SPAIN CONSIDERS INFORMATION SHARED BY IRAN

C O N F I D E N T I A L SECTION 01 OF 04 MADRID 001087

SIPDIS

STATE FOR EUR/WE, NEA/IRAN, ISN, EEB/TF, P SPECIAL ADVISOR
MULL, NEA FOR A/S FELTMAN
TREASURY FOR TERRORIST FINANCE & FIN CRIMES/STACK AND BURKE

E.O. 12958: DECL: 11/28/2029
TAGS: EFIN KNNP MNUC PARM PREL SP IR
SUBJECT: SPAIN CONSIDERS INFORMATION SHARED BY IRAN
BRIEFING DELEGATION

REF: MADRID 1006

MADRID 00001087 001.2 OF 004


Classified By: Charge D'Affaires Arnold Chacon for reasons 1.4 (b) and
(d)


1. (C) SUMMARY. The Iran briefing delegation, with
representatives from DOS and Treasury, held discussions with
a number of Spanish interlocutors, as well as E3 country
resident diplomats, on October 22 and 23 in Madrid. MFA
Director General for Foreign Policy Alfonso Lucini
(P-equivalent) made clear that, while Spain supported the
P5 1 process, it was critical to exhaust the engagement track
before pursuing any additional pressure tactics. While Spain
would support measures derived through the UNSC process, he
questioned the efficacy of sanctions and expressed doubt
about pressure tactics given the internal dynamics of Iranian
politics. Spain agrees that discussions should be underway
on developing measures to increase pressure on Iran, however,
Lucini also insisted that dialogue must be the primary track
of engagement, followed by action in the UNSC. Assistant
Secretary-equivalent Fidel Sendagorta offered his skepticism
regarding what pressure tactics would achieve with Iran. He
believed that the U.S. and others did not have adequate
information about Iranian internal affairs that would impact
Tehran's decisions on the nuclear file. Sendagorta
questioned strongly if increased pressure on Iran would
inspire its leadership to engage with the international
community or if it would give leverage to those who sought to
increase power by "defying outsiders". Sendagorta also
pondered if the Iranian leadership was confident in their
control, post-summer 2009 events, so that they would be
willing to take risks. During technical meetings with
working-level contacts at the Commerce Ministry and Treasury
Department, Spanish interlocutors noted that Spain vigorously
enforces existing sanctions and would be willing to implement
additional measures, if they were consensus actions under
UNSC and/or EU authority. UK, French and German diplomats in
Madrid offered their joint assessment that Spain will need to
show both its domestic constituency and reluctant EU partners
that the UN track has been exhausted before any additional
sanctions on Iran are considered. END SUMMARY.


2. (C) In an October 23 session with Assistant
Secretary-equivalent Fidel Sendagorta and a team of MFA
office directors and desk officers working on Iran issues,
the U.S. delegation gave an overview that focused on the need
for concrete results from Iran, as well as international
consensus on next steps given the need for swift action
should positive results not emerge from the next political
directors meeting. Sendagorta offered his skepticism
regarding what pressure tactics would achieve with Iran. He
believed that the U.S. and others did not have adequate
information about Iranian internal affairs that would impact
Tehran's decisions on the nuclear file. Sendagorta
questioned strongly if increased pressure on Iran would
inspire its leadership to engage with the international
community or if it would give leverage to those who sought to
increase power by "defying outsiders". Sendagorta also
pondered if the Iranian leadership was confident in their
control, post-summer 2009 events, so that they would be
willing to take risks. The USG delegation reinforced the
point that seven years of discussions with Iran had not
brought results, and holding back in the face of continued
recalcitrance or obfuscation would only show Iran that there
were divisions in the international community that could be
exploited to Iran's advantage. If further action was needed
(e.g., if the Tehran Research Reactor refueling project did
not proceed as planned or if Iran failed to facilitate IAEA
inspections at Qom),then an immediate targeted response,
consisting of a gradual increase in pressure was a critical
element of the dual-track strategy.


3. (C) Joaquin de Aristegui of the MFA's Bilateral Economic
Relations Office asked for more details on the economic
dimension of an increased pressure strategy. Aristegui
questioned how any additional measures could be effective
given the unlikelihood that India, Russia, China, South
Africa and Iran's neighboring countries would support any
US-EU plan for targeted economic pressure. In response to a
description of some of the tactics under consideration, along
with encouraging analysis of the historic impact of prior
economic measures pinching or disrupting Iran's economic and

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financial interests, Aristegui countered that given alternate
suppliers, the U.S. and EU would not be able to avoid trade
diversion in the absence of a UNSCR.


