AN IRANIAN OIL EXECUTIVE ON ISA'S "UNINTENDED

C O N F I D E N T I A L SECTION 01 OF 03 ISTANBUL 000893 SIPDIS NOFORN SIPDIS LONDON FOR GAYLE, BERLIN FOR PAETZOLD, BAKU FOR HAUGEN, DUBAI FOR IRPO E.O. 12958: DECL: 09/25/2017 TAGS: PREL ECON ENRG PGOV IR TU AZ SUBJECT: AN IRANIAN OIL EXECUTIVE ON ISA'S "UNINTENDED CONSEQUENCES" ISTANBUL 00000893 001.4 OF 003 Classified By: Sandra Oudkirk, Deputy Principal Officer; U.S. Consulate General Istanbul. REASON: 1.4 (d) ¶1. (C/NF) Summary: On September 26, Consulate Istanbul &Iran watcher8 met with Assadollah Maleknejad, Vice President of Iran,s Pars Oil company, to discuss regional and Iranian hydrocarbon issues. Maleknejad politely criticized USG energy policy in the region, arguing that the Trans-Caspian pipeline is a pipedream, that the USG goal of cutting Iran out as a source of gas for Europe was playing into Russian hands, and that the best thing Washington could do to alter Iranian regime policies would be to allow unfettered U.S. investment in Iran. Poloff shared an academic study concluding that Iran is undercutting its own energy (hydrocarbon) independence in its pursuit of a nuclear fuel-cycle; Maleknejad promised to share his reaction to the article on his next visit to Istanbul. End summary. ¶2. (C/NF) On September 26, Consulate Istanbul,s &Iran watcher8 met with Assadollah Maleknejad, Vice President for Finance and Economic Affairs for the Pars Oil Company in Iran. Maleknejad was visiting Istanbul to apply for a U.S. visa to participate in a November 13 panel discussion at Columbia University regarding the future prospects for the Iran-Pakistan &peace8 pipeline. (Maleknejad received preliminary approval for the visa and intends to return to Istanbul to pick it up if/when Washington authorizes issuance.) Pars Oil -------------- ¶3. (C/NF) Maleknejad told poloff that after a 40-year career in the hydrocarbon industry, mostly with Iran,s national oil company (NIOC),including as Vice President for Gas Marketing and Export, he retired in 2005. Finding retirement too slow, he jumped at an offer to return to the energy sector, taking up his current position at Pars Oil. Maleknejad described Pars Oil company (not to be confused with &Pars Oil and Gas Company8, which manages aspects of the South Pars field) as a private company specializing in selling petroleum by-products, such as industrial oils and lubricants, domestically and internationally. Pars Oil,s website indicates 75% Iranian government and institutional ownership �00A;and 25% foreign commercial ownership, including a 6.25% stake by Shell Overseas Holding Ltd and a 6.23% stake by Shell Finance Ltd. The &unintended consequences8 of ISA and the TCP -------------- -------------- ¶4. (C/NF) Maleknejad offered poloff a cicuitous 45-minute explanation of the recent histry of energy competition in the Black Sea and Capian Sea regions among the &key players8 (Iran, ussia, Iraq, Turkmenistan, Azerbaijan),the &key ransiters8 (Russia, Azerbaijan, Turkey) and the &ky consumers8 (Europe, the U.S., China, and Russi). He asserted that &the Trans-Caspian pipelinethat you favor" -- i.e., to transport Turkmen ga to Europe via a non-Russian route -- "is almost ertain to fall victim8 to Turkmen, Azeri, and Tukish political, economic, and regulatory &ineffiiencies8, and may take a decade or more to be relized, &if ever.8 Moreover, Maleknejad added, &if Washington's goal is to prevent any Iranian involvement in the export of gas to Europe, this will e impossible.8 Maleknejad claimed that even Azeraijan,s vast Shah Deniz gas field, which transpots gas to Turkey through Georgia via the South Cucuses Pipeline, has a 10% Iranian stake. (Note: "Neftiran Intertrade Company", aka NICO, a marketing subsidy of the National Iranian Oil Company, is a ten percent partner in the Shah Deniz Consortium.) ¶5. (C/NF) Maleknejad cautioned that the USG's &Iran Sanctions Act8, and the USG's insistence on pressing countries in the region to pursue the Trans-Caspian Pipeline rather than &more logical and profitable sources and routes8 (including Iran),is having very negative, unintended, &anti-free-market8 consequences. These consequences, according to Maleknejad, include harming U.S. oil companies, harming the economic potential of U.S. allies (Turkey, Azerbaijan) to benefit from profiting off of Iran's gas and oil resources, blocking Iran's hydrocarbon sector from playing a &potentially helpful pro-capitalistic8 role in internal policymaking, and allowing Russia to become the dominant player on regional energy issues. Poloff explained