.  He explained however, 
that there were concerns that each ministry would draft its 
own export law and that there needed to be a comprehensive 
law for exports and imports.  He explained that the UAE was 
in the process of drafting that law and that he expected to 
meet all of the concerned ministries within the next ten 
days.  Al-Saleh added that the UAE was looking at drafting or 
revising other laws (including the Commercial Companies Law) 
to reflect the current business environment.  He explained 
that the UAE had already amended its Agencies law to make it 
"fair" to both parties to the agreement. 
 
U.S. Businesses 
 
ABU DHABI 00003685  004 OF 004 
 
 
--------------- 
 
14.(SBU) A/S Sullivan participated in a lunch with U.S. 
business representatives from the energy, defense, 
construction, automotive, pharmaceuticals, consulting and IT 
sectors.  In general, U.S. businesses expressed their 
satisfaction with their opportunities in the UAE.  While 
attesting to the success many US companies are having in the 
Emirates, the group also expressed concern about UAE agency 
laws and all expressed interest in whether and how recent 
amendments would be applied. 
 
Comment 
------- 
 
 15. (C) All of A/S Sullivan's interlocutors stayed "on point" 
on the issue of the FTA.  The UAE wants to conclude a deal, 
but has sensitive areas that it wants to protect.  Bin Yousef 
was most explicit that -- in his view -- the oil and gas 
sector would not be included in an FTA, but stressed the 
favored position that U.S. firms enjoyed and would continue 
to enjoy in the sector. End Comment. 
 
 16. (U) A/S Sullivan has cleared this message. 
SISON