IRAN: UNDER SECRETARY JOSEPH'S DISCUSSIONS WITH

S E C R E T SECTION 01 OF 05 TEL AVIV 000554

SIPDIS

SIPDIS

E.O. 12958: DECL: 02/07/2017
TAGS: PREL KNNP MNUC PTER IR RU IS
SUBJECT: IRAN: UNDER SECRETARY JOSEPH'S DISCUSSIONS WITH
ISRAELI GOVERNMENT OFFICIALS AT THE MFA (CABLE 1 OF 4)

REF: TEL AVIV 00553

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Classified By: Ambassador Richard H. Jones. Reasons: 1.4 (b)(d).

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SUMMARY
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1. (S) During his January 30 - February 2 visit to Israel,
Under Secretary Robert Joseph participated in talks with
Israeli representatives from the MFA, MOD, Israeli Atomic
Energy Commission (IAEC) and affiliated research centers, IDF
intelligence (IDI),and the Mossad. Discussions focused on
the threats posed to Israel and the international community
by Iran, North Korea, Syria, and terrorist groups operating
in Lebanon and the region. Under Secretary Joseph was
accompanied by Assistant Secretary John Rood, DOE/NNSA Deputy
Administrator William Tobey, and T Senior Advisor James
Timbie.


2. (S) This cable, the first of four cables on Iran from a
three-hour interagency meeting at the MFA, focuses on
discussions about the current internal situation in Iran.
The main points the Under Secretary's Israeli interlocutors
made are as follows:


A. Since January, there has been a marked increase in
criticism of Iranian President Ahmadinejad's economic and
nuclear policies. Critics have charged that he is out of
touch with the average Iranian, and has endangered Iran's
nuclear goals by provoking Iran's enemies and behaving
irresponsibly.


B. Ahmadinejad's political rivals feel empowered after the
results of December municipal elections went their way and
against the Iranian president's supporters. Iran's
politically conservative camp is now divided.


C. How Iran's Supreme Leader fits into the current situation
is unclear, as rumors abound that he may be seriously ill or
dead. Israel believes that the Supreme Leader could
compromise on Iran's nuclear program, if he were advised to
do so. Israel does not see any serious threat at this time
to the stability of the ruling regime in Iran, despite
eroding unity among the political elite, and growing unrest
among Iran's ethnic and religious minorities.


D. Iran's Supreme National Security Council and the IRGC are
the most important organizations in Iran's decision-making
process. The IDF believes that more pressure should be
placed on these organizations through targeted sanctions and
operations against the IRGC in Iraq.


E. Financial measures and sanctions under UNSCR 1737 are
having an impact in Iran. Iran is moving funds and assets to
banks in East Asia and the Gulf states, is shifting its
economic activities to other currencies, and recalculating
its budget in Euros. Iran is stockpiling food supplies and
parts, and there is increased talk about rationing gasoline.
Iran is seeking sympathy from the Non-Aligned Movement
states, and trying to forge long-term energy-supply contracts
with China, Venezuela, Russia and other countries. END
SUMMARY.

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ASSESSMENT OF CURRENT INTERNAL SITUATION IN IRAN
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3. (S) Under Secretary Joseph's discussions on arms control
and nonproliferation issues with the Israelis began the
evening of January 30 at the King David Hotel (reftel). On
January 31, the Under Secretary, Ambassador Jones, Assistant
Secretary Rood, Tobey and Timbie met with an interagency team

SIPDIS
at the MFA for three hours to continue talks. The Israeli
team included representatives from the MFA, MOD, IDF
intelligence (IDI),the Mossad, and the Israeli Embassy in
Washington. Efrat Reshev from the MFA's Center for Political
Research (the equivalent of State's INR) provided an
extensive review of the internal situation in Iran. She said
that:


A. Since January, the most prominent development has been the
new wave of criticism aimed at President Ahmadinejad and his
government. In the past, criticism focused mainly on his

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economic policies, but has now turned towards his nuclear
policy as well. He is accused of being disconnected with
reality, and criticized for his travel to Latin America.
Criticism of his nuclear policy comes from "pragmatic
conservatives", ultra-conservatives, and members of
Rafsanjani's circle. It has emerged in newspapers that are
connected to the Supreme Leader. Criticism has focused not
on the goal of Iran's nuclear program, but on Ahmadinejad's
tactics, which -- the critics allege -- are isolating Iran,
provoking its enemies, and jeopardizing the goal of the
program. People are now asking why Iran has to suffer
sanctions under UNSCR 1737. They are saying that
irresponsible behavior -- especially Ahmadinejad's obsession
with Holocaust denial -- led to the UNSC's action.


B. Rafsanjani and former rivals of Ahmadinejad (e.g., the
mayor of Teheran) were the "big winners" in the December
municipality and Assembly of Experts elections.
Ultra-right-wing candidates were also rejected, including
Ahmadinejad's spiritual advisor. The Iranian president's
rivals feel empowered by the elections. In his first
popularity contest since his election, he did not fare well.
The conservative camp is divided now, and people are saying
that Ahmadinejad contributed to this.


