US-EU-CANADA DISCUSSIONS OF IRAN (CORRECTED

C O N F I D E N T I A L SECTION 01 OF 04 OTTAWA 003283

SIPDIS

E.O. 12958: DECL: 11/03/2015
TAGS: PREL KNNP PARM IR CA
SUBJECT: US-EU-CANADA DISCUSSIONS OF IRAN (CORRECTED
VERSION)

Classified By: POL M/C Brian Flora. Reason 1.4 (b) and (d).


1. (C) SUMMARY. On October 26, NEA DAS Gordon Gray and a
U.S. delegation met with senior EU Commission and Canadian
officials in Ottawa to exchange views on Iran and discuss
prospects for addressing human rights and security-related
concerns. Topics covered included Iran's internal situation,
its role and impact in the region, continuing support for
terrorism and the nuclear impasse. Bilateral consultations
with the EU on Arab reform and Iraq will be reported
septel/notal. END SUMMARY.


2. (SBU) U.S. Participants:
- Gordon Gray, NEA DAS
- Jason Bruder, Iran desk officer
- Roopa Rangaswamy, nuclear nonproliferation officer (ISN/RA)
- Lisa Wishman, Embassy human rights officer
- Patricia Kim-Scott, Embassy polmil officer (notetaker)

Canadian Participants:
- Mark Bailey, DG Middle East and North Africa, Foreign
Affairs Canada (FAC)
- Gordon Venner, Canadian Ambassador to Iran
- Evelyn Puxley, Director, International Crime and Terrorism
Division
- Jeffrey McLaren, Deputy Director, Iran-Iraq, FAC
- Terry Wood, Deputy Director, Nuclear Nonproliferation
Division, FAC
- Benoit Girouard, Iran desk officer, FAC
- Peter Jones, Privy Council Office (PCO)

EU Commission Participants:
- Julian Evans, UK Deputy High Commissioner for the
Presidency
- Patrick Laurent, European Commission
- Bjorn Larsson, European Council Secretariat
- Chris Kendall, EC Representative Ottawa
- Martin Gaertner, Austrian Permanent Mission to the EU

CANADIAN PERSPECTIVE ON THE INTERNAL SITUATION


3. (C) Ambassador Venner provided a stark assessment of
Iran's internal situation. Ahmadi-Nejad's administration had
not yet "found its feet"; key cabinet positions remained
unfilled. The situation was compounded by the total
dysfunction of the professional bureaucracy below the rank of
Deputy Minister due to a dearth of qualified individuals.

4. (C) The country's economic situation had worsened
considerably since the elections, Venner continued.
Indicators included a sharp drop in "commercial interest"
from both Canadians and Iranians registered by the Embassy
commercial section, while the consular section reported a 40
percent increase in visa requests (over the same period last
year),and an 80 percent surge in passport applications
(largely dual nationals). The drop in commercial activity
had enabled Venner to deploy a commercial officer on TDY to
Abu Dhabi where, ironically, a considerable contingent of the
officer's new clientele happened to be "old" clients from
Tehran. The regime has used greater oil revenues to paper
over economic weaknesses and has increased subsidies for
commodities such as bread and petrol to mollify the
population.


5. (C) The transfer of entrepreneurial assets to Abu Dhabi
and other venues raised the larger question of 'capital
flight' from Iran. Venner speculated that the wealth leaving
the country, fueled by the extensive and systematic
government corruption, could run as high as CAD 200 billion
(approx. USD 175 billion).


6. (C) To illustrate the venality of corruption within the
system, Venner recounted the dilemma of a Canadian
pharmaceuticals company that regularly worked with Iran's Red
Crescent organization as the country's primary importer of
pharmaceuticals. Sensing a "revenue opportunity," the Health
Ministry had revoked the Red Crescent's exclusive license and
dispersed the rights of supply to a "group" that immediately
raised prices. In attempting to maneuver through the new
system, Venner reported that the Canadian company encountered
six different levels within the Health Ministry where it was
necessary to pay a bribe. Moreover, because importers lacked
offshore banking privileges, suppliers had to bribe a stream
of bank officials to transfer the monies due them out of the
country.

EU RESPONSE


7. (C) Larsson thought it unlikely that Ahmadi-Nejad would
tackle the country's economic infrastructure problems; he
depended too heavily on the revolutionary guards that were
part of the deeply rooted corruption. The government was
running a budget deficit which it could probably sustain for
some time, he said, but the unpredictable element was the
ability to sustain the heavy petrol subsidies upon which the
country's internal stability depended. Iran's economic
policies were not sustainable, Larsson said, and a
containment strategy was needed.


