P 111609Z JUN 97
FM AMEMBASSY ROME
TO SECSTATE WASHDC PRIORITY 8123
INFO AMCONSUL NAPLES 
AMCONSUL MILAN 
AMEMBASSY MOSCOW 
AMEMBASSY TOKYO 
USMISSION USUN NEW YORK 
AMEMBASSY OTTAWA 
ALL EUROPEAN UNION POST COLLECTIVE
AMEMBASSY WARSAW 
AMCONSUL FLORENCE

C O N F I D E N T I A L SECTION 01 OF 04 ROME 005198 
 
DEPT FOR EUR/WE; EUR/ERA; EB/ECS; NEA/NGA; NEA/ENA 
DEPT PLS PASS TO IRAN COLLECTIVE 
 
E.O. 12958:  DECL:  05/19/07 
TAGS: ETTC PREL UNSC PTER KPRP IR IZ LY IT
SUBJECT: ITALY: A MORE ACTIVIST POLICY TOWARD ROGUES 
 
REF: (A) ROME 167; (B) ROME 269; (C) ROME 565; (D) ROME 2005; 
(E) ROME 4433; (F) ROME 3754; (G) ROME 4195; (H) ROME 2752 
(AND PREVIOUS); (K) ROME 3498; (L) ROME 1952; (M) ROME 2566; 
(N) 96ROME12210; (O) 96ROME10301; (P) ROME 4641 (Q) 96ROME 9494 
 
CLASSIFIED BY:  DCM JAMES CUNNINGHAM.  REASON 1.5 (B)(D). 
 
¶1. (C) SUMMARY:  RECENT GOI ACTIVITY SUGGESTS ITALY IS 
PURSUING MORE ACTIVIST POLICIES TOWARD THE SO-CALLED "ROGUE" 
STATES:  IRAN, IRAQ, AND LIBYA.  ACCORDING TO THE MFA, ITALY 
HAS, IN FACT, A SINGLE, BROAD POLICY FOR THESE COUNTRIES, 
CENTERED UPON THE BELIEF THAT ENGAGEMENT, NOT ISOLATION, IS 
THE BEST WAY TO MODERATE "ROGUE" BEHAVIOR AND SPURRED ON BY 
THE DESIRE TO PROMOTE FUTURE ECONOMIC/COMMERCIAL TIES AS WELL 
AS SECURE ITALIAN ENERGY SUPPLIES.  FOREIGN MINISTER DINI HAS 
SAID ISOLATING TEHRAN, BAGHDAD, AND TRIPOLI WILL NOT SOLVE 
ANYTHING -- AND THAT A "GLOBAL AND PRODUCTIVE APPROACH BASED 
ON DIALOGUE" IS NEEDED.  ITALY'S DESIRE TO EXPAND COMMERCIAL 
TIES, ALONG WITH ITS ENERGY DEPENDENCE, COMPLEMENT DINI'S 
PERSPECTIVE.  THE GOI KNOWS THAT ITS POSITIONS VIS-A-VIS IRAN, 
IRAQ, AND LIBYA IRRITATE THE U.S., AND HAS BEEN CAREFUL NOT TO 
PUSH THE ENVELOPE TOO FAR.  ITALY BELIEVES ITS POLICIES ARE IN 
LINE WITH THE ACTIONS OF OTHER EU MEMBERS, SUCH AS GERMANY AND 
FRANCE, AND IS NEWLY WILLING TO CHARACTERIZE POLICY 
DIFFERENCES WITH THE U.S. AS "IRRECONCILABLE."  WE ARE NOT 
GOING TO FIND MUCH TO AGREE ON WHEN WE GET BEYOND 
GENERALITIES.  WE HAVE HAD SUCCESS, NONETHELESS, IN DEFLECTING 
ITALIAN POLICY, AND BY CONTINUING TO LEAN INTO ITALIAN 
POLITICIANS, AND BY REMINDING THEM OF THEIR INTERNATIONAL 
OBLIGATIONS, WE CAN CONTINUE TO CONDITION ITALIAN 
BEHAVIOR...UP TO A POINT.  END SUMMARY. 
 
