US embassy cable - 05OTTAWA3283

C O N F I D E N T I A L SECTION 01 OF 04 OTTAWA 003283 
 
SIPDIS 
 
E.O. 12958: DECL: 11/03/2015 
TAGS: PREL, KNNP, PARM, IR, CA 
SUBJECT: US-EU-CANADA DISCUSSIONS OF IRAN (CORRECTED 
VERSION) 
 
Classified By: POL M/C Brian Flora.  Reason 1.4 (b) and (d). 
 
1. (C) SUMMARY.   On October 26, NEA DAS Gordon Gray and a 
U.S. delegation met with senior EU Commission and Canadian 
officials in Ottawa to exchange views on Iran and discuss 
prospects for addressing human rights and security-related 
concerns.  Topics covered included Iran's internal situation, 
its role and impact in the region, continuing support for 
terrorism and the nuclear impasse.  Bilateral consultations 
with the EU on Arab reform and Iraq will be reported 
septel/notal.  END SUMMARY. 
 
2. (SBU) U.S. Participants: 
- Gordon Gray, NEA DAS 
- Jason Bruder, Iran desk officer 
- Roopa Rangaswamy, nuclear nonproliferation officer (ISN/RA) 
- Lisa Wishman, Embassy human rights officer 
- Patricia Kim-Scott, Embassy polmil officer (notetaker) 
 
Canadian Participants: 
- Mark Bailey, DG Middle East and North Africa, Foreign 
Affairs Canada (FAC) 
- Gordon Venner, Canadian Ambassador to Iran 
- Evelyn Puxley, Director, International Crime and Terrorism 
Division 
- Jeffrey McLaren, Deputy Director, Iran-Iraq, FAC 
- Terry Wood, Deputy Director, Nuclear Nonproliferation 
Division, FAC 
- Benoit Girouard, Iran desk officer, FAC 
- Peter Jones, Privy Council Office (PCO) 
 
EU Commission Participants: 
- Julian  Evans, UK Deputy High Commissioner for the 
Presidency 
- Patrick Laurent, European Commission 
- Bjorn Larsson, European Council Secretariat 
- Chris Kendall, EC Representative Ottawa 
- Martin Gaertner, Austrian Permanent Mission to the EU 
 
CANADIAN PERSPECTIVE ON THE INTERNAL SITUATION 
 
3. (C) Ambassador Venner provided a stark assessment of 
Iran's internal situation.  Ahmadi-Nejad's administration had 
not yet "found its feet"; key cabinet positions remained 
unfilled.  The situation was compounded by the total 
dysfunction of the professional bureaucracy below the rank of 
Deputy Minister due to a dearth of qualified individuals. 
4.  (C) The country's economic situation had worsened 
considerably since the elections, Venner continued. 
Indicators included a sharp drop in "commercial interest" 
from both Canadians and Iranians registered by the Embassy 
commercial section, while the consular section reported a 40 
percent increase in visa requests (over the same period last 
year), and an 80 percent surge in passport applications 
(largely dual nationals).  The drop in commercial activity 
had enabled Venner to deploy a commercial officer on TDY to 
Abu Dhabi where, ironically, a considerable contingent of the 
officer's new clientele happened to be "old" clients from 
Tehran.  The regime has used greater oil revenues to paper 
over economic weaknesses and has increased subsidies for 
commodities such as bread and petrol to mollify the 
population. 
 
5. (C) The transfer of entrepreneurial assets to Abu Dhabi 
and other venues raised the larger question of 'capital 
flight' from Iran.  Venner speculated that the wealth leaving 
the country, fueled by the extensive and systematic 
government corruption, could run as high as CAD 200 billion 
(approx. USD 175 billion). 
 
6. (C) To illustrate the venality of corruption within the 
system, Venner recounted the dilemma of a Canadian 
pharmaceuticals company that regularly worked with Iran's Red 
Crescent organization as the country's primary importer of 
pharmaceuticals.  Sensing a "revenue opportunity," the Health 
Ministry had revoked the Red Crescent's exclusive license and 
dispersed the rights of supply to a "group" that immediately 
raised prices.  In attempting to maneuver through the new 
system, Venner reported that the Canadian company encountered 
six different levels within the Health Ministry where it was 
necessary to pay a bribe.  Moreover, because importers lacked 
offshore banking privileges, suppliers had to bribe a stream 
of bank officials to transfer the monies due them out of the 
country. 
 
EU RESPONSE 
 
7. (C) Larsson thought it unlikely that Ahmadi-Nejad would 
tackle the country's economic infrastructure problems; he 
depended too heavily on the revolutionary guards that were 
part of the deeply rooted corruption.   The government was 
running a budget deficit which it could probably sustain for 
some time, he said, but the unpredictable element was the 
ability to sustain the heavy petrol subsidies upon which the 
country's internal stability depended.  Iran's economic 
policies were not sustainable, Larsson said, and a 
containment strategy was needed. 
 
