RENEWING THE MESSAGE ON IRAN CONCERNS

C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 001376

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/22/2017
TAGS: PREL ETTC EFIN ENRG KNNP IR TU AM
SUBJECT: RENEWING THE MESSAGE ON IRAN CONCERNS

REF: A. STATE 155764


B. YEREVAN 1359

C. YEREVAN 1325

D. YEREVAN 1274

Classified By: CDA Joseph Pennington, reasons 1.4 (b, d)


1. (C) SUMMARY: CDA conveyed Ref A points to the Foreign
Minister, Energy Minister, and presidential chief of staff,
while A/DCM conveyed to senior staff of the prime minister
(Ref B). All interlocutors insisted Armenia had no intention
to build infrastructure capable of exporting Iranian gas
through Armenia onward to Georgia or other markets. Our
contacts were dismissive of the oil refinery proposal,
characterizing it as in the realm of feel-good discussions,
but not at this point anything like a serious initiative.
The ministers each commented that Armenia is forced to have
trade relations with Iran, in large part because of the
closed border and bad relations with Turkey. END SUMMARY

FOREIGN MINISTER
--------------


2. (C) CDA and A/DCM called on FM Oskanian November 16 to
deliver Ref A demarche. CDA explained that he was calling on
the FM on instructions from Washington to raise our serious,
ongoing concerns about Armenia's Iran relationship,
especially in the wake of the visits of Iranian President
Ahmadinejad and Defense Minister Najjar. CDA noted that
former CDA Perina had sought an immediate readout from
Oskanian (Ref D) on the Ahmadi-nejad visit and had registered
some concerns at that time, but CDA was now in a position to
offer an authoritative response from Washington. CDA
presented U.S. concerns under three broad headings: general
political engagement and optics, energy cooperation, and
enforcement of financial sanctions, conveying the Ref A
points.


3. (C) FM Oskanian responded that Yerevan State
University's decision to award a gold medal and an honorary
degree to the Iranian president was "stupid" and something
for which he had also taken a lot of flack from Armenian
Diaspora groups. He said that the MFA had had no advance
knowledge of the plan to give the awards to Ahmadinejad, and
he would have recommended against it had he known. On
energy, Oskanian said that Armenia had no current plans to
build new infrastructure capable of exporting Iranian gas
beyond Armenia. He said, "This won't happen for at least the
next ten years, and hopefully by then you guys will have
managed to settle your difficulties with Iran." On the
mooted oil refinery at the Armenian-Iranian border, Oskanian
said so far it is at the "just talking" stage, and the
project may never materialize, but anyway "your point is
taken."


4. (C) On Bank Mellat, the FM asked if we expected the GOAM
to shut down Bank Mellat altogether, or just what we were
asking. CDA said closure would be ideal, but we had asked
the GOAM at the least to more closely monitor Bank Mellat and
ensure that it was not being used to finance terrorism or
further the activities of designated entities. Oskanian
indicated that this could be done.


5. (C) Oskanian commented that Armenia's situation makes it
impossible for Armenia not to have trade relations with Iran;
things would be different if Armenia's Turkish border were
open. He pointed out that just that week, Turkey had without
warning or explanation closed its airspace to Armenia's flag
airline Armavia's flights to Beirut and Aleppo. The air
corridor was just about the only positive interaction Armenia
had with Turkey, and now it seemed the GOT wanted to put an
end to that. Meanwhile, Oskanian said, Georgia is
perennially unstable with its fractious Russia relations. In
this environment, Armenia had to preserve a viable trade
channel through Iran. CDA said he understood Oskanian's
frustration over the Turkish civil aviation authority's
unexplained action, but conveyed our understanding from
Embassy Ankara that was in the process of being reversed by
the GOT. (NOTE: Indeed the civair problem was corrected by
the evening of November 20. END NOTE) While we could
appreciate the FM's point, CDA urged again that this
relationship be kept to the minimum extent possible, taking
due note of the broader international context and Armenia's
obligations. Oskanian agreed.

