GERMANY SUPPORTS NARROW SANCTIONS ON IRAN

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 003558

SIPDIS

SIPDIS

STATE FOR T, E, ISN/RA, EB/ESC, NEA/IR, EUR/ERA, EUR/AGS

E.O. 12958: DECL: 12/05/2016
TAGS: ETTC EPET ETRD GM MNUC PREL IR
SUBJECT: GERMANY SUPPORTS NARROW SANCTIONS ON IRAN

REF: A. BERLIN 2593

B. BERLIN 1495

C. 2005 BERLIN 1745

D. BERLIN 649

Classified By: Minister-Counselor for Economic Affairs Robert F. Cekuta
, for reasons 1.4 (b) and (d)


1. (C) Summary: Recent meetings with German government
officials and business associations show continued
willingness to support targeted sanctions concerning Iran's
nuclear and missile programs, but at the same time reflect
little enthusiasm for pursuing broader sanctions against
Iran. Officials assert the current international tensions
surrounding Iran and its nuclear program continue to affect
negatively German businesses' willingness to pursue major new
trade deals with Iran. Government officials and Middle East
trade specialists at the Association of German Chambers of
Commerce and Industry (DIHK) state German companies would
comply with sanctions, regardless of how broad. German
officials' opinion is not uniform regarding the effect on
companies -- and taxpayers -- if broad sanctions were
implemented. German officials highlight increasing
cooperation with UAE to tighten controls at ports, although
these officials imply smuggling between Iran and the UAE
would continue to be a problem. End Summary.

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Germany-Iran Trade; Latest Deals
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2. (C) Germany's total trade with Iran through the first
eight months of 2006 totaled 2.96 billion euro, an eleven
percent decrease from the record level of 3.4 billion in

2005. German exports to Iran were worth 2.37 billion euros,
compared to 2.7 billion euros in 2005. Hans-Dieter Spohn,
Ministry of Economics' Director for Arab Countries and Iran,
speculated trade with Iran for 2006 could show a decrease of
approximately 20 percent from 2005. He said the majority of
German companies are uncertain about pursuing new business
deals in Iran, given the current international situation. He
also noted that there is a movement in Iran to "buy Iranian"
and Tehran has made efforts over the past year to award
contracts to domestic companies. Spohn reported Germany has
not organizedrecently any official trade delegations to Iran
ith high-level government participation, nor have here been
meetings of the bilateral German-Iranin Economic Council.


3. (C) When asked about pres reports Iran recently awarded
contracts to Germn companies, one of which was a $450
million rairoad contract with Siemens, Spohn said he had not
heard about the deal. (Note: Post is trying to cnfirm
independently the status of this agreement. End Note.)
Spohn did not dispute, however, that German companies remain
a primary source of equipment for large infrastructure
projects. On another potentially large Iranan
infrastructure contract, MFA's Desk Officer fr Iran, Deike
Potsel, said Lufthansa Consulting did a site visit of Abadan
International Airport, where they were asked to provide a
development plan for upgrading the airport. She did not know
whether Lufthansa Consulting had subsequently provided any
such plan.


4. (C) Discussing Germany's regional trade relationships and
preventing third-country proliferation, Spohn mentioned
Germany's recent efforts to help the UAE tighten port
security, noting a recent government delegation to UAE
included a representative of BAFA (Federal Agency for Economy
and Export Controls). Nevertheless, Spohn thought smuggling
would remain a problem given the proximity to Iran and the
Iranian presence in the UAE. He thought despite adverse
feelings toward President Ahmadinejad, Iranians in the UAE
maintain close connections to Iran and will continue to
generate international trade. Spohn cited a figure of USD
200 million in capital flowing annually between Iranians
living in the UAE and their businesses and families in Iran.

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Sanctions and Trade
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5. (C) Spohn reiterated Germany's support for
narrowly-defined sanctions that target Iran's nuclear and
missile program, and believed German companies would respect
and adhere to any sanctions regime reached in the UN Security
Council. He, like other German officials, argues against a
broader sanctions regime, saying it would only heighten

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tensions and lead to considerably higher world oil prices.
Should such a sanctions regime be implemented, he speculated
Iran would use its naval forces and anti-ship missile
batteries to disrupt trade moving through the Strait of
Hormuz.


6. (SBU) Business representatives echoed the German
government's confidence that German companies would adhere to
sanctions against Iran. Felix Neugart, Director for North
Africa and Middle East at DIHK, also suggested international
tensions caused German companies to rethink doing business in
Iran. He thought most trade currently taking place with Iran
involves German companies that have offices already
in-country or existing contracts, rather than companies
seeking new deals. On the theoretical question of
circumventing sanctions, Neugart speculated companies would
weigh several factors before deciding whether they would
continue to sell to Iran. First, companies with operations
in Iran would be in a better position to know how to move
goods into and out of the country and be familiar with the
bureaucracies involved with trade. Second, companies with
subsidiaries in the U.S. would be even more diligent in
observing sanctions rules, as German companies are genuinely
concerned about the effects of such a decision on their
operations in the U.S. Neugart said he constantly receives
phone calls from German firms inquiring about U.S. export
laws' requirements. Business people have also asked him
about a U.S. state's ability to pursue legal action against
companies that violate export laws or sanctions.

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Financing Trade with Iran
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7. (C) Christian Mayer, deputy director of the German Finance
Ministry's Division for Transactions and Prevention of Money
Laundering and Terrorism Financing, said there is concern
UNSC sanctions against Iran might "unfairly disadvantage"
Germany and German firms. He noted Iranian entities are
deeply indebted to German firms; if sanctions are applied
without provisions for firms to collect their debts from
Iran, the German economy may suffer more than others. Mayer
stated that because of the U.S. trade embargo, UNSC sanctions
against Iran would have practically no effect on the U.S.
economy, while Germany would face substantial costs. The
German Government would bear the bulk of these costs in the
event of Iranian debt defaults, because of Government issued
export credit guarantees covering German business in Iran.
(Note: Refs B and C contain additional information on German
export credit guarantees. End Note.) Ninety percent of the
German credits are guaranteed by the German Finance Ministry.
(Note: Hermes recently adjusted the amount of coverage it
will offer firms doing business in Iran from 90 to 85
percent, due to the increased political risk. The German
government also led an effort in the OECD to raise the risk
premium for businesses dealing with Iran. End Note.) Mayer
surmised the German Government could be held responsible for
billions of euros of Iranian debt default payments, depending
on the precise terms of the sanctions regime. He did not
specify the total amount of potential payments, but stressed
they would be a considerable burden for German taxpayers.


8. (C) Mayer too said any sanctions regime against Iran
should be targeted against the regime and not against the
general populace (refs A and B),but he did not offer
suggestions for what should be sanctioned. He voiced concern
that because Germany is not a permanent member of the UNSC,
its views may not be adequately represented in Security
Council deliberations on sanctions. The Finance Ministry's
goal, he said, is for any sanctions to be fair and equal for
all participating states.

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Comment
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9. (C) While Germany would implement UN Security Council
sanctions to thwart Iran's attempt to obtain nuclear weapons
and advance its missile program, German officials and
businesses also see a large, growing market in Iran with
numerous potential foreign suppliers to whom they would lose
market share. Officials at all levels of the German
government state sanctions need to be "targeted," not broad.
Mayer's comments about German firms suffering more than U.S.
ones probably reflect what others think, but have refrained
from saying. We push back as appropriate, in some cases
noting German firms afraid of being hurt by UN sanctions have

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not appeared overly concerned about any advantages they
enjoyed vis a vis U.S. firms due to our long-standing
sanctions.
KOENIG