that the purpose of ISA was to pressure the Iranian regime to comply with international nuclear nonproliferation ISTANBUL 00000893 002.4 OF 003 obligations and moderate its other destabilizing policies. Maleknejad replied that if the USG really wants to use energy policy to modify GOI behavior, Washington should allow U.S. companies unrestricted access to Iran's energy sector, &and see how quickly official Iranian policies change, to embrace American investment.8 (Comment: Coming from a private oil company executive, such advice may have at least some underpinning of personal financial interest. Moreover, this advice appears belied by the difficulties other western companies, such as Total and StatOil, are currently facing as they navigate Iran's complicated investment rules. Recently, Statoil told Ankara econoffs that they had to write off USD three billion last year from their Iran investments. End comment.) The Economics of Energy Independence for Iran -------------- ¶6. (C/NF) During a brief foray into the issue of Iran's refinery capacity, Maleknejad confirmed that Iran imports some 40% of its gasoline needs because of limited refinery capacity and low gasoline yield at its existing refineries, and suggested that the investment required to make Iran self-sufficient in terms of gasoline production would be prohibitively costly. Poloff took the opportunity to give Maleknejad a copy of an academic paper published in the March 2007 &Nonproliferation Review8 titled &The Economics of Energy Independence for Iran8 (kudos to ISN/RA for supporting its publication and circulating it widely). The paper concludes that the Iranian government's claim that it is pursuing &energy independence8 through its nuclear program makes no sense from an economic or resource perspective, and that if the Iranian government abandoned its nuclear fuel cycle pursuits and devoted the freed-up resources to its hydrocarbon sector it could achieve real energy independence. A highly curious Maleknejad promised to read the paper and share his reaction when he next comes through Istanbul. Too bad about Khatami -------------- ¶7. (C/NF) Though underscoring early in the meeting that he preferred not to talk politics, Maleknejad warmed up to the topic when poloff queried which current Iranian political leaders held the most sensible economic views. Maleknejad said that Iran's oil and gas sector was full of &very smart, well-trained, well-informed8 economists, hinting that he and his economically-oriented colleagues were unhappy with the current regime's regressively statist approach to managing the economy. He noted that former President Rafsanjani has a reputation for enacting relatively pragmatic economic policies during his time in office, but also confirmed -- from personal experience having worked briefly with one of Rafsanjani,s sons -- the reputation that the Rafsanjani family enjoys in Iran as being &unrivaled at corruption8. ¶8. (C/NF) Popular anger over rampant corruption, he speculated, was the primary reason Ahmadinejad was elected president. Although some official corruption is now targeted more than ever before, Maleknejad posited carefully that of the many tradeoffs to electing Ahmadinejad is that Iranian economic policy is managed without much regard for basic economic principles. He added, unsolicited, that &if only President Khatami had been given more support, domestically and internationally, I believe he would have taken the best economic approach of any Iranian leader.8 Asked if Khatami retained much popular support, Maleknejad surmised that he does (&along with some popular disappointment8),and that in the unlikely event that he is allowed to run for President in 2009 (i.e., not blocked by the Supreme Leader or disqualified by the Council of Guardians),he would likely win. Comment -------------- ¶9. (C/NF) Maleknejad was unfailingly polite in his meeting; even when criticizing USG energy policy he did so graciously. His English, which he says he learned it as a student in the 1960s taking English classes a &US-Middle East Friendship Association8 across from the U.S. Embassy, is excellent. His views struck poloff as largely non-ideological, pro-business, carefully non-political (except when criticizing ISA),and subtly encouraging of closer ) much closer ) U.S.-Iranian economic and commercial ties, despite what he recognized was the current impossibility of such ISTANBUL 00000893 003.4 OF 003 links. Poloff will seek a follow-up discussion if/when Maleknejad returns to Istanbul to pick up his U.S. visa. WIENER