 
DINI'S PERSPECTIVE 
------------------ 
 
¶2. (U) FM DINI OUTLINED HIS VIEW TOWARD THE ROGUE STATES IN A 
DECEMBER 1996 ARTICLE (WRITTEN BY MFA MIDDLE EAST DIRECTOR 
CLAUDIO PACIFICO AND HIS DEPUTY, DIEGO BRASIOLI) IN THE TRADE 
MAGAZINE "ENERGY."  IN SHORT, DINI SAID THAT ISOLATING IRAN, 
IRAQ, AND LIBYA BEHIND "HIGH WALLS OF SAND" WILL NOT SOLVE 
ANYTHING -- AND THAT A "GLOBAL AND PRODUCTIVE APPROACH BASED 
ON DIALOGUE" IS NEEDED.  OTHERWISE, HE ARGUED, THERE'S A RISK 
THAT A DIVIDE WILL DEVELOP ON "DEMOGRAPHIC, CULTURAL, AND 
ECONOMIC" LINES BETWEEN THE TWO SHORES OF THE MEDITERRANEAN. 
DINI OUTLINED THE "INTERESTS IN PLAY," NOTING THAT SIX OF 
ITALY'S TOP SEVEN OIL SUPPLIERS ARE IN THE MIDDLE EAST AND 
NORTH AFRICA. 
 
 
IRAN: MYKONOS DELAYS REOPENING? 
------------------------------- 
 
¶3. (C) THE MYKONOS TRIAL VERDICTS HAVE INTERRUPTED THE EU'S 
RELATIONS WITH IRAN, AND HAVE SLOWED -- FOR NOW -- ITALY'S 
PUSH FOR BROADER ECONOMIC/COMMERCIAL RELATIONS THERE.  THE GOI 
WAS NOT DISPLEASED TO FIND ITSELF FOR A SHORT PERIOD OF TIME 
IN MAY AS THE ONLY EU PARTNER WITH AN AMBASSADOR IN PLACE BUT 
WAS DEEPLY PUZZLED BY IRANIAN FM VELAYATI'S REFUSAL TO SEE 
AMBASSADOR ORTONA.  (NOTE: ORTONA WAS SUBSEQUENTLY RECALLED TO 
SUPPORT EU SOLIDARITY.)  IN JANUARY, VELAYATI MADE A HIGHLY 
PUBLICIZED TRIP TO ROME WHERE HE MET WITH PRIME MINISTER PRODI 
AND DINI (REFS A-B).  THE APPARENT PURPOSE OF THE VISIT WAS TO 
RELAUNCH BILATERAL ECONOMIC AND COMMERCIAL RELATIONS.  ONE 
PRESS REPORT INDICATED THAT POLITICAL APPROVAL HAD BEEN GIVEN 
FOR A GRADUAL AND LIMITED OPENING OF EXPORT CREDIT INSURANCE 
BY ITALY'S EXPORT CREDIT AGENCY, SACE.  VELAYATI TOLD THE 
PRESS THAT "ITALY CAN BE ONE OF THE MOST IMPORTANT COMMERCIAL, 
ECONOMIC AND POLITICAL PARTNERS OF IRAN."  ACCORDING TO THE 
PRESS, IRAN WOULD OFFER ITALY CONTRACTS FOR USD 12 BILLION AS 
PART OF IRAN'S 1995-2000 DEVELOPMENT PLAN. 
 