4. (C) During a separate session, MFA Director General for
Foreign Policy Alfonso Lucini (P-equivalent) made clear that,
while Spain supported the P5 1 process, it was critical to
exhaust the engagement track before pursuing any additional
pressure tactics. He questioned the efficacy of sanctions
and expressed doubt about pressure tactics given the internal
dynamics of Iranian politics. Lucini said that Spain would
represent EU consensus during its upcoming January-June 2010
Presidency, but that sanctions would need to evolve through
the UNSC. He also expressed concern about the potential
negative consequences of increased pressure on Iran with
regard to the Middle East Peace Process and regional power
struggles among Iran and its neighbors. Asked for his ideas
on how to facilitate EU consensus, as well as engage with the
aligned movement, Gulf States, Russia, China and India,
Lucini said that the MFA looked forward to further talks with
the U.S. to refine common strategy. Lucini expressed
particular interest in meeting with NSC Ross when he next
traveled to Washington and welcomed a potential visit by
Ambassador Mull sometime in November.

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COMMERCE MINISTRY AND TREASURY IMPLEMENTING FULLY EXISTING
SANCTIONS -
WILLING TO CONSIDER OTHER MEASURES UNDER COVER OF UNSC
RESOLUTIONS
--------------


5. (C) The delegation met on October 22 with Juan Manuel
Vega, the Finance and Economy Ministry's Deputy Director
General for Inspections and External Transactions. Vega, who
was accompanied by adviser Jorge Fernandez-Ordas, emphasized
that his interest was in implementing effectively whatever
policy was decided upon at the international level, not in
considering broader policy questions. Vega described Spain's
position as not "hard-line" but "progressive." He cited the
value of common EU action and said he thought the EU would
continue to go beyond the requirements of UNSC resolutions.
He twice said Spain was hesitant to take unilateral actions
independently of the EU, for both political and practical
reasons, and he said the GOS was skeptical about the
effectiveness of such actions. He said the GOS had issued an
advisory to banks explaining the possible risks of
Iran-related transactions and added that it was studying a
number of (unspecified) initiatives. While the GOS was
considering whether to require reporting of all transactions
with respect to Iran, it thought that just talking to banks,
as it was doing, was more effective.


6. (C) Vega said that Iran's central bank had approached the
GOS suggesting that it conduct a "study visit," which he
viewed as an effort to break Iran's diplomatic isolation.
The GOS had said the time was not right. Vega also expressed
concern about banks, limited capacity to know who the
beneficial owner was in a transaction and asked about the
delegation's view of the impact of existing measures.


7. (C) The delegation met on October 23 with Secretary
General for Foreign Trade Alfredo Bonet of the Ministry of
Industry, Tourism, and Commerce. Bonet noted that his
ministry did not take sanctions decisions, but merely
implemented them "robustly." He said the GOS had in the last
couple of years increased significantly its use of its
catchall clause to require that firms seek permission to
export to Iran potential dual-use items. As it had broadened
the scope of what items might be dual-use, GOS statistics for
approval of dual-use exports to Iran had also increased, but
he said this did not reflect an increase in actual exports.


8. (C) Bonet said Spanish companies were very concerned
about the risks of doing business with Iran, and that the
only ones doing so were ones with long-standing
relationships; no new companies were entering the market.
Most of the trade involved small and medium-sized firms
exporting pipes, valves, tubes, and machine tools, which the
GOS looked at very closely. Some complained that Russian and
Chinese competitors would make any sales they were not
allowed to. In response to a request from the delegation,

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Bonet expressed willingness to talk with China, India, and
other countries about controlling their companies, exports
more closely. When asked about Spain's export credit agency
CESCE, he said its level of operations for trade with Iran
was low compared to that in Italy and Germany. He said the
main users were engineering companies the GOS knew well that
had long histories of trade with Iran. He said CESCE had for
the last few years had a ceiling on its total exposure to
Iran, though he acknowledged that this did not prevent it
from supporting new operations as old ones were completed.
In discussing possible future measures, Bonet said he did not
know of any Spanish exports of telecoms equipment of concern
or gasoline but that energy investment measures would affect
Spanish interests. More generally, Bonet said the GOS would
be willing to adopt additional measures if they were
proportionate, but it would need a common position by the
UNSC or at least the EU.

