SCENESETTER FOR VISIT OF U/S ROOD TO ROME

C O N F I D E N T I A L SECTION 01 OF 03 ROME 002395

SIPDIS

NOFORN
SIPDIS

E.O. 12958: DECL: 11/30/2017
TAGS: PARM PREL MNUC MCAP MARR NATO IR IT AF IZ
LE, YI, LY, RS
SUBJECT: SCENESETTER FOR VISIT OF U/S ROOD TO ROME

REF: ROME 2167

Classified By: Acting Political Minister-Counselor Jonathan Cohen for R
easons 1.4 (B) and (D)


1. (C) Summary: Your visit to Italy offers a well-timed
opportunity to engage the GOI on a range of critical issues,
in particular Iran, Missile Defense and CFE. Italy's weak
center left government has succeeded in staying afloat for
nineteen months despite a fractious eight-party coalition and
a razor-thin majority in the upper chamber of Parliament. PM
Prodi's government continues to pay close attention to key
foreign policy issues, such as the Middle East Peace Process,
Iran, Afghanistan, Kosovo and Russia. We have usually been
able to get this government to play a helpful role on issues
we care most about, but often only after continued high-level
engagement, which makes visits like yours particularly
important. You will find that your interlocutors will be
eager to hear about the status of Missile Defense and CFE
discussions with Russia and keen to secure a role for Italy
in Iran negotiations. End Summary.

Missile Defense/CFE
--------------


2. (C) The GOI has followed closely the U.S.-Russia talks
over Missile Defense and CFE, expressing on occasion concern
that Italy be covered by whatever architecture emerges and
urging that the Russians not be made to feel besieged.
(Italy's dependence on Russian energy imports makes the
government hesitant to take positions that could be construed
by Moscow as confrontational). The Italians have requested a
bilateral U.S.-Italy channel to discuss Missile Defense and
will be eager to receive an update on the 2 2 and
expert-level talks and CFE discussions. In September A/S
DeSutter briefed the Italians on the status of post-START
negotiations, Missile Defense, CFE, North Korea and Libya
(Reftel).

Global Initiative/PSI/General NP Issues
--------------


3. (C) Italy is a an Initial Partner Nation in the Global
Initiative to Combat Nuclear Terrorism and an active
participant in PSI exercises, including the recent
multi-partner exercise in Rhodes, Greece. Italy supports the
EU position in favor of a speedy entry into force of the
Comprehensive Test Ban Treaty (CTBT),but has traditionally
been supportive of U.S. positions on the Fissile Material
Cutoff Treaty (FMCT).

Libyan Chemical Weapons Program
--------------


4. (C) The GOI told A/S DeSutter in September that the Libyan
request for Italian financing for the conversion of its CW
program and destruction of its CW stockpile was still on the
table, as was the Italian offer to provide assistance using
Italian firms. Two Italian firms have bid on contracts thus
far, but the proposals remain on hold pending the OPCW's
examination of the project plans. The Italians were
surprised to learn, after the Libyan request was made, that
the U.S. had already offered financing for the same projects,
and have agreed to consult closely with us on this issue as
the projects move forward. Italy continues to try to
negotiate a package of agreements with Libya that will put to
rest long-standing Libyan demands for compensation for
alleged Italian misdeeds during the colonial period.

Iran
--------------


5. (C/NF) Italy is currently in both the UNSC (through 2008)
and the IAEA Board of Governors. Italian officials have a
clear preference for UNSC sanctions over autonomous EU
measures, but are skeptical that sanctions alone will change
Iran's approach to the nuclear issue. High ranking GOI
officials have repeatedly said that they believe only strong
UNSC sanctions coupled with an unconditional offer to
negotiate stand a chance of succeeding. Italy has a
substantial economic interest in Iran -- being one of Iran's
top trading partners and fifth largest export market as of
2005/2006 -- and has suggested that any international
sanctions would have to take this into account. Their
preference for UNSC sanctions stems from the conviction that
EU and U.S. "unilateral" sanctions will leave the Iranian
market open for Russian and Chinese firms while also giving
the current Iranian regime an excuse to blame certain western
countries for Iran's poor economic performance. The GOI has

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consistently pressed for a seat at the P5 1 table complaining
that Italy is a "payer but not a player" on Iran. You can
expect your interlocutors to raise this with you, arguing
that Italy would feel at least as much pain from new
sanctions/measures as Germany and should therefore be
included early on in the discussions of new
sanctions/measures for a third UNSCR.


6. (C/NF) PM Prodi and FM D'Alema hosted Iranian negotiators
Larijani and Jalili in Rome in November when they last met
Solana. PM Prodi's NSA equivalent led an Italian delegation
to Tehran in the fall for meetings with Larijani and other
Iranian government officials. These high-level meetings
outside the established processes harm the international
community's effort to present a unified position vis-a-vis
Iran. We should seek to dissuade the Italians from further
freelancing.


7. (C) Iran/export credits: Italian trade with Iran in 2006
amounted to 5.6 billion euros, second only to Germany in the
EU. Italian export credit guarantees are also high,
reportedly about 2 billion euros after a net decline of about
500 million euros in 2006. According to SACE, the Italian
Export Credit Agency, no new guarantees have been issued to
Iran since January 2007. This position, however, is not
public and SACE and MFA contacts tell us that it is a
difficult position for SACE to maintain in light of Italy's
robust trade relationship with Iran. MFA and SACE officials
are concerned that a ban on new export credits in a Security
Council Resolution could imperil existing projects in Iran -
which account for ten percent of SACE's income. However, if
new measures take those concerns into account, SACE officials
tell us that a clear and universal ban on export credits
would make their position on Iran easier and say they would
support such measures. SACE officials recently told Treasury
Under Secretary Stuart Levey that they are conducting a
review of all export credits issued since 2003 for
involvement in companies of proliferation concern. SACE also
claims to be reviewing all exposure to Iran since 2003 to
determine if dual-use controls have been violated.

