GOI OUTLINES POSSIBLE U.S. GESTURES TO IRAN

S E C R E T SECTION 01 OF 03 TEL AVIV 001863

SIPDIS

E.O. 12958: DECL: 08/25/2016
TAGS: ECON PREL IR IS
SUBJECT: GOI OUTLINES POSSIBLE U.S. GESTURES TO IRAN

Classified By: Charge d'Affaires Luis G. Moreno, Reason 1.4 (b) (d)

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Summary
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1. (S) On August 17th, Israeli Defense Intelligence (IDI)
gathered a round-table of in-house experts to discuss
possible gestures to Iran that the U.S. and international
community could utilize during negotiations over Iran's
nuclear program and the resumption of relations. The panel
consisted of economic, political, military, and psychological
analysts, representing a diverse set of opinions on Iran.
The group highlighted the importance of economic stability
and political survival for the Iranian regime, and outlined
specific "carrots" that the U.S. and international community
could offer to this end. The open discussion and
prescriptions for engagement from this dialogue contrast
sharply with the more prevalent GOI calls for increased
economic pressure on Iran (see septel) and provide a glimpse
into alternative Israeli thinking about approaching the
Iranian issue. The panel chair provided a read-out to
Econoff on August 18th. End Summary.

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Top-Tier Gestures: Economic and Political Stability of the
Iranian Regime
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2. (S) After the recent elections in Iran, GOI officials view
regime survival as the leadership's primary concern. The GOI
believes that advisors close to President Ahmadinejad and
Supreme Leader Khamenei view the deteriorating economic
situation as one of the key threats to regime stability.
These advisors realize that China and other Asian nations are
not the answer to Iran's economic problems, and understand
that Iran also needs economic ties with the West. While GOI
officials maintain that these advisors are accurately
assessing Iran's economic situation, they have not seen any
evidence to support this in Ahmadinejad and Khamenei's
actions. For this political echelon, any outreach that would
serve to minimize internal or international dissent with the
regime and its policies or actions would be extremely
valuable. The GOI panel outlined the following economic and
political gestures as the "top-tier" of possible offers, due
to its assessment of the Iranian regime's desires and the
political/economic climate:

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Top-Tier Economic Gestures
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3.(S) GOI officials assess that in the short-term, banking
issues are critical for the survival of the Iranian regime.
The Central Bank of Iran (CBI) has been losing money--over
USD 5 billion in foreign reserves over the past year. Export
earnings have fallen because of oil prices. Though imports
are down, they have not decreased at the same rate--leading
to a further loss in foreign exchange due to financing. GOI
officials note that what clearly worries the Iranian regime
right now is finance. In the last few months, the CBI has
been working behind the scenes to address these issues.
However, in the past weeks, this discussion has moved into
the public sphere as the CBI has resorted to pushing for text
in the next budget bill to provide money to finance the
banking sector.

--Therefore, the GOI claims that gestures to help ease the
financial burden on the Iranian banking system would be of
critical importance to the Iranian regime in the short-term.
Such offers could include decreasing pressure from the
Financial Action Task Force on Money Laundering and Terrorist
Financing (FATF),from U.S. designations and related outreach
programs, and/ or by not restricting new Iranian government
bonds (of which Iran plans to issue more than USD 10 million
in the coming months).


4. (S) Due to U.S. and international sanctions and other
pressure, the GOI assesses that Iranian gas and petrochemical
industries have not received adequate finance and know-how to
fully exploit existing gas fields and to develop new
projects. For instance, according to the Iran-Qatar
agreement regarding the development of South Pars gas field
the two countries were supposed to split the reserves
equally. However, Iran has not been able to tap its reserves
to the same degree as Qatar because of the technological gap.
Though China has provided some funding and know-how, the GOI
believes that Iran still desires greater partnership on these
issues with the international community.

--The GOI thinks the U.S. and international community could
offer to ease restrictions on the development of future

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projects in the gas and petrochemical sectors. While such a
gesture would be highly significant to the Iranian regime, it
would be a relatively risk-averse proposition for the
international community since development of such projects
could take in excess of five years. During this time,
reassessments could be made regarding the progress of
negotiations with the Iranians.