8. (C) Though the government had succeeded in making the
Iranian economy relatively immune to external sanctions,
Venner observed, Iran's big weakness was its gasoline
subsidies. Oil -rich Iran remained heavily dependent on
gasoline imports because it lacked internal refining
capability. Absent those gasoline imports, the implications
for stability were huge.

HUMAN RIGHTS


9. (C) The prospects for advancing basic human rights
remained dim, Venner said. One example of the Ahmadi-Nejad
administration's policies included the segregation of public
transportation. Women have been obliged to ride a women-only
bus although the supply of buses remains inadequate.
Organizations for the victims of domestic violence still came
under some government oversight, and the NGO Prison Reform
International had been expulsed from the country because of
its "association" with the UK.


10. (C) Responding to Gray's query, Venner acknowledged that
treatment of the Ba'hai continued to be unacceptably poor;
the societal bias against the Ba'hai ran deep. Even
"highly-educated, well-meaning" Iranians bought into the
government's propaganda that the Ba'hai existed as a "UK
plot" to destabilize Iran. Girouard clarified that this
year's UN human rights resolution contained the same number
of references to the Ba'hai as last year, as well as an
additional line regarding increased persecution of the sect.


11. (C) Laurent said that the EU had found that raising
specific cases with the government could have an impact; the
question was whether to do so publicly or privately. While
some Iranians believed that public advocacy offered them a
measure of protection, concerns remained about the potential
for internal backlash. The challenge was to work with local
human rights groups without their being fingered as "European
agents." The EU was considering externally-based NGOs that
had their own links inside Iran, though this wasn't without
some consequences. Another approach was to reach out to
civil society through NGOs in unrelated fields. Gray said
the U.S. also was exploring ways to expand outreach to civil
society and shared concerns about finding suitable NGOs.


12. (C) Venner said the regime had become expert at
manipulating internal public opinion through systematic
repression of objective news, while assuring the
dissemination of biased, if not fabricated, information. A
potential bright spot was the advent of satellite radio,
which was taking off. Though classic rock-and-roll stations
in the U.S. tended to be the most popular, Venner said that
California-based news broadcasts in Farsi were generally
derided for their bias.

COMMISSION RESPONSE


13. (C) In assessing the post-election transition, from the
election of Ahmadi-Nejad to the appointment of followers of
the hard-line Haqqani school to intelligence and other
sectors, the EU concluded that the new government is too
radical. The message the EU was hearing from students within
Iran was that they sought more direct engagement with the
outside world; the question was how to go about this. A
major concern was engaging willing interlocutors without
endangering them. The EU was wary of creating a perception
of "ganging up on" the regime, favoring a mutually
supportive, more discreet approach. EU support of the
Canadian resolution would have "major consequences," and was
likely to delay further Iran's response to the EU.

REGIONAL ROLE


14. (C) DAS Gray said the USG had seen no positive changes in
recent foreign policy under the new administration.
Ahmadi-Nejad's inflammatory remarks about Israel were
indicative of his outlook. The regime was continuing its
support for Hezbollah and Palestinian rejectionist groups
such as Hezbollah, PIJ, and Hamas.


15. (C) In Iraq, the primary goal of Iran appears to be to
keep the Coalition off balance through political
interference, and demonstrated Iran's failure to live up to
its Sharm El-Sheikh commitments. The introduction of
specially engineered explosive devices was of special
concern. In Afghanistan, Iran was pressing the Karzai
government to conclude a Soviet-style pact of friendship and
non-aggression.

16. (C) Iran's relations with other Arab neighbors were
equally poor. Gray was struck by increased Arab concerns
about Iran's role in Iraq. Previously, Arab countries had
been more worried that the Coalition might succeed in Iraq.
Now, the concern appears to be that the coalition might fail.
Arab League Secretary General Amre Moussa's recent visit to
Baghdad was further evidence of such concern.

EU RESPONSE

17. (C) Evans agreed that Iran's continuing support for
rejectionist groups was a very big concern and that its
activity in Iraq flew in the face of Sharm el Sheikh. The
pattern of Hezbollah use of improvised explosive devices was
a major problem. The E.U. concurred with Gray Gulf states
had voiced concern about the new administration in Iran.
IRANIAN MOTIVATION and POLICIES


18. (C) A Canadian analyst said that a combination of
different Iranian national interests appeared to direct
Iranian ideology and policy. While national security
interests have a strong impact on policy at or near the
country's borders, ideology tended to play a bigger role as
one moved farther away from Iran's borders. Thus, in
Afghanistan and Iraq, Iran's main interest would be to
achieve stable countries where Iran plays an influential
role. In his opinion attacks by separatists in Khuzestan
were related to strikes against coalition forces in southern
Iraq.