8. (C) Though the government had succeeded in making the 
Iranian economy relatively immune to external sanctions, 
Venner observed, Iran's big weakness was its gasoline 
subsidies.  Oil -rich Iran remained heavily dependent on 
gasoline imports because it lacked internal refining 
capability.  Absent those gasoline imports, the implications 
for stability were huge. 
 
HUMAN RIGHTS 
 
9. (C) The prospects for advancing basic human rights 
remained dim, Venner said.  One example of the Ahmadi-Nejad 
administration's policies included the segregation of public 
transportation.  Women have been obliged to ride a women-only 
bus although the supply of buses remains inadequate. 
Organizations for the victims of domestic violence still came 
under some government oversight, and the NGO Prison Reform 
International had been expulsed from the country because of 
its "association" with the UK. 
 
10. (C) Responding to  Gray's query, Venner acknowledged that 
treatment of the Ba'hai continued to be unacceptably poor; 
the societal bias against the Ba'hai ran deep.   Even 
"highly-educated, well-meaning" Iranians bought into the 
government's propaganda that the Ba'hai existed as a "UK 
plot" to destabilize Iran.  Girouard clarified that this 
year's UN human rights resolution contained the same number 
of references to the Ba'hai as last year, as well as an 
additional line regarding increased persecution of the sect. 
 
11. (C) Laurent said that the EU had found that raising 
specific cases with the government could have an impact; the 
question was whether to do so publicly or privately.  While 
some Iranians believed that public advocacy offered them a 
measure of protection, concerns remained about the potential 
for internal backlash.  The challenge was to work with local 
human rights groups without their being fingered as "European 
agents."  The EU was considering externally-based NGOs that 
had their own links inside Iran, though this wasn't without 
some consequences.  Another approach was to reach out to 
civil society through NGOs in unrelated fields.  Gray said 
the U.S. also was exploring ways to expand outreach to civil 
society and shared concerns about finding suitable NGOs. 
 
12.  (C) Venner said the regime had become expert at 
manipulating internal public opinion through systematic 
repression of objective news, while assuring the 
dissemination of biased, if not fabricated, information.  A 
potential bright spot was the advent of satellite radio, 
which was taking off.  Though classic rock-and-roll stations 
in the U.S. tended to be the most popular, Venner said that 
California-based news broadcasts in Farsi were generally 
derided for their bias. 
 
COMMISSION RESPONSE 
 
13. (C) In assessing the post-election transition, from the 
election of Ahmadi-Nejad to the appointment of followers of 
the hard-line Haqqani school to intelligence and other 
sectors, the EU concluded that the new government is too 
radical.  The message the EU was hearing from students within 
Iran was that they sought more direct engagement with the 
outside world; the question was how to go about this.  A 
major concern was engaging willing interlocutors without 
endangering them.  The EU was wary of creating a perception 
of "ganging up on" the regime, favoring a mutually 
supportive, more discreet approach.   EU support of the 
Canadian resolution would have "major consequences," and was 
likely to delay further Iran's response to the EU. 
 
REGIONAL ROLE 
 
14. (C) DAS Gray said the USG had seen no positive changes in 
recent foreign policy under the new administration. 
Ahmadi-Nejad's inflammatory remarks about Israel were 
indicative of his outlook. The regime was continuing its 
support for Hezbollah and Palestinian rejectionist groups 
such as Hezbollah, PIJ, and Hamas. 
 
15. (C) In Iraq, the primary goal of Iran appears to be to 
keep the Coalition off balance through political 
interference, and demonstrated Iran's failure to live up to 
its Sharm El-Sheikh commitments.  The introduction of 
specially engineered explosive devices was of special 
concern.  In Afghanistan, Iran was pressing the Karzai 
government to conclude a Soviet-style pact of friendship and 
non-aggression. 
16. (C) Iran's relations with other Arab neighbors were 
equally poor.  Gray was struck by increased Arab concerns 
about Iran's role in Iraq.  Previously, Arab countries had 
been more worried that the Coalition might succeed in Iraq. 
Now, the concern appears to be that the coalition might fail. 
 Arab League Secretary General Amre Moussa's recent visit to 
Baghdad was further evidence of such concern. 
 
EU RESPONSE 
17. (C) Evans agreed that Iran's continuing support for 
rejectionist groups was a very big concern and that its 
activity in Iraq flew in the face of Sharm el Sheikh.  The 
pattern of Hezbollah use of improvised explosive devices was 
a major problem.  The E.U. concurred with Gray Gulf states 
had voiced concern about the new administration in Iran. 
IRANIAN MOTIVATION and POLICIES 
 
18. (C) A Canadian analyst said that a combination of 
different Iranian national interests appeared to direct 
Iranian ideology and policy.  While national security 
interests have a strong impact on policy at or near the 
country's borders, ideology tended to play a bigger role as 
one moved farther away from Iran's borders.  Thus, in 
Afghanistan and Iraq, Iran's main interest would be to 
achieve stable countries where Iran plays an influential 
role.   In his opinion attacks by separatists in Khuzestan 
were related to strikes against coalition forces in southern 
Iraq. 
 
