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

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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
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