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
.