STATUS ON EU SANCTIONS ON IRAN

S E C R E T SECTION 01 OF 02 BRUSSELS 000924 NOFORN SIPDIS STATE FOR NEA/IR, ISN/RA, EUR/ERA, EEB/ESC/TFS, SC/T, IO, VCI, P AND T TREASURY FOR TFFC, TFI E.O. 12958: DECL: 06/17/2018 TAGS: EFIN ETTC ETRD KTFN PREL PARM PINR PTER KNNP AORC, TRGY, SNAR, KCRM, UNSC, EUN, IR SUBJECT: STATUS ON EU SANCTIONS ON IRAN REF: USEU 00894 Classified By: USEU Charge Christopher W. Murray for reasons 1.4(b),(d) ,(e) ¶1. (S//NF) SUMMARY:Our diplomatic and political efforts to speed up European implementation of UN Security Council Resolutions (UNSCRs) and related financial sanctions appear to be gaining traction following the President,s trip to European capitals and a trip by the European Union,s High Representative for Common Security and Foreign Policy (HR) Javier Solana to Tehran. EU Member States will designate Iran,s Bank Melli at the next Council meeting of Ministers (Monday, June 23; the Agriculture Council). They will designate it by adding the bank to the Annex issued as part of the EU,s implementing measures regarding UNSCR 1747. Consensus exists among the EU-3 (Germany; France; UK) plus Italy on the need to implement UNSCR 1803 vigorously; action is expected in the fall under the French Presidency. Oil and gas sanctions are not included in either package at this stage. End Summary. ¶2. (S//NF) BACKGROUND: While EU foreign ministers were meeting on June 16 in Luxembourg at the General Affairs and External Relations Council (GAERC),Prime Minister Gordon Brown announced UK and EU sanctions policy breakthroughs in a joint press conference with President Bush. Subsequent efforts to clarify and delimit the EU component have generated inconsistent stories in the press. Our conversations in the last twenty-four hours with Robert Cooper at the EU Council Secretariat have clarified the EU,s current sanctions plans over the course of the next eighteen months. CLARIFYING EU PLANS ) MELLI SANCTIONS SCHEDULED FOR NEXT WEEK ¶3. (S//NF) In a phone call with Charge d,Affaires (CDA) on June 16, Robert Cooper indicated that Prime Minister Gordon Brown "misspoke" during the press conference with POTUS in London earlier that day. No EU sanctions would emerge from the GAERC session in Luxembourg that day. (NOTE: PM Brown said: "And so today Britain will urge Europe and Europe will agree to take further sanctions against Iran. First of all, we will take action today that will freeze the overseas assets of the biggest bank in Iran, the bank Melli. And second, action will start today for a new phase of sanctions on oil and gas."). Instead, Bank Melli was scheduled to be designated and subject to EU sanctions at the next Council meeting (Monday, June 23; the Agriculture Council). The action would be undertaken as an "A Point" item for action without discussion. (PROCEDURAL NOTE: This mechanism is common in the EU process. The relevant ministers make the necessary political decisions in one Council configuration and then ask the next consecutive Council configuration to promulgate the necessary implementing legal texts. The mechanism is only used when no further political discussion is needed.) ¶4. (S//NF) In a follow-up phone call with Mission FinAtt on June 17, following his briefing for European Union Member States, Political and Security Ambassadors, Cooper specified that the sanctions action would be undertaken by adding Bank Melli to the Annex of designated entities under the Council legal acts that implement UNSCR 1747. FinAtt asked about the mood in the Member States and, in particular, whether some Member States would be irked by PM Brown,s statements to the press. Cooper conceded that some Member States were not happy with PM Brown at present, and that risks of course always exist. But he was reasonably confident the Agriculture Council would act regarding Bank Melli next week. (NOTE: In the last few weeks, several Embassies and some press have reported that significant funds have already been transferred by Bank Melli from the European banking system and back to Iran.) BRUSSELS 00000924 002 OF 002 ACTION ON UNSCR 1803 STILL PENDING - BUT OIL & GAS SANCTIONS NOT INCLUDED ¶5. (S//NF) Cooper also indicated that implementation regarding UNSCR 1803 would not occur on Monday, June 23, and that it remained on a separate track. He doubted whether implementation would occur before the August break. There was forward motion, however. Now France, Germany and Italy ("EU-3") and Italy have reached a consensus on the need to implement UNSCR 1803 "in a more robust manner." ¶6. (S//NF) Discussions remain underway concerning the scope and content of UNSCR 1803 implementation in Europe, reported Cooper. He indicated that even the most robust implementation of 1803 would not include oil and gas industry sectors. The Member States "need to consider carefully" the implications of action against these Iranian sectors in light of broader European concerns regarding energy security of supply. He noted that Member States watch closely and with concern growing ties between Iran and China as well as Gazprom,s increased activities in Tehran. He implied that sanctions in the oil and gas sector might not be the best tool to address these broader EU concerns. (NOTE: This substitution argument is frequently raised by other Member States and EU Commissioner Ferraro-Waldner and her staff when opposing additional sanctions. They argue that European business interests and strategic access to energy supplies could be compromised because Iran will turn to other partners such as Russia and China to fill the void left by vacating European companies.) ¶7. (S//NF) FinAtt asked whether the pending contract negotiations between Baghdad and Brussels might generate greater security and diversity of supply to Europe. Cooper responded that in principle the answer was positive, but the expectation was that it would take a number of years before reliable gas supplies were available to Europe under this contract. Consequently, the contract with Baghdad would not go far in addressing Europe,s immediate needs. He also noted the "unhelpfully asymmetric" nature of Gazprom,s engagement with Iranian officials. ¶8. (S//NF) Cooper then volunteered information regarding HR Solana,s trip to Tehran over the weekend to present the latest proposal to Iran for constructive engagement with the international community. He underscored that Solana had made clear to the Iranians that the EU would freeze its sanctions activity if Tehran were to accept the P5 1 offer. Therefore, action on Bank Melli next week would show the EU,s ability and willingness to take action. Cooper considers the designation of Bank Melli to be a key part of the EU,s carrot and stick approach in which the EU shows an ability to wield the stick in order to make the carrot (increased engagement with the international community; cessation of enrichment activities) more attractive. ¶9. (S//NF) However, Cooper does not expect the Iranians to accept the P5 1 offer quickly. He believes that Tehran will continue to stall for time. In fact, Cooper and Solana viewed their trip to Tehran as "sowing seeds that would flower in the spring of 2009." In the interim, the EU will continue to work on UNSCR 1803 implementation as this provides another incentive for Tehran to act and forestall additional EU activity. FinAtt asked Cooper for his views on the principal drivers for the delay in Tehran. Cooper replied that the U.S. Presidential elections provide the "rickety" Iranian government (which already has a difficult time taking decisions) with an excellent excuse to "do the easy thing: nothing." Cooper indicated he has told the Iranians that "if they are clever, they could act at the end of an Administration as striking at deal at the beginning of a new Administration could prove difficult." MURRAY .