ENERGY MINISTER
--------------


6. (C) CDA and EconOff called on Energy Minister Movsisyan
November 19 to convey Ref A points, especially focusing on
the energy issues. While we yet had reservations about the

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nearly-complete pipeline from Iran to central Armenia, the
minister should understand that additional pipeline capacity
that enabled Armenia to re-export Iranian gas onward would be
a much bigger red flag for the U.S. and likely would trigger
the Iran Sanctions Act. CDA said that a joint project to
build an oil refinery on the Iran-Armenia border would also
be quite worrisome and a potential sanctions concern.


7. (C) Movsisyan insisted that Armenia's energy cooperation
with Iran was intended solely to diversify Armenia's energy
supplies, since Armenia must constantly worry about the
possibility that Russian gas supplied through Georgia might
be cut off due to the ever-volatile Russian-Georgian
relationship. He explained that all Armenia's energy
cooperation projects represented a barter system, such as the
seasonal electricity swap and the almost-complete small gas
pipeline whose production Armenia would pay for with
electricity exports. Movsisyan noted that Armenia had
downscaled the Iran-Armenia pipeline; from the original
proposal of a 5.6 billion cubic meter annual capacity, the
project was reduced to just 2.3 bcm, or roughly Armenia's
annual demand. (COMMENT: Movsisyan did not point out that
the downsizing came after heavy pressure from Moscow -- in
addition to U.S. concerns -- which does not appreciate the
idea of Iranian competition for Gazprom in European markets.
END COMMENT) Movsisyan noted that it is not technically
possible to expand the capacity of the pipeline which is now
almost complete. The possibility of onward export would
require new pipelines (probably 10-15, he said, in order to
ship a commercially significant quantity),which is not on
the cards. His past public comments on this point had been
to the effect that if European countries approached Armenia
with such a proposal, he would certainly be prepared to
listen, but Movsisyan said there are no such plans.


8. (C) On the Iran-Armenia-Russia joint project idea for an
oil refinery, Movsisyan expressed doubt that it would ever be
built. He commented that refineries are typically situated
close to a seacoast or pipeline, and Armenia has neither. The
third-best option would be a railroad, which is less
efficient than a either seaport or pipeline, an construction
of this would add considerable cost to the proposal.
Movsisyan did point out, however, that Armenia's supply of
refined petroleum products remains problematic and expensive,
with indirect and costly transit routes.


9. (C) Movsisyan lamented Armenia's poor political relations
with Turkey, commenting that the two countries could enjoy
considerable mutual benefits from electricity cooperation.
He asserted that Turkey would be a much better partner for
Armenia than Iran. He felt that Armenians and Turks could
understand each other, culturally, while Iranians..."those
people are just very different" he commented.

PRIME MINISTER'S AND PRESIDENTIAL STAFF
--------------


10. (C) CDA mentioned our Iran points during a conversation
with the presidential chief of staff Armen Gevorgian on
another matter. Gevorgian asserted that both Ukraine and
Georgia had expressed interest in the past in purchasing
Iranian gas through Armenia -- in both cases the GOAM had
declined. While insisting that the Yerevan State University
decision to award Ahmedinejad had been "completely
independent," he noted that the Iran government provides
significant financial support for the university's Oriental
Studies Department. It would have been risky, therefore, for
the university to have given Ahmadinejad short shrift. A/DCM
also raised the points with two of the prime minister's key
aides (reported Ref B),who echoed similar themes as above,
if in less detail. We have confidence these messages would
have been conveyed to the president and PM.

COMMENT
--------------


11. (C) Post believes it is important to continually remind
our Armenian partners of our serious concerns about Iran
engagement, and particularly about its obligations under
UNSCRs and the risk of running afoul of U.S. sanctions.
Given Armenia's geographic and economic situation, and
perception of its own national interests, there is a limit to
how much we will ever be able to curtail its activities with
Iran. However, we also believe it is important to maintain a
steady drumbeat on the issues over time. This has value
partly because we can successfully influence Armenia's
political behavior on the margins toward restraint, and often
secure cooperation on narrow technical issues, such as
explicit sanctions enforcement or financial monitoring. It
is also valuable to ensure that we never "let up" as GOAM
leaders show an unfortunate "wishful thinking" tendency to

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conclude we have given tacit approval of its Iran initiatives
when we let these episodes go unanswered.
PENNINGTON