VZCZCXRO0681
OO RUEHBC RUEHKUK RUEHTRO
DE RUEHRO #0156/01 0411554
ZNY CCCCC ZZH
O 101554Z FEB 10
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3248
INFO RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHFL/AMCONSUL FLORENCE PRIORITY 4024
RUEHMIL/AMCONSUL MILAN PRIORITY 0467
RUEHNP/AMCONSUL NAPLES PRIORITY 4252
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 ROME 000156 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 02/10/2020 
TAGS: ECON ETRD IR IT
SUBJECT: ITALIAN ECONOMIC PRESSURE ON IRAN: HEADING IN THE 
RIGHT DIRECTION, BUT MIXED RESULTS SO FAR 
 
ROME 00000156  001.2 OF 004 
 
 
Classified By: DCM Elizabeth Dibble 
for reasons (1.4 b and d) 
 
 ¶1. (C/NF) SUMMARY: Recent statements from senior Italian 
officials describe Italy as significantly scaling back 
important commercial ties with Iran as part of efforts to 
increase international pressure. Those senior Italian 
officials have noted that the GOI has used moral suasion on 
Italian companies to encourage them to decrease their 
economic and commercial ties to Iran.  In fact, Italy's 
commercial ties with Iran have long been relatively 
insignificant and most of any recent decline in commerce is 
more likely attributable to the global economic downturn than 
to any GOI sanctions efforts. The Italian government 
continues to have very mixed feelings about any sanctions 
proposals that might cost Italian companies money or irritate 
the Iranian regime, and trade with Iran continues. The 
Italians want to have it both ways: they want to be seen as 
playing a leadership role in the international effort to 
ratchet up sanctions on Iran, while also wanting to leave the 
door open to future business deals for Italian companies. 
There has been Italian cooperation on our Iran sanctions 
efforts, but almost every "success story" comes with a 
disappointing caveat: Eni does appear to be bringing its 
energy projects in Iran to an end, but it is doing so not 
because of sanctions, but because the project is nearing 
completion.  The Italo-French company Edison has agreed to 
put exploratory operations in Iran "on hold," but only 
through 2010.  Maire Tecnimont Inc., has agreed to suspend 
work on a large gas processing plant, but will proceed with a 
tire manufacturing plant of similar scale. An Italian 
shipping firm recently agreed to break a partnership with the 
Iranian state shipping company (IRISL), but IRISL ships will 
continue to use Italian ports (and the Italian firm will be 
their shipping agent). The Italian Export Credit and 
Insurance agency has imposed a de facto ban on new Iran 
operations, but has not taken the final step to make this 
action public. Similarly, under the watchful eye of Italian 
bank inspectors the Rome office of Iran's state-owned Bank 
Sepah is de facto unable to operate, but the GOI has not 
taken the final step of officially closing the bank.  A 
number of other banks in Italy have ties to Iran; most are 
involved in facilitating trade between the two countries. 
 
¶2. (C/NF) Italian queasiness about sanctions plays an 
increasingly smaller role in all of this, but the 
disappointing Italian performance can also be attributed to 
the fact that we have no generalized trade ban on Iran. 
Recent high-level discussions with senior Italian officials 
have signaled an increased willingness to cooperate in 
efforts to increase economic pressure on Iran. An accurate 
understanding of what Italy has actually done so far should 
be of help in efforts to get the GOI to follow-through on 
pledges to do more. END SUMMARY 
 
GOI CLAIMS EFFECTIVE COOPERATION ON SANCTIONS... 
-------------------------- 
 
¶3. (C/NF) During his February 2010 visit to Israel, PM 
Berlusconi made a number of statements on Italian cooperation 
with international community efforts regarding Iran. 
Berlusconi claimed that Italy has reduced its commercial 
presence in Iran, and said that, "Today only Eni is there 
with a contract that must be honored, apart from sanctions." 
He said that Eni had "canceled" the third phase of an 
important oil project in Iran. He said that since 2007 the 
government had interrupted its support of exports to Iran, 
and that since 2009 commercial exchanges between Italy and 
Iran have dropped by 1/3. Foreign Minister Frattini has made 
similar statements, and senior officials have pointed out 
that moral suasion has been applied to Italian companies to 
encourage them to decrease their economic and commercial ties 
to Iran.  Both officials have sought to portray Italy as 
making important sacrifices, sacrifices that have damaged an 
important commercial relationship. 
 