C. It is unclear where Supreme Leader Khamenei fits into the
current situation. Newspapers that tend to express his views
have run articles critical of Ahmadinejad. It is not clear
if the Supreme Leader is acting against Ahmadinejad by
allowing criticism to take place. It is also possible that
his health condition is declining. The Supreme Leader did
not appear in public for the Ashura, and there are rumors
that he died or is seriously ill, possibly with cancer. If
Khamenei continues as Supreme Leader, it is unlikely that
Ahmadinejad will be impeached, even while the Majles pursues
his ministers. Ahmadinejad may become a lame duck president.
The Supreme Leader -- not Ahmadinejad -- is responsible for
Iran's nuclear dossier. If Ahmadinejad's fortunes decline,
the Supreme Leader may start to listen more to Rafsanjani.
The possibility for compromise on Iran's nuclear program
still exists. The Supreme Leader compromised on the Paris
Agreement. He appears to be willing to go the way his
advisors suggest, even if their advice contradicts his own
views.


D. There is no serious threat to the stability of the ruling
regime in Iran, even though there is increased unrest among
Iran's ethnic and religious minorities. Among political
elites, there is some evidence that unity is dissipating.
Rafsanjani and FM Mottaki have said that the U.S. threat to
Iran is credible, while Ahmadinejad denies this.


4. (S) LTCOL Shai Shevtai from IDF intelligence (IDI),made
the following points in his presentation on Iran:


A. Ahmadinejad is not a strong decision-maker, but is part of
a close circle of persons who make decisions by consensus.
The Supreme National Security Council and the Iranian
Revolutionary Guards Corps (IRGC) are the most important
organizations in the decision-making process. There is no
sense that these organizations have changed their views
regarding strategy, but they appear to have re-considered
tactics. The IRGC breeds the next generation of
decision-makers. It is one of the larger economic
cooperatives in Iran, and brings money to prominent figures
in the regime. Ahmadinejad gave the IRGC engineering
projects in Tehran, and they in turn secured votes for him.
If IRGC operatives in Iraq, Syria and Lebanon were made to
pay, this would have an impact. Until now, they feel
unhindered.


B. Iranian nuclear negotiator Larijani is directly involved
in terrorism. He advises the IRGC and Quds Forces.
Rafsanjani is not a moderate, and was present when the
decision was made to embark on a nuclear weapons program.
The mayor of Teheran is not a moderate, and was involved in
discussions on the work program for the Shahab missile.
Iran's Supreme Leader is an extremist and, contrary to
rumors, is functioning.


C. Regarding what can be done: One possibility is to enlarge
the circle of decision-makers by somehow "bringing in"
economic and social science experts. It is vital to show the
Iranian leadership that they will pay a personal price for

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Iran's policies.


D. The Iranians are telling their "resistance axis" in the
region that there will be "good news" in a few months.
Privately, the Iranians are coming to the conclusion that
they moved too quickly during the summer, when Hizballah
attacked Israel.


E. Young Iranians do not feel that they are paying a price
for the regime's policies. Iran's nuclear program is of
little to no concern for the average Iranian age 18-25.
Something needs to be done to show the youth that they will
pay the price for the regime's nuclear program and aggressive
regional policy. This growing generation is more important
in the long-term than Iran's minorities.


F. All of Iran's current leaders are in their seventies.
Israel is watching the IRGC as it may produce the next
leaders in 10-20 years. Israel is also monitoring the
religious seminaries in Qom. In Iran, there will not be
change without the support of religious figures. Efforts
need to be made to find the right people and nurture them.
(Reshev added that regime change in Iran is mysterious, as it
has only happened once before. She noted that the Iranian
constitution leaves open the possibility of a leadership by a
triumvirate.)


G. Falling oil prices are restricting Iran's freedom to
maneuver, as the budget is based on projected oil incomes
that have declined with drops in the price per barrel of oil.
Iran has been forced to tap into its oil reserves fund,
which is fueling debate. The Iranians have enough reserves
to cope, but they have failed to get OPEC to cut oil
production.


5. (S) Gil Reich from the Israeli Atomic Energy Commission
(IAEC) put forward the view that Rafsanjani might be a better
alternative to Ahmadinejad, if one accepts that there is no
way to stop Iran's nuclear program, and thus proceeds with a
view towards slowing it down as much as possible. He
explained that Rafsanjani may be willing to negotiate, which
would then buy time for the U.S. and Israel as well as for
Iran. He noted that the suspension that took place two years
ago bought time for all parties. He suggested that if Iran
decided to suspend enrichment under verifiable conditions,
this would be beneficial for all concerned. Shmuel Limone
from the MOD said that Ahmadinejad is the best leader in Iran
for Israel, as Rafsanjani would arouse less international
condemnation of Iran. Limone said that he had heard in a
recent track-two conference he attended that the average
Iranian in the streets was feeling the effects of sanctions,
mainly because he cannot send money by international money
order to his children in the U.S. and abroad.