¶4. (C) BEFORE THE MYKONOS VERDICTS, THE GOI WAS EXPLORING HOW 
IT MIGHT REOPEN OFFICIAL TRADE CREDITS TO TEHRAN WITHOUT 
UPSETTING THE U.S. (REF C).  AMONG THE OPTIONS, THE MFA WAS 
WEIGHING ROLLING OVER IRANIAN DEBT REPAYMENTS INTO NEW TRADE 
COVERAGE TO BOOST EXPORTS AND TO HELP EASE ITALY'S USD 1.2 
BILLION TRADE IMBALANCE WITH IRAN, AS WELL AS TO AVOID 
DISRUPTION OF IRAN'S DEBT REPAYMENTS TO ITALY.  IN ADDITION, 
THE MINISTRY OF FOREIGN TRADE HAD BEEN PREPARING TO LEAD AN 
ITALIAN DELEGATION TO THE FIRST MEETING IN SEVEN YEARS OF THE 
ITALIAN-IRANIAN MIXED ECONOMIC COMMISSION IN TEHRAN (REF D). 
MFA "NEA" ECONOMIC DIRECTOR FRANCESCO TRUPIANO TOLD EMBOFFS IN 
MID-MAY THAT BECAUSE OF MYKONOS, THE GOI WAS NOT/NOT 
CONSIDERING NEW OFFICIAL CREDITS (INCLUDING ROLLING OVER 
REPAYMENTS) AND THAT THE MIXED COMMISSION WAS INDEFINITELY 
SUSPENDED.  TRUPIANO CONFIRMED THIS WAS STILL THE CASE JUNE 5, 
NOTING THAT HE DISAGREED WITH ITALIAN PRESS REPORTS THAT THE 
RECENT IRANIAN ELECTION REPRESENTED A MAJOR POSITIVE CHANGE; 
HE WILL WANT TO WAIT AND SEE HOW IRANIAN POLICIES ACTUALLY 
CHANGE IN PRACTICE BEFORE MAKING SUCH A CONCLUSION.  IF 
POLITICAL CONDITIONS DO IN FACT IMPROVE, HE SAID, THE GOI WILL 
RE-EXAMINE THE QUESTION OF EXPORT CREDITS. 
 
¶5. (C) DESPITE THE MAY 19 SECOND RECALL OF AMBASSADOR ORTONA 
FROM IRAN (REF E), ORTONA'S INITIAL QUICK RETURN TO IRAN AFTER 
MYKONOS ILLUSTRATES GOI DESIRE TO RESUME BUSINESS AS USUAL 
WITH TEHRAN.  BEFORE ORTONA'S RETURN, MFA OFFICIAL TRUPIANO 
TOLD EMBOFFS THAT HE PERSONALLY HOPED ORTONA WOULD REMAIN IN 
TEHRAN -- IF ONLY FOR ECONOMIC REASONS.  ANOTHER MFA POLITICAL 
DIRECTORATE SOURCE TOLD US ITALY HOPED, BY KEEPING ORTONA IN 
PLACE, EVEN TO PICK UP LUCRATIVE CONTRACTS GERMAN COMPANIES 
MAY LOSE BECAUSE OF THE FREEZE IN GERMAN-IRANIAN RELATIONS. 
TRUPIANO REITERATED FAMILIAR MFA THEMES THAT IRAN OWES 4.5 
TRILLION LIRE (USD 3 BILLION) TO SACE, PLUS ANOTHER USD 1 
BILLION TO ITALIAN FIRMS FROM THE SHAH PERIOD.  FOR THE 
MOMENT, IRAN IS MEETING ITS DEBT REPAYMENTS IN FULL -- 
INCLUDING PRINCIPAL -- BUT IF ITALY PULLS BACK FROM IRAN, IT 
FEARS TEHRAN WILL CUT ITS REPAYMENTS.  TRUPIANO COMMENTED THAT 
IT WAS EASY FOR DENMARK AND SWEDEN TO CALL FOR TOUGH EU 
MEASURES AGAINST TEHRAN BECAUSE THEY WOULD NOT HAVE TO PAY AN 
ECONOMIC PRICE AS ITALY WOULD. 
 
 
OPENLY SEEKING BUSINESS WITH IRAQ 
--------------------------------- 
 
¶6. (C) ITALY IS LOOKING TO POSITION ITSELF COMMERCIALLY IN 
BAGHDAD -- THE MOMENT UN SANCTIONS ARE LIFTED.  THE MFA LIKES 
TO REMIND US THAT IRAQ WAS AN IMPORTANT TRADING PARTNER AND 
ENERGY SOURCE FOR ITALY BEFORE THE GULF WAR.  OVER THE LAST 
MONTH, TWO HIGH-PROFILE IRAQI DELEGATIONS HAVE VISITED ROME, 
OSTENSIBLY TO DISCUSS PERMITTED COMMERCIAL OPPORTUNITIES UNDER 
UNSCR 986 (REFS F-G).  IRAQI OIL MINISTER AMIR RASHID WAS THE 
MOST NOTABLE VISITOR.  FM DINI AND INDUSTRY MINISTER BERSANI 
MET RASHID AFTER "PRESSURE" FROM ITALIAN OIL INTERESTS AND 
IRAQ, ACCORDING TO MFA ECONOMIC DG DI ROBERTO; RASHID ALSO 
CALLED ON THE PRESIDENT OF PARASTATAL PETROLEUM PRODUCER AGIP. 
DI ROBERTO AND INDUSTRY DG FOR BASIC ENERGY ETTORE ROSSONI 
SAID RASHID'S DISCUSSIONS INCLUDED NOT ONLY UNSCR 986, BUT 
POST-SANCTIONS OIL IMPORTS AND NEW OIL PRODUCTION FACILITIES 
IN IRAQ. 
 