 
... BUT ITALY-IRAN TRADE WAS ALWAYS SMALL, AND DROP IS LIKELY 
DUE TO GLOBAL RECESSION 
----------------------------------------- 
 
¶4. (C/NF) Italian officials often claim that Italy is "one of 
Iran's top trading partners in the EU." While we are sure 
that statistics can be found to support this claim, we think 
this is a misleading statement.  Iran's major trading partner 
is, of course, the EU. Italy is one of the largest EU 
economies, and this inevitably puts Italy near the top of any 
 
ROME 00000156  002.2 OF 004 
 
 
ranking of Iran's trade with EU countries.  But it is 
misleading to imply that trade with Iran is economically 
important to Italy. In 2007 Italian exports to Iran, 
(primarily machinery, mechanical parts and appliances) 
totaled only 1.8 billion Euros, less than one percent of all 
Italian exports. Italian imports from Iran, primarily oil and 
petrochemical products, totaled 4.2 billion Euros in 2007, or 
less than 2 percent of Italy's total imports. Even the often 
repeated assertion that Italy has a significant degree of 
energy dependence on Iran is not based in fact. In 2008, only 
five percent of Italy's energy was imported from Iran.  All 
of it was in the form of readily fungible crude oil. The 
bottom line is that Iran is not macroeconomically important 
to Italy, either as a market for Italian exports or as a 
source of imports.  As for the post 2009 decline in Italian 
trade with Iran (cited by Berlusconi), we strongly suspect 
that this has much more to do with the global economic crisis 
than with any Italian sanctions efforts. 
(Note: When viewed from Iran, the trade relationship is much 
more important: Italy buys about six percent of Iranian 
exports. We think this has long made Italian officials 
squeamish about eliciting political blowblock from the IRIG 
for overtly reducing trade/quashing deals. We have been 
reminding the GOI that while Iran is not economically 
important to Italy, Italy is economically important to Iran; 
we have been urging the GOI to make use of this leverage.) 
 
EACH SUCCESS COMES WITH A CAVEAT 
---------------------------- 
 
¶5. (C/NF)  Prime Minister Berlusconi returned to power in 
April 2008 promising invigorated cooperation with U.S. 
efforts to increase economic pressure on Iran. An examination 
of what his government has actually done in this area reveals 
very mixed results.  There have been notable success stories, 
but most of these successes come with disappointing caveats 
and provisos: 
 
ENI: READY TO HALT WORK (BECAUSE THE WORK IS DONE) 
------------------------------- 
 
¶6. (C/NF) The Italian parastatal company Eni has adroitly 
managed to prevent U.S. or EU sanctions efforts of the last 
four years from halting its work in Iran. For the last ten 
years its major project has been the expansion of Iran's 
Darquain oil fields. In 2000/2001, Eni signed a contract with 
the Iranians in which they agreed to increase the output from 
sectors of the Darquain field. Eni -- with support from the 
GOI -- has insisted that work on this expansion be allowed to 
continue, claiming that because it is pursuant to an "old" 
contract its new construction in Darquain does not constitute 
"new" efforts in Iran. Eni knows that this argument is 
wearing thin, and that new U.S. sanctions against the company 
are now possible, so Eni has recently shifted its rhetoric. 
In January 2010 Eni CEO Paolo Scaroni wrote to senior USG 
officials announcing that Eni would halt its construction 
work in Iran within three months. In the letters Scaroni 
implied that this decision is evidence that Eni is 
cooperating on Iran, but in follow-up conversations with 
Embassy officers senior Eni staffers presented it 
differently: they told us that Eni will be halting its work 
only because the goal of their contract with the Iranians has 
been reached, and Eni will now, under the terms of its 
contract, be able to take a portion of the revenues derived 
from the Darquain field. Eni and the GOI will almost 
certainly continue to present this "halt" as an example of 
enhanced Italian sanctions cooperation. (Note: USG pressure 
during 2008-2009 does appear to have prevented Eni from 
signing an MOU with the Iranians that would have led to an 
even greater increase in output from the Darquain field.) 
 