19. (C) Venner noted that there was still an ideological
element in the government. He cited the example of the
female Iranian suicide bomber in the occupied territories who
was held up as a "model." Conservative cleric Mezba Yazdi
was someone to "watch" in light of his hardline views on the
broader region and the role that Iran should play.


20. (C) Gray asked if the EU was considering designation of
Hezbollah as a terrorist entity. Evans clarified that while
Hezbollah was not a proscribed entity, its "external wing"
was, but was not certain if that was a U.K. or an EU
proscription. He affirmed that the UK kept the status of
Hezbollah under constant review. Larsson said there was no
unanimity within the EU about putting the group on a terror
list. Members of Hezbollah were in the government now, and
shouldn't be "discouraged." Gray said there could be no
question that Hezbollah was a terrorist organization and
encouraged the EU to designate it as the U.S. has done since

1997. Bailey affirmed that Canada continued to list
Hezbollah under UNSCR 1267 provisions and the Canadian
criminal code, which provided greater penalties.

NUCLEAR PROGRAM


21. (C) Gaertner said that EU-Iran talks on nuclear
activities had remained at a standstill since August. The EU
was struggling to go back to negotiations but Iran wanted "no
preconditions" this time; the EU had told them they had no
other choice since negotiations could only resume under the
framework of the Paris Agreement which requires a suspension
on enrichment related and reprocessing activities. The EU
hoped that Russia would be a positive influence and persuade
Iran to come back to the table; it was important to have
Russia, a UN Security Council member, on board.


22. (C) If talks resume, the EU hoped to explore
-- flexibility on uranium conversion
-- fuel supply guarantees (Russia could help with
transparency)
-- political guarantees
-- security guarantees.


23. (C) Gray said the U.S. shared EU concerns. Venner noted
that while the GOI adamantly denied that it had a nuclear
weapons program, the Iranian public questioned why not. It
seemed inevitable that Iran would achieve its objectives.
The "comfort" of secure access to fuel would not prevent
development of Iran's missile program or weapons.
Containment and deterrence were the only ways to move forward.


24. (C) Terry Wood said the September 24 IAEA resolution
which found Iran in noncompliance had given Iran pause; at
the same time, US-EU-CAN needed to give some serious
consideration to reporting them in 6 weeks' time, at the
November BoG meeting. Wood made a pitch for continued close
collaboration, strategizing and working on the NAM and the
"weak-kneed" in the IAEA. He also asked for details on the
possible initiatives that U/S Joseph had mentioned at the
recent G-8 Senior Group meeting. Evans emphasized the
importance of Russia's support as well as getting alongside
South Africa and Brazil to buy into the process.


25. (C) Rangaswamy said the IAEA's September resolution had
set an important precedent in that it broke the need for
consensus. In response to Wood's question, she noted that at
the G-8 Senior Officials' meeting, Undersecretary Joseph had
noted the need to force Iran to make a strategic decision to
abandon its fuel cycle efforts through a combination of
economic and political pressure, and by denying them
technical access. She added that the U.S. is already working
to establish measures for fuel supply assurances to ensure
reliable access to nuclear fuel for civil nuclear programs.
This initiative would also seek to discourage countries from
developing indigenous enrichment and reprocessing
capabilities.


26. (C) Canada's assessment was that Iran was deeply
committed to a nuclear weapons program. Wood was skeptical
that the Russian mediation would be successful. He also
questioned how long the EU3/U.S. would give Russia, stressing
that Iran would sense a weakness in international resolve if
we do not seek to report Iran to the UNSC in November. He
added that it was important, however, to manage the
resolution in the run-up to the meeting. In soliciting 3rd
countries, Canada was cognizant of the need to be "sensitive"
to their perceptions. McLaren said that Iran had succeeded
in convincing the NAM that the West intended to prevent
developing countries from pursuing peaceful nuclear
technology as provided in the NPT; we have not been
successful in changing their minds. Rangaswamy added that
US/Can/EU could do a better job of explaining the gradual,
incremental approach to handling the Iran issue at the UNSC.
We must emphasize that we do not seek immediate punitive
measures at the UN Security Council and al
so seek to reinforce the IAEA.

27.(U) The U.S. delegation has cleared this cable.

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