(S/NF) UK CONDUCTING STUDY OF IMPACT OF IRANIAN

S E C R E T SECTION 01 OF 02 LONDON 001835

SIPDIS

NOFORN
SIPDIS

STATE FOR EB/ESC/TFS, NEA/IR, PM/ISD, EUR/UBI, EUR/PGI
TREASURY FOR TFFC LOEFFLER

E.O. 12958: DECL: 05/13/2017
TAGS: EFIN PARM PTER ETTC IR UK
SUBJECT: (S/NF) UK CONDUCTING STUDY OF IMPACT OF IRANIAN
FINANCIAL MEASURES


Classified By: John McNamara, Counselor for Labor and Social Affairs, r
easons 1.4 (b) and (d)


1. (S/NF) Summary. The Foreign and Commonwealth Office is
doing a Top Secret study -- likely to get widespread
attention within Her Majesty's Government -- of the real
impact of Iranian financial measures. The study, which is
intended to draw upon both open and closed sources, is
intended to inform senior UK policy makers on the actual
impact the financial measures are having on the Iranian
people, business community, and regime. The lead author of
the report, Christian Turner, intends to travel to Washington
in May and will be seeking a wide array of meetings. End
Summary.


2. (S/NF) The FCO is currently conducting an assessment of
the impact financial measures -- including UN sanctions,
targeted financial measures (such as the elimination of Bank
Saderat's U-turn provision),and moral suasion -- is having
on Iran and those institutions doing business with Iran.
According to Christian Turner, the FCO's lead author, the
report will draw upon open- and closed-source material to try
arrive at some "hard conclusions" about the true impact --
political and economic -- of financial measures on Iran. He
intends to look at the economic impact of financial measures
on specific banks and companies, their broader psychological
impact upon the business community, and their effectiveness
in influencing the current regime. Turner said that he wants
to get as broad of a picture as possible; he fears that much
of the current reporting on Bank Sepah's difficulties might
lead to the conclusion that financial measures are having a
greater impact than they truly are. He acknowledges that it
will be extremely difficult to obtain quantifiable data. But
he intends to make a concerted effort to obtain hard data on
what financial institutions are doing, if anything, beyond de
minimus legal compliance with respect to Iran-related
business.


3. (S/NF) Turner said that the study is the first step in a
three-phase process. The study will provide some basic
information on the overall effectiveness of financial
measures. Once completed, it will serve as a tool to
evaluate further possible measures to ratchet up the pressure
on Iran if it does not comply with UN resolutions. The third
phase would be a broader policy review of UK domestic
authorities to see whether the UK can do anything to improve
its ability to use financial measures as a foreign policy
tool in a wider context beyond Iran, including with respect
to counterproliferation more broadly.


4. (S/NF) As part of the study, Turner intends to travel to
Washington before the end of the month to meet with
government officials, academics, and think tanks. His
Washington schedule will be organized by Simon Shercliff at
the UK Embassy in Washington. Embassy suggested meeting with
NEA/IR, INR, S/P, and Treasury. Turner, who previously
served at the UK Embassy in Washington, said that the would
also seek meetings at the Congressional Research Service,
NSC, Department of Defense, the CIA, and various policy
insttitutes. Turner provided us with a non-paper (see below)
regarding some of the specific questions he intends to
explore in Washington. Turner also plans to travel to Dubai
for meetings on this topic and would appreciate meeting
suggestions from and the participation of the Iranian
Regional Presence Office as feasible.


5. (C/NF) BEGIN TEXT OF NON-PAPER

IRAN: IMPACT OF FINANCIAL SANCTIONS

(1) Response of International Financial Institutions &
Agencies

(a) Can we quantify the response of leading
international banks, beyond their public statements? To what
degree has the shift away from dollars stopped transactions
with Iran? How much has simply shifted to Euros, Yen and
other currencies?

(b) To what extent has short-term export credit been
downgraded since December 06? What is the consequence and
knock-on cost of this?

(2) Impact within Iran

(a) To what extent have Bank Saderat's operations been

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limited?

(b) Are there examples of major capital projects not
going ahead in the first quarter of 2007?

(c) Is there any evidence of the reported sharp increase
in capital outflows from Iran?

(d) Is it possible to build a more comprehensive picture
of the use of surrogate banks (e.g. in Dubai) for
transactions?

(e) Is there evidence of an increase in use of private
banks to improve liquidity?

END TEXT OF NON-PAPER


6. (S/NF) Turner said that the paper will, among other
things, focus on the selection, sequencing and spacing of
targets, and evidence to support same, in future UNSC
resolutions. He repeatedly stressed that his paper will be
"thoroughly cleared" by all HMG agencies with Iran equities,
but he also made clear that it would not be an Joint
Intelligence Committee (JIC) product. He added that he will
present the substance of his findings, in redacted form, at
the International Institute for Strategic Studies symposium
June 18 in London on the Iranian economy.


7. (S/NF) Turner said his paper may well conclude that the
international community should consider extending sanctions
further into the Iranian banking sector. At the same time,
Turner noted a risk involved in escalating sanctions too
rapidly, arguing that a round of tough sanctions followed by
a round of less stringent measures might produce
counterproductive "psychological blowback" inside Iran.


8. (S/NF) Comment: Turner's paper, though comprehensive in
its scope, will contain specific policy judgments likely to
get considerable attention within, and perhaps outside, HMG.
His paper is likely to focus on the long-term nature of the
pressure and engagement HMG continues to believe necessary to
influence Iranian behavior. End comment.


9. (C/NF) Bio note: Christian Turner is scheduled to go out
to Tehran in Summer 2008 as the Deputy Chief of Mission at
the UK Embassy.

Visit London's Classified Website:
http://www.state.sgov.gov/p/eur/london/index. cfm
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