 
EDISON: EXPLORATION ON HOLD (THIS YEAR ONLY) 
-------------------------------- 
 
¶7. (C/NF)  The Italo-French company Edison is one of the 
oldest and largest of Italy's energy companies. In early 2008 
 the USG demarched the Italian government asking it to 
prevent Edison from signing an exploration contract with the 
Iranians in the Dayyer (offshore, Persian Gulf) gas field. 
The USG also informed Edison of the demarche.  Edison decided 
to proceed and, in the presence of the Italian Ambassador in 
Iran, signed the contract and began the exploratory work. 
The USG continued to apply pressure on Edison (the company is 
susceptible to U.S. pressure because it needs USG support for 
its Turkey-Greece-Italy Caspian pipeline project). 
Ambassador Thorne personally conveyed U.S. concerns to the 
 
ROME 00000156  003.2 OF 004 
 
 
Edison CEO; Edison shortly thereafter told us that it was 
suspending its exploration project in Dayyer, but only during 
2010, leaving open the possibility of renewed work and 
possible exploitation of gas discoveries in 2011. 
 
MAIRE TECNIMONT:  GAS PLANT HALTED (BUT TIRE PLANT CONTINUES) 
----------------------------- 
 
¶8. (C/NF) Maire Tecnimont is an important Northern Italy 
engineering firm with close ties to Eni, to Fiat, and to 
important Italian government officials. In April 2009 we 
asked the GOI to halt Maire Tecnimont's 200 million Euro 
contract in the construction of a major gas processing plant 
in Tambak, Iran. In August 2009, the Italian MFA informed us 
that the company had agreed to put the project "on hold." 
But in a reminder that trade with Iran will continue,  web 
pages indicate that the company will continue work on a 200 
million euro pneumatic tire plant for Iran. 
 
ITALIAN SHIPPING FIRM TO BREAK WITH IRAN WMD SHIPPER (BUT 
IRANIAN SHIPS CONTINUE TO ARRIVE HERE) 
----------------------------- 
 
¶9. (C/NF) The Genoa-based Cosulich Brothers shipping firm has 
been partners with the Iranian state shipping company IRISL 
since before the Iranian revolution. When IRISL was hit with 
U.S. sanctions in 2009, the GOI feared that the 
well-connected Cosulich company would also be sanctioned. 
With encouragement from the USG, Cosulich is now in the 
process of breaking its partnership with IRISL.  While this 
should take Cosulich out of the cross-hairs for any U.S. 
sanctions, Cosulich's Managing Director very candidly told us 
that IRISL ships will continue to call on the port of Genoa, 
and that his company is likely to continue to serve as their 
agent.  This is another reminder that as long as the U.S. and 
EU (or like-minded states) do not take up general trade with 
Iran as a sanctions matter, sanctions successes such as this 
one will have little impact. The GOI is unlikely to force a 
public shutdown of the company that was formed when the 
partnership was created:  The Iranians will probably be 
allowed to keep the partnership company (IRITAL) officially 
in business in Italy. 
 
