CHANCELLERY DISTANCES MERKEL FROM IRANIAN

C O N F I D E N T I A L BERLIN 001090 SIPDIS STATE FOR P, E, EEB, EUR/EC, ISN, NEA/IR TREASURY FOR EDDY AND KOHLER E.O. 12958: DECL: 08/08/2033 TAGS: ETTC EPET PREL EINV ENRG ETRD IR GM SUBJECT: CHANCELLERY DISTANCES MERKEL FROM IRANIAN GAS-TO-LIQUIDS DEAL REF: BERLIN 1050 Classified By: Classified By: Economic Minister-Counselor Robert Pollar d for reasons 1.4(b) and (d). ¶1. (SBU) After initially taking a defensive stance on the controversial sale by a German firm of gas-to-liquids equipment to Iran (Ref),the Chancellery and CDU issued statements clearly designed to dissociate Chancellor Angela Merkel from the decision. On August 6, Chancellery deputy spokesman Thomas Steg told a regularly scheduled press conference that German firms should consider moral, as well as legal, considerations before making such deals. "The government is expecting some sensitivity from businesses," Steg stated, according to Reuters. ¶2. (SBU) Similar statements were cited in the August 8 issue of "Bild", the sometimes sensationalist but immensely popular tabloid. Ruprecht Polenz (CDU),Chair of the Bundestag's Foreign Affairs Committee, told Bild that "this deal harms political efforts to put pressure on Iran and its nuclear program." Eckart von Klaeden, the CDU's foreign policy spokesperson, likewise chided the German company in question. "Businesses have an ethical (not just legal) responsibility, too!" he exclaimed. According to Merkel's chief spokesperson, Ulrich Wilhelm, the deal was "not in the spirit" of the Chancellor's policy toward Iran. ¶3. C) COMMENT. It is clear that Washington's criticism of the deal hit home. As Charge d'Affaires Koenig found in his July 31 conversation with Wilhelm, the decision had gone to national security adviser Heusgen and chief economic adviser Weidmann, but it was unclear whether they ever consulted with Chancellor Merkel herself. By broadly implying that she was unaware of the decision, the Chancellery and her party's foreign affairs leadership are trying to dissociate her from an action that drew censure from Washington, Tel Aviv, London, and elsewhere. The problem is that the various statements beg the question, if the contract was completely legitimate, does the government actually expect companies to self-regulate exports? In our experience, "Mittelstand" (SME) firms strongly reject the argument that their business with Iran is somehow "immoral" or "unethical." According to Chancellery and MFA sources, the Chancellor has dissuaded very large German companies from engaging in LNG projects in Iran, but it will be difficult to compel the Mittelstand to comply on lesser projects solely on moral grounds, in the absence of export controls specifically restricting military or dual-use products. The Embassy will continue to press German officials on this and related points in the near future. TIMKEN JR