MEPP
--------------


8. (C) The Italians want to be helpful on the Middle East
peace process (MEPP) and believe they can make an important
contribution. FM D'Alema attended the Annapolis conference
and called the U.S. decision to host it "courageous." He has
repeatedly said he sees concrete movement on the MEPP as
central to forestalling the spread of dangerous forms of
extremism, which pose a growing threat to Europe.

Afghanistan
--------------


9. (C) Italy is one of ISAF's biggest contributors (2,300
troops, commands Western Region (Herat) and assumes command
of Kabul Region in December). Radical left members of
Prodi's coalition opposed to Italy's ISAF role fomented a
government crisis in February 2007, but he reassembled his
majority and reconfirmed Italian ISAF participation, which
has remained solid. The Italian deployment will be debated
again in January/February when it needs to be refinanced by
the Parliament. Italian reconstruction assistance to
Afghanistan is less robust than its security assistance;
however, Italy plays a lead role in the justice sector, and
recently hosted an International Donors' Conference, which
exceeded expectations by generating about $98 million in new
pledges.

Kosovo
--------------


10. (C) Italy believes Kosovo's independence is necessary
and inevitable and the PM and FM have pledged support for
UNOSEK Ahtisaari's proposal. Italy would prefer to see a
status solution through a UNSCR, but should Russia block UN
action, it is prepared to recognize a unilateral declaration
of independence by Kosovo provided the EU remains united on
the issue. Italy is a large troop contributor to KFOR and
has played a generally constructive role in the Balkans.

UNIFIL/Lebanon/Syria
--------------


11. (C) When the Lebanon crisis flared in 2006, Italy hosted
the Rome conference and then took a leading role in
establishing and contributing to an enhanced UNIFIL II force
which they currently command (they are the single largest

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troop contributor with approximately 2500 troops). Italy
contributed 30 million euros at the Stockholm Donors
Conference and 156 million euros at the Paris Donors
Conference. The center-left Italian government does not want
to see Italian casualties in Lebanon and is therefore
hesitant to confront Syria or Hizballah directly. FM D'Alema
visits the region frequently. We take every opportunity to
thank the GOI for their leadership in UNIFIL, and encourage
Italian leaders to maintain the pressure on Iran and Syria to
cease their destabilizing tactics in Lebanon.
Iraq
--------------


12. (C) In late 2006 PM Prodi carried out his campaign
promise (already planned by former PM Berlusconi) to withdraw
Italian troops from Iraq. The withdrawal was orderly and
coordinated with Iraq and coalition allies. Italy remains
committed to supporting Iraq's political and economic
development. It also maintains a PRT in Dhi Qar, is the
leading contributor to the NATO Training Mission, has
contributed 240 million Euros for reconstruction since 2003,
provided a 400 million Euro soft line of credit, hosted a
"lessons learned" conference on reconstruction and security
transition in Iraq in June, and an economic development and
donor coordination conference in October 2007. NATO has
reacted favorably to an Italian proposal to make
Partnership-for-Peace-like instruments available to Iraq,
using as a possible model the NATO framework partnership
agreement with Afghanistan.

Energy Security
--------------


13. (C) Italian energy policy is conditioned by three basic
factors: an almost total lack of domestic energy sources,
opposition to major energy-related infrastructure projects,
and an intense commercial relationship with Russia in the
energy sector. While the government has offered rhetorical
support for energy-related infrastructure projects that would
enhance Italian energy security, it has been unwilling to
engage in the heavy lifting necessary to overcome vocal
opposition at the local level to these projects. A national
referendum in 1987 had the practical effect of banning
nuclear power generation in Italy. As a result, Italy is
substantial importer of electricity, with much of the supply
originating in France.


14. (C) OPEC provides 57 percent of Italy's total oil
imports, including Libya (24.87 percent),Saudi Arabia (10.85
percent),Iran (8.74 percent),Algeria (6.45 percent),Iraq
(3.78 percent),Nigeria (1.34 percent),Venezuela (0.64
percent),and Indonesia (0.33 percent). Non-OPEC countries,
including Russia, provide the remaining 43 percent of oil
imports. Natural gas is used to generate over half of
Italy's electricity supply. Natural gas imports are sourced
equally from Russia, the North Sea and Algeria.
Diversification to Gulf sources is desired, but can only be
accomplished through construction of liquid natural gas (LNG)
regassification plants. Owing to local opposition, only one
LNG plant is operational. The already strong energy
relationship between Italy and Russia was further enhanced
over the past year, as ENI (the oil and gas parastatal 30
percent owned by the GOI) gained access to exploration and
extraction in Russia in exchange for allowing Gazprom to sell
natural gas to Italian customers. Earlier this month, ENI
also announced it will partner with Gazprom in the
construction of the "South Stream" natural gas pipeline which
will bring Central Asian gas to Central and Western Europe
via a 10 billion euro underwater pipeline crossing the Black
Sea. Italian energy investment in Iran totals about $2.5
billion and discussions between ENI and Teheran have
intermittently taken place regarding possible future
investments in the South Pars gas fields.
SPOGLI