ITALY'S EXIM/OPIC: CLOSED FOR NEW IRANIAN BUSINESS (BUT NOT 
OFFICIALLY) 
------------------------------ 
 
¶10. (C/NF) In his comments in Israel about the GOI 
"interrupting" its support for exports to Iran, PM Berlusconi 
was referring to SACE, the Italian government agency that has 
responsibilities similar to our Export Import Bank and our 
Overseas Private Investment Corporation.  GOI officials have 
told us that SACE has imposed a de facto ban on any new 
credits or insurance for Iran projects. But a visit to the 
SACE web site still shows the window for Iran operations to 
be fully open. Post has discussed this with SACE officials; 
the GOI apparently wants to keep this situation as is: there 
will be no new credits or insurance, but this new policy has 
so far not been made official.  And as noted below, the 
private sector seems to have stepped in to fill the gap left 
by SACE. 
 
 
BANK SEPAH: A ZOMBIE (BUT OFFICIALLY STILL ALIVE) 
------------------------------ 
 
¶11. (C/NF) A similar situation exists with the Rome branch of 
Bank Sepah (Iran's Army Bank).  Italian bank regulators from 
the Bank of Italy tell us that they have this bank (located a 
few blocks from the U.S. Embassy) effectively hamstrung and 
unable to conduct banking business.  Every transaction is 
closely scrutinized.  Bank Sepah has reportedly had 
difficulty paying its phone bills.  But -- in a 
conflict-avoidance gesture similar to that taking place with 
IRITAL -- Central Bank officials do not want to take the 
additional step of forcing the bank to legally close, 
although they have indicated to us that they would do so, if 
requested by MFA.  So in spite of repeated USG request to 
have the bank officially closed, Bank Sepah remains 
officially open. 
 
 
OTHER BANKS STILL WORKING WITH IRAN 
------------------------------- 
 
¶12. (C/NF) Because trade with Iran continues, banking with 
Iran continues. Some of Italy's largest banks  including 
 
ROME 00000156  004.2 OF 004 
 
 
Intesa Sanpaolo, Banco Nazionale del Lavoro and Mediobanca, 
all have offices in Tehran.  Other important Italian banks 
(including Unicredit) have correspondent accounts with 
Iranian banks. Banca UBAE (The Arab Italian Bank) is a large 
trade finance bank and much of its business is conducted with 
Iran. At the same time, however, Italy has been an active 
participant in Financial Action Task Force (FATF) efforts to 
increase international banking sector vigilance on Iran. 
 
COMMENT 
------- 
 
¶13. (C/NF) Part of the blame for these disappointing results 
clearly lies with Italians.  For much of the first year of 
the Berlusconi administration, they gave lip-service to a 
tough approach on Iran, while remaining largely squeamish 
about tightening sanctions, especially of the ad hoc "like 
minded" variety that come without UN or EU cover. But, to be 
fair, much of this mixed result stems from the simple fact 
that there is no ban on trade with Iran. So, as the Cosulich 
and Maire Tecnimont cases illustrate, disappointing results 
are almost inevitable. 
 
¶14.  (C/NF) That said, GOI attitudes toward Iran are steadily 
hardening.  Recent discussions between the Secretary and the 
Secretary of Defense Gates with Prime Minister Berlusconi and 
Foreign Minister Frattini indicate that the GOI has moved in 
our direction on the need to increase economic pressure 
substantially on Iran.  The temperature between Rome and 
Tehran has been further chilled by IRIG attacks on Berlusconi 
over the Prime Minister's remarks in Israel February 1-3; 
Frattini has exchanged charge and counter-charge with IRIG 
officials virtually every day since then.  A rowdy Basiji 
"student demonstration" against the Italian embassy in Tehran 
(and the French, UK, German and Dutch missions, we 
understand) will only deepen the irritation here.  In terms 
of our efforts in the immediate task before us -- to get the 
Italians to do more on sanctions, including turning off new 
business --  an important first step would be to move the GOI 
away from its perhaps sincere belief that it has already made 
some significant steps. U.S. interlocutors should be prepared 
to point out to the Italians that while we appreciate the 
steps they have taken, there is more that could be done to 
increase pressure on Tehran, including by following through 
on some past actions (SACE, Bank Sepah) to underscore Italian 
commitment to playing a leadership role on this issue. 
 
 
 
 
 
 
 
 
 
 
 
THORNE