¶7. (C) IRAQ'S DEPUTY OIL MINISTER -- SAMI SHARUF SHEBAB -- 
FOLLOWED UP RASHID'S VISIT WITH A SERIES OF MAY 14 MEETINGS 
WITH ITALIAN BUSINESSMEN AND PARLIAMENTARIANS.  U/S PATRICIA 
TOIA SAW SHEBAB AT THE FOREIGN MINISTRY BUT, ACCORDING TO AN 
MFA SOURCE, DECLINED TO ATTEND A LATER PRESS CONFERENCE WITH 
SHEBAB AS SCHEDULED DUE TO HIS "ABRASIVENESS" DURING THE 
MEETING.  THIS SOURCE CALLED SHEBAB "AGGRESSIVE" IN HIS 
INSISTENCE THAT ITALY DO AS MUCH AS FRANCE, CHINA AND RUSSIA 
TO HAVE SANCTIONS LIFTED.  NONETHELESS, TOIA REPORTEDLY TOLD 
SHEBAB THAT SHE WELCOMED ADDITIONAL IRAQI DELEGATIONS. 
 
¶8. (C) THE GOI WOULD PROBABLY NOT OBJECT IF AGIP SIGNED AN 
EXPLORATION OR PRODUCTION CONTRACT WITH IRAQ WHILE UNSC 
SANCTIONS ARE IN PLACE, MFA OFFICIAL TRUPIANO TOLD ECOUNS JUNE 
5, AS LONG AS THE CONTRACT DID NOT BECOME EFFECTIVE UNTIL THE 
SANCTIONS WERE LIFTED.  TRUPIANO NOTED THAT FRENCH PRODUCER 
TOTAL HAD RECENTLY MADE JUST SUCH A DEAL WITH BAGHDAD.  (NOTE: 
OFFICIALS FROM ENI, AGIP'S PARENT, TOLD ECOUNS JUNE 6 THEY 
WERE NOT AWARE THAT TOTAL HAD ACTUALLY SIGNED A DEAL WITH 
IRAQ.) 
 
¶9. (C) THESE IRAQI VISITS FOLLOW ON THE HEELS OF THE OPENING 
OF AN ITALIAN INTERESTS SECTION IN BAGHDAD (REF H), AND THE 
FEELING AMONG ITALIAN FIRMS THAT THEY HAVE BEEN MISSING OUT ON 
FUTURE BUSINESS DEALS IN IRAQ UNDER UNSCR 986.  ACCORDING TO 
TRUPIANO, ITALY HAS RECEIVED ONLY FOUR CONTRACTS OUT OF 355 
APPROVED BY THE UNITED NATIONS UNDER UNSCR 986 -- ALL OF WHICH 
WENT TO A SINGLE PHARMACEUTICAL COMPANY.  TRUPIANO INDICATED 
THAT THIS SENSE OF UNFAIRNESS HAS CONTRIBUTED TO EXISTING 
"SANCTIONS FATIGUE" IN ITALY.  THE GOI AND ITALIAN BUSINESS 
SEE THE CONNECTION BETWEEN THE "GIANT" FRENCH INTEREST SECTION 
IN BAGHDAD AND THE LARGE NUMBER OF 986 CONTRACTS WON BY FRENCH 
FIRMS, TRUPIANO SAID; THE GOI ALSO CANNOT IGNORE THE REOPENING 
OF THE SPANISH EMBASSY THERE. 
 
¶10. (C) PARLIAMENT HAS ALSO PLAYED AN IMPORTANT ROLE IN 
SHAPING GOI POLICY TOWARD IRAQ.  ON APRIL 15