6. (S) In a discussion of sanctions, Yehuda Yaakov from the
MFA made the following points:


A. Recent discussions with a U.S. team in Vienna have yielded
quick progress on fine-tuning targets Israel wants to focus
on. There was agreement that a common list of companies and
countries involved needs to be drawn up from open source
information.


B. The MFA is focusing on public diplomacy. In the MFA's
view, the best way to succeed vis-a-vis Europe is to stick as
close as possible to UNSCR 1737's annex and to expand from
there. One disadvantage is that the IRGC is not specified on
the list of sanctionable entities.


C. The MFA would like to send a team to Washington the second
half of February to complete the common list and discuss
tactics in the field.


7. (S) A Mossad representative made the following points on
sanctions:


A. Iran is moving its funds to China and other East Asian
countries, and the Gulf States. It is shifting from using
the U.S. dollar in international economic activities to other
currencies, including the Euro. A high percentage of the
reserves would be hard to move to the Euro and other
currencies. Iran is trying to recalculate its budget in
Euros.

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B. Iran is stockpiling food items and parts. There is talk
about rationing gasoline. Previous attempts to ration
gasoline failed.


C. There is a long-term process in place to cut dependency on
imported gas. If Iran is to be successful in this endeavor,
it will have to build refineries. Iran is now negotiating
with other countries to construct refineries abroad.


D. Iran is trying to gain international support through
long-term contracts with countries in Africa, and India and
China. It is attempting to persuade foreign governments and
companies not to take part in sanctions.


E. The results of sanctions on Iran to date have been mixed.
UN sanctions are very limited and have virtually no impact.
Sanctions outside the UN have been limited to banks.
Sanctions have impacted Iran's trade with Japan and Germany,
but Iran has increased its trade with other countries.
Investment in Iran's energy sector has decreased and slowed
GDP growth rate, but the Chinese have filled the gap, and the
Iranians are courting the Russians. The Japanese and Dutch
Shell Oil are moving forward in negotiations with Iran on
energy supply. The Chinese reportedly have signed onto large
scale investment projects in Iran worth millions of dollars,
but it is not clear how close they are to concluding
contracts.


F. The impact of unilateral sanctions on Iran (e.g., outside
UNSCR 1737) to date is mixed, but encouraging for Israel.
There has been no significant public debate of Iran's nuclear
program, but there is increased public awareness of the
issue. In economic circles, bankers and traders are very
worried about the impact of sanctions, and are appealing to
political decision-makers for relief. The leadership
continues to project self-assurance. There are indications
that some leaders are worried. The pragmatists are critical
of Ahmadinejad's tactics, but not his overall strategy.


G. There are many agreements between Iran and Venezuela. The
two sides have discussed refinery construction in Venezuela,
Iran importing refined oil from Venezuela, and Venezuela
constructing factories in Iran. There has been some
discussion of Iranian-Venezuelan cooperation in OPEC, and
possible cooperation on a joint oil embargo if either country
feels threatened. (The Mossad representative said he
believes the threat of a joint oil embargo is questionable,
and wondered if Iran would be able to import refined oil from
Venezuela.)


8. (S) CAPT Pavel Soifer from the IDI made the following
points:


A. It is not clear that China will be able to deliver the
technology that Iran wants and needs. IDI has seen evidence
that there are numerous discussions and MOUs on investments
(including on upgrading Iran's refinery sector),but China
cannot build all the refineries that Iran will need. In this
case, Iran will have to rely on Western firms.


B. IDI agrees that Iran is moving money and assets to China
and Malaysia. It is also moving money and assets to South
Africa.


C. IDI is building an economic damage assessment model to
measure the impact of sanctions. IDI's current assessment is
that the impact of sanctions is mixed. Iranians at the
working level are very nervous about the current situation in
Iran. They worry about where to put their money. People are
appealing to decision-makers, but also express the view that
they can cope in spite of the pressure. The decision-makers
are not feeling the pressure and will continue with the
current nuclear policy. Public debate shows that Iran's
economy is vulnerable. Israel and the U.S. should be
encouraged by this, but in the IDI's view, the level of
pressure is not significant enough to change public
confidence in the ruling regime's ability to resolve problems.


9. (S) Responding to a question from DOE/NNSA Deputy
Administrator Tobey, Soifer said that there is evidence that
Iran is trying to forge an oil and gas coalition with Russia,
and is trying to establish a new non-aligned movement.
Soifer said it is not clear that Iran will be successful in
forging such a coalition with Russia, as Russian and Iranian

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strategic interests are very different. He added that gas
production cannot be changed as quickly as oil production.
He noted that Iran is in the process of concluding 25-year
gas supply contracts with countries that will rely on using
gas pipelines or liquefied natural gas (LNG). This means
that Iran will have to rely on France, the U.S., Japan, and
South Africa for LNG technology.


10. (U) Under Secretary Robert Joseph has cleared on this
cable.

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