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E3 DIPLOMATS SAY SPAIN MUST BE PERSUADED THAT DIRECT,
IMMEDIATE RESPONSE IS NEEDED -
APART FROM DRAWN OUT NEGOTIATIONS OVER UNSC RESOLUTIONS
--------------


9. (C) After meeting with Spanish counterparts, delegation
members met October 23 with like-minded diplomats from the E3
embassies in Madrid working on P5 1 related issues. A
British diplomat said that their working level contacts
reported President Zapatero was so focused on building a
partnership with President Obama, that almost any specific
and direct request in a personal meeting or phone call was
likely to receive a positive response. The British Embassy
urged that the U.S. delegation consider that factor as a
"chip" to utilize at any critical stage during the process of
developing U.S.-EU consensus on next steps. He also noted
Spanish preoccupation with the potential impact of increased
pressure on Iran with respect to the Middle East Peace
Process (MEPP). UK, French and German diplomats in Madrid
offered their joint assessment that Spain will need to show
both its domestic constituency and reluctant EU partners that
the UN track has been exhausted before any additional
sanctions on Iran are considered. From an EU perspective,
they also reminded that information from Javier Solana at
higher EU levels did not flow into the Spanish policy making
bureaucracy in this administration.


10. (C) According to E3 colleagues, the challenge is
persuading Spain that the luxury of sequential action does
not exist given the need for a direct, timely response in the
dual-track strategy. The Zapatero administration will
continue to focus its rhetoric on the importance of dialogue
and Spain's role as a special messenger between the
"hard-line countries" and Iran. Asked about the potential
success of an expansive interpretation of existing
authorities, rather than adding new sanctions, other
diplomats noted that Spain believes strongly that threats
undermine negotiations. However, while Spain may not
actively work toward developing new measures, it may respond
positively to a U.S. outline of "official trigger points"
after the next political directors meeting, especially if
President Zapatero is pressed directly by President Obama.
All agreed that the most difficult scenario would be managing
half measures or ambiguous responses from Iran. In that
circumstance, Spain was most likely to take a passive role,
emphasizing that they will represent EU consensus and
implement UNSCR resolutions, while not exerting any
leadership to work towards those outcomes. Other diplomats
also agreed that Spain was likely to respond positively to
any proposal framed in a way that would give President
Zapatero a chance to take credit for promoting dialogue
between the parties as he tries to burnish his international
profile for his domestic constituency.

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


11. (C) COMMENT: Spain is qualifying its responses to our
requests for strong support at this point. Yes, they will
support the P5 1 process, but they are not themselves
expending any political capital to move the EU forward toward
consensus on increased pressure tactics. Yes, they support

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increased pressure on Iran, but within the context of
exhausting dialogue and working through the UN to achieve
consensus on additional UNSCRs. Yes, they have told Iran
that the international community will not allow any wedges to
create divisions in the dual-track strategy, but at the same
time they are not anxious to take any steps they view as
counter-productive, such as sanctions or actions that might
have unintended consequences for the MEPP or regional power
struggles. Post recommends that standard talking points on
Iranian proliferation be kept on hand for use whenever the
Secretary speaks to Moratinos. He should be reminded that
the USG looks forward to Spain's views on how to enact the
direct, timely response essential to the dual track strategy,
especially given that prolonged, sequential steps following a
drawn-out UNSCR process would set back our efforts. A visit
by Ambassador Mull, engaging not only MFA officials but also
foreign policy advisors in the Presidency, would be extremely
helpful. It would also be useful to offer senior-level
appointments to Spanish officials visiting Washington (e.g.
we understand DG for the Middle East Fidel Sendagorta hopes
to see A/S Feltman the first week in December; this would be
an important opportunity to hammer home USG views on Iran).
An intel community briefing on Iranian proliferation
activities, releasable to Spanish interlocutors, would be
invaluable to move Spanish thinking forward on the need to
plan for next steps. (noting the success of the Syria
briefing in Spring 2009 here in Madrid). At this point,
Spain doesn't see that it gains anything for its national
agenda by taking leadership of this issue. President
Zapatero and his team, however, may be swayed by continued
high-level engagement from the White House in the lead-up to
and during the EU Presidency. END COMMENT.
CHACON