5. (S) On longer-term economic viability, GOI notes that Iran
is in the midst of upgrading between five and seven gasoline
refining facilities. These projects will be completed
between a half-year and 3 years' time. GOI estimates that
these new facilities will cut Iran's reliance on gasoline
imports by around 50 percent. However, in order to entirely
halt the importation of gasoline, Iran would need to also
construct new refining facilities. Despite the regime's
intentions and plans, they have encountered serious financial
difficulties as well as a general reluctance from
international companies to engage in such projects. Also,
Iran's major car companies are facing bankruptcies stemming
from--among several issues--international economic pressure
and decreasing partnership with European car manufacturers.
Though Iran is establishing new relationships with Chinese
car manufacturers, these have not been able to supplant its
former European ties.

--Given the severe economic impact of rising gasoline prices
and shortages, the GOI thinks that the U.S. and international
community could offer to decrease pressure on the importation
of gasoline and/ or companies helping Iran to upgrade its
facilities and capabilities.

--The U.S. and international community could also offer to
encourage renewed cooperation between Iranian and European
car manufacturers.

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Top-Tier Political Gestures
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6. (S) The GOI team assessed the following to be the most
important political gestures that the U.S. and international
community could make, from the Iranian leadership's
perspective:

--Vow to decrease or cease public pronouncements on the
international stage critical of the Iranian regime: GOI
officials believe that the Iranian leadership views much of
the current domestic dissent as being caused by a "superpower
behind the scenes." They see public pronouncements by the
international community on the domestic political
situation--including the elections, human rights, prisoners,
and other topics--as only serving to exacerbate internal
strife.

--Filter Voice of America content or cease politically
sensitive broadcasts: GOI notes that the Iranian leadership
is acutely concerned about the broadcasts of Voice of America
and the BBC. The Iranian leadership views Voice of America
as the "head of the spear" trying to penetrate and divide
Iranian society.

--Unfreeze assets: a holdover from the revolution, GOI claims
that unfreezing some or all of Iranian assets abroad could
serve as an important gesture to the Iranian leadership, and
dissipate a long-standing point of contention.

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Other Gestures
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7. (S) The GOI noted other useful gestures in a dialogue with
Iran. From GOI's perspective these offers are not as
important to the Iranian regime's goal of short-term
survival. However, they are linked to its long-term goals
for stability. These gestures include showing greater
"respect" for the Iranian regime and erasing the stigma
attached to it. Along these lines, the GOI assesses that the
U.S. and/or international community could offer to:

--recognize the role Iran plays in establishing order in Iraq
and Afghanistan
--protect and promote Iranian influence in the Persian Gulf
--invite Iran to discussions regarding regional stability
and/or the U.S. withdrawal from and plans for Iraq and
Afghanistan
--offer to stop, freeze or lift sanctions against the Iranian
regime and related entities (Note: The GOI believes the
Iranian regime views these sanctions as a political and
psychological issue--along with being an economic burden.
End Note.)

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Outreach within the Broader Context
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8. (S) Our contact stressed that the GOI panel sought to
identify ideas and offers that it believes will interest the
Iranians--as opposed to the more common discussions of how to
coerce Iran into changing its behavior. However, he
emphasized that the GOI would not necessarily like to see
these suggestions executed. GOI analysts assess that the
tactics of how the gestures are represented would be
extremely important. They believe that the gestures would
have to be made within the context of "aiming to build trust"
as opposed to being pre-conditions for negotiations.
According to the GOI, the Iranians would not accept
conditions for negotiations.


9. (S) They view another possible hurdle being the Iranian
mind-set that the U.S. and international community have
already accepted the "current situation" of uranium
enrichment on Iranian soil. The GOI believes that any future
negotiations with Iran will have to proceed under the guise
of negotiating "how much" enrichment can take place instead
of "whether" it can take place. In order to discuss the
complete halt of enrichment or any similar offer that "goes
back in time", the U.S. and the international community will
have to sufficiently prepare the Iranian leadership for such
an offer or combine it with valuable gestures.


10. (S) The GOI panel believes that there should be further
discussions regarding the implied meaning of these
gestures--and what the Iranians (and international community)
would read into them. Our contact stressed that the GOI panel
believes these specific gestures to be the most relevant
discussion points for Iran, and that U.S. engagement with
Iran will be fruitless without seriously addressing these
topics. Iranians currently view the pending legislation in
favor of increased economic pressure against Iran in the U.S.
Congress as evidence of the "stick" to be used against Iran
in the future. This makes the Iranians wary of any "carrots"
from the USG, such as President Obama's Nowruz message and
leads them to question their sincerity and durability.
However, from the GOI perspective, serious offers along the
above lines could provide a basis for increased Iranian
engagement with the U.S. and international community.

MORENO