19. (C) Venner noted that there was still an ideological 
element in the government.  He cited the example of the 
female Iranian suicide bomber in the occupied territories who 
was held up as a "model."  Conservative cleric Mezba Yazdi 
was someone to "watch" in light of his hardline views on the 
broader region and the role that Iran should play. 
 
20. (C) Gray asked if the EU was considering designation of 
Hezbollah as a terrorist entity.  Evans clarified that while 
Hezbollah was not a proscribed entity, its "external wing" 
was, but was not certain if that was a U.K. or an EU 
proscription.   He affirmed that the UK kept the status of 
Hezbollah under constant review.  Larsson said there was no 
unanimity within the EU about putting the group on a terror 
list.   Members of Hezbollah were in the government now, and 
shouldn't be "discouraged."  Gray said there could be no 
question that Hezbollah was a terrorist organization and 
encouraged the EU to designate it as the U.S. has done since 
1997.  Bailey affirmed that Canada continued to list 
Hezbollah under UNSCR 1267 provisions and the Canadian 
criminal code, which provided greater penalties. 
 
NUCLEAR PROGRAM 
 
21. (C) Gaertner said that EU-Iran talks on nuclear 
activities had remained at a standstill since August.  The EU 
was struggling to go back to negotiations but Iran wanted "no 
preconditions" this time; the EU had told them they had no 
other choice since negotiations could only resume under the 
framework of the Paris Agreement which requires a suspension 
on enrichment related and reprocessing activities.  The EU 
hoped that Russia would be a positive influence and persuade 
Iran to come back to the table; it was important to have 
Russia, a UN Security Council member, on board. 
 
22. (C) If talks resume, the EU hoped to explore 
-- flexibility on uranium conversion 
-- fuel supply guarantees (Russia could help with 
transparency) 
-- political guarantees 
-- security guarantees. 
 
23. (C) Gray said the U.S. shared EU concerns.  Venner noted 
that while the GOI adamantly denied that it had a nuclear 
weapons program, the Iranian public questioned why not.  It 
seemed inevitable that Iran would achieve its objectives. 
The "comfort" of secure access to fuel would not prevent 
development of Iran's missile program or weapons. 
Containment and deterrence were the only ways to move forward. 
 
24. (C) Terry Wood said the September 24 IAEA resolution 
which found Iran in noncompliance had given Iran pause; at 
the same time, US-EU-CAN needed to give some serious 
consideration to reporting them in 6 weeks' time, at the 
November BoG meeting.  Wood made a pitch for continued close 
collaboration, strategizing and working on the NAM and the 
"weak-kneed" in the IAEA.  He also asked for details on the 
possible initiatives that U/S Joseph had mentioned at the 
recent G-8 Senior Group meeting. Evans emphasized the 
importance of Russia's support as well as getting alongside 
South Africa and Brazil to buy into the process. 
 
25. (C) Rangaswamy said the IAEA's September resolution had 
set an important precedent in that it broke the need for 
consensus.  In response to Wood's question, she noted that at 
the G-8 Senior Officials' meeting, Undersecretary Joseph had 
noted the need to force Iran to make a strategic decision to 
abandon its fuel cycle efforts through a combination of 
economic and political pressure, and by denying them 
technical access.  She added that the U.S. is already working 
to establish measures for fuel supply assurances to ensure 
reliable access to nuclear fuel for civil nuclear programs. 
This initiative would also seek to discourage countries from 
developing indigenous enrichment and reprocessing 
capabilities. 
 
26. (C) Canada's assessment was that Iran was deeply 
committed to a nuclear weapons program.  Wood was skeptical 
that the Russian mediation would be successful.  He also 
questioned how long the EU3/U.S. would give Russia, stressing 
that Iran would sense a weakness in international resolve if 
we do not seek to report Iran to the UNSC in November. He 
added that it was important, however, to manage the 
resolution in the run-up to the meeting.  In soliciting 3rd 
countries, Canada was cognizant of the need to be "sensitive" 
to their perceptions.  McLaren said that Iran had succeeded 
in convincing the NAM that the West intended to prevent 
developing countries from pursuing peaceful nuclear 
technology as provided in the NPT; we have not been 
successful in changing their minds.  Rangaswamy added that 
US/Can/EU could do a better job of explaining the gradual, 
incremental approach to handling the Iran issue at the UNSC. 
We must emphasize that we do not seek immediate punitive 
measures at the UN Security Council and al 
so seek to reinforce the IAEA. 
 
27.(U) The U.S. delegation has cleared this cable. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
DICKSON