IRAN AND ENERGY THE FOCUS OF RUSSIAN-GERMAN TALKS

S E C R E T SECTION 01 OF 02 MOSCOW 004615

SIPDIS

SIPDIS

STATE FOR E

E.O. 12958: DECL: 04/28/2016
TAGS: PREL PARM ETRD ENRG GM RS
SUBJECT: IRAN AND ENERGY THE FOCUS OF RUSSIAN-GERMAN TALKS

REF: A. MOSCOW 425


B. BERLIN 1132

Classified By: Ambassador William J. Burns. Reasons: 1.4(B & D).


1. (C) Summary: President Putin and Chancellor Merkel
focused on Iran and energy issues during largely positive
talks on April 26-27 in the Siberian city of Tomsk. Putin's
message to Merkel on Iran was that Moscow was willing to put
diplomatic pressure on Tehran but was extremely uneasy that
UN Security Council action would be a slippery slope that
could eventually lead to the use of force. Russian experts
were skeptical about Iran's nuclear progress. German
Ambassador Schmid told the Ambassador that Putin had
underlined to Merkel that Russia would be a reliable energy
supplier. Publicly, Putin angrily attacked European critics
of Gazprom's expansion plans and welcomed a deal between
Gazprom and BASF that would allow Gazprom to expand into the
European retail market while giving BASF interests in a
Siberian gas field. Merkel raised Belarus and Russia's
implementation of its NGO law; Putin responded by arguing
that isolation would not benefit democratic development in
Minsk and claimed that the GOR was responsive to Russian
civil society. End Summary.
.
THE SONG REMAINS THE SAME
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2. (C) President Putin and Chancellor Merkel headed up
large inter-ministerial teams that met for talks for two days
in Tomsk, a relatively prosperous Siberian city whose
natural-resource based economy is complemented by a large
academic community. According to press reports, the GOR
selected Tomsk as the venue of the eighth annual
Russian-German consultations in order to highlight investment
opportunities outside of Moscow and St. Petersburg. German
Ambassador Schmid, who participated in some of the talks,
told the Ambassador that the leaders met for several rounds,
including an extended one-on-one and two hours in a
restricted format (Putin, Merkel, Russian Presidential
Foreign Affairs Advisor Sergey Prikhodko and Merkel's Foreign
Policy Advisor Christoph Heusgen). Foreign Ministers Lavrov
and Steinmeier met twice separately as well. In addi4\QpDUQTomsk residents. Newspapers contrasted the increasingly
heated dispute between Gazprom and some of its European
critics about the firm's market power and expansion plans and
the ease with which a major gas deal was reached at the
summit between Gazprom and German chemical giant BASF.
Putin's sharp response to Gazprom's critics at the wrap-up
also received attention. Putin charged that Europeans were
trying to res@e\Q1.@ need for international agreement and a
discussion of future steps following the April 28 IAEA
report. Schmid told the Ambassador that the Germans did not
hear much that was new from the Russians during the talks.
Moscow's position was still shaped largely by its "Iraq
experience," with Russia fearing that action in the UN
Security Council would create a slippery slope leading to the
use of force. Russia was willing to use diplomatic pressure,
but remained opposed to sanctions.


5. (S) On the margins of the talks, the Germans and
Russians exchanged intelligence assessments about Iran's
program. The Russian experts were more skeptical about the

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status of the program and had concluded that Iran had not yet
mastered running a centrifuge cascade. They were not
convinced that Tehran was any closer than 6-8 years from
developing a nuclear weapon. Russian diplomats were looking
to the May 2 Political Directors meeting and the May 9
Foreign Ministers meeting to determine next steps, but the
Germans concluded that it was going to be a tough slog to
persuade the Russians to go much beyond cajoling Tehran.
.
BIG ENERGY DEAL
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6. (C) Schmid said that energy discussions had been more
cordial and the atmosphere much easier than the Germans
expected, given the raft of angry public statements lately by
Gazprom and Putin about energy security. There was no
banging on the table, and the Russians had gone out of their
way to emphasize their reliability as suppliers. Putin told
Merkel he appreciated the straightforward way in which the
Germans conducted energy discussions, in contrast to some in
the U.S. who were attempting to "contain" Russia's energy
ambitions.


7. (C) The gas deal between Gazprom and BASF highlighted
the extensive economic talks at the summit, with both sides
heralding the USD 33 billion annual trade turnover (Russian
figures for 2005). Schmid confirmed press stories that under
the gas deal, Gazprom will increase its stake in the Wingas
energy trading unit of BASF (and gain a possible role in
German retail sales) to one share short of majority control.
In exchange, BASF through its Wintershall subsidiary would
gain almost a 25 percent share in a large untapped Siberian
natural gas field, the Yuzhno-Russkoye deposit. Another
expected deal, between E.ON, the former German natural gas
monopoly, and Gazprom was unexpectedly delayed. In addition
to energy talks, the Russian press claimed that Volkswagen
was interested in opening an assembly plant in Russia by 2007
to produce Golf and Skoda-Octavia models.
.
NEIGHBORHOOD AND DEMOCRACY
--------------


8. (C) According to Schmid, the Germans brought up Belarus
with the Russians, drawing a standard Russian response
arguing that isolation would only play into the hands of the
authoritarians. Moscow did confirm that it intended to raise
the price of gas it supplies to Minsk to market rates. There
was a pointed discussion on the CFE Treaty; Moscow argued
that it had acted in good faith in reaching an agreement last
year with Tbilisi to withdraw its military bases and was
unable at this point to withdraw ammunition and troops from
Transnistria. The Russians also urged increased efforts to
address narcotics trafficking from Afghanistan.


9. (C) Merkel raised the NGO law with Putin, pointing out
that the West would closely monitor the law's implementation.
Putin responded that prior Russian law on NGOs had been
inadequate and that Moscow had to regularize the status of
NGOs. He pointed out that the Russian government was
responsive to civil society pressure, noting his decision the
day before to change the route of the Eastern Siberian
Pacific Ocean pipeline to address environmental concerns.
.
COMMENT
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10. (C) The main message from this summit was one of
continuity. Despite some static in Putin's first meeting
with Merkel, the sides now seem focused on the economic and
particularly the energy ties that drive the relationship.
Russia has invested heavily in its bilateral ties, as
reflected in the massive effort needed to move half the
Cabinet to Tomsk for these meetings, and it will remain
willing to engage at all levels to protect its interests.
Merkel's efforts to rebalance Germany's relationship will
make her a more challenging interlocutor for Putin than
former Chancellor Schroeder was on certain issues, such as
democracy or "the neighborhood," but we see no reason to
doubt that Germany will remain committed to a close
relationship with Russia. As the German DCM told us in a
separate meeting, "The talks in Tomsk indicate that the
German-Russian 'strategic partnership' will continue, despite
the Chancellor's more critical approach."
BURNS