AUSTRIA'S ECONOMIC RELATIONS WITH IRAN

UNCLAS SECTION 01 OF 02 VIENNA 000531

SIPDIS

SIPDIS, SENSITIVE

E.O. 12958: N/A
TAGS: ETRD EINV PGOV PREL IR AU
SUBJECT: AUSTRIA'S ECONOMIC RELATIONS WITH IRAN

REFS: A) VIENNA 518 B) VIENNA 142 C) 07 VIENNA 2815 D) 07 VIENNA

2453 E) 07 VIENNA 1604


Summary
--------------


1. (SBU) Austrian exports to Iran declined by 7.2% in 2007,
following a drop of 21.7% in 2006. However, Iranian exports to
Austria - 80% of which was energy -- Austria jumped 57.1% in 2007.
Overall trade remained a very small part (.24%) of Austria's total
trade, although Iran is still an important export market for a small
core of Austrian businesses. The Austrian Economic Chamber
continues to promote commerce with Iran, but Minister of Economics
Martin Bartenstein noted that Iran's nuclear program "cast a cloud"
over its commercial relations with Austria. Austria's export
guarantee entity, the Kontrollbank, has reduced its risk exposure
vis-`-vis Iran by Euro 100 million in 2006 and Euro 70 million in

2007. A Kontrollbank contact confirmed that the bank is "step by
step reducing its cover" for business in Iran. The Kontrollbank
will reportedly only guarantee projects with a value up to Euro 3-4
million, consisting primarily of consumer goods. Official
statistics list only one major Austrian FDI project in Iran, which
the GoA refuses to identify because it is the only one. Austria's
energy company OMV maintains energy interests in Iran, but all
indications are that OMV has slowed its cooperation with Iran,
pending a resolution of the nuclear dossier. End Summary.


Austrian Chamber Promoting Business in Iran
--------------


2. (U) Approximately 650 Austrian firms export to Iran, of which 30
are present in Iran with sales offices or local joint venture
partners. Austria and Iran hold regular high-level bilateral
economic meetings (mixed commissions),which aim to promote trade
and investment. The Austrian Economic Chamber (WKO) actively seeks
out opportunities for Austrian businesses in Iran. In autumn 2007,
the WKO organized group exhibitions for Austrian firms at two fairs
in Iran in the industrial and energy sectors. For 2008, the WKO
plans group exhibitions at the Iran Oil and Gas Show in May, the
Iran Food, Hospitality and Beverage Show in May, and Iranplast in
November.


3. (U) Despite these promotion activities, the WKO views the
current economic situation in Iran as not particularly promising for
trade and investment due to the Iranian regime's poor economic
policies and the effects of the UN sanctions. Nevertheless, WKO
President Christoph Leitl has consistently publicly argued that
increased commercial relations with Iran could serve as a
confidence-building measure in politically difficult times.
However, during the June 2007 visit (ref E) of Iranian Finance
Minister Davoud Danesh Jafari, Economics Minister Martin Bartenstein
noted that Iran's nuclear program "had cast clouds over
Austrian-Iranian commercial relations."


Austrian Exports to Iran Decline Last Two Years
-------------- --


4. (U) Trade with Iran remained a very insignificant part of
Austria's overall trade (0.24%),and Austrian exports to Iran were
only 0.28% of Austria's total exports in 2007. In the Middle East,
Iran was Austria's third largest (down from second largest in 2006)
trading partner. In 2007, Austrian exports to Iran were Euro 315
million ($472 million),down 7.2% from 2006 and down 21.7% from

2005. Austrian exports to Iran are primarily machinery and vehicles
(55% of total),followed by chemical products and manufactured
products.


5. (U) Imports from Iran continue to fluctuate erratically. In
2005, imports from Iran tripled to Euro 189.5 million, fell 25.5% in
2006 to Euro 141.1 million, then rose by 57.1% to Euro 221.6 million
in 2007. Iranian imports are overwhelmingly energy (80% of total),
followed by raw materials and some manufactured products. In 2006
(latest figures available),Iran was the seventh largest supplier of
oil to Austria (4.3% of total oil imports). Iran ranked behind
Kazakhstan (20%),Russia (16%),Nigeria (15%),Libya (15%),Saudi
Arabia (11%),and Syria (8%).


Export Guarantees to Iran Declining
--------------


6. (SBU) The Austrian Kontrollbank, Austria's export and financing
guarantee entity, continues to grant guarantees to Austrian
exporters to and investors in Iran. However, a Kontrollbank contact
recently told post that the bank is "step by step reducing its
cover" for business in Iran. Total cover for exports and
investments to Iran is now Euro 700 million ($1.0 billion),down
Euro 90 million in 2007 and Euro 100 million in 2006. Cover is
available only for projects with a value up to Euro 3-4 million.

VIENNA 00000531 002 OF 002


Our contact said that there is still a variety of goods for which
applications for cover are issued, but consumer goods represent the
vast majority.


7. (SBU) According to our contact, the Kontrollbank scrutinizes
each application much more closely since UN sanctions were
implemented. In addition, the Kontrollbank continues to submit all
requests for letters of credit to finance exports to the Ministry of
Economics to ensure that no exports to sanctioned firms, or of
controlled items, inadvertently receive financing (ref D).


Foreign Direct Investment
--------------


8. (SBU) In 2004, the GoA and Iranian Government signed new
investment and double taxation agreements. Austrian businesses have
invested in Iran's paper, cement, and packaging industries, and
participate in rail and other infrastructure construction projects.
However, Austrian National Bank (ANB) statistics list only one
Austrian FDI project in Iran and, vice versa, only one Iranian FDI
project in Austria. The values of both projects are reportedly
small (Note: The threshold for inclusion in ANB statistics is a
shareholding of at least 10% and a minimum nominal equity investment
of Euro 72,000). Since there is only one investment in either
direction, the ANB cannot disclose details on these investments for
data protection reasons.


9. (U) The brewery and soft drink manufacturer Ottakringer is
building a Euro 25 million brewery near Tehran with an Iranian
partner, the family enterprise "Kilos Food Industries." The brewery
will be finished in 2010 and produce up to 600,000 hectoliters per
year of Ottakringer's alcohol-free beer. In the meantime,
Ottakringer plans to enter the Iranian market with exports.


OMV's Iranian Interests
--------------


10. (SBU) Austria's energy company OMV has been exploring an oil
field in the Zagros region since 2001. The block was declared
"commercially viable" in 2005 and a development plan is being worked
on, according to OMV publications. In April 2007, OMV signed a
Heads of Agreement to participate in the development of Iran's South
Pars gas field. Both sides had initially hoped to finalize the
agreement by the end of 2007, but OMV contacts have told us that
there has been no significant progress towards finalizing the
agreement (refs A and C). OMV and the GoA, which controls 31.5% of
OMV, appear reluctant to move forward with the South Pars project in
the present political situation in Iran. OMV, as the lead company
in the Nabucco pipeline consortium, would like to access Iranian gas
for the project, pending a resolution of the nuclear dossier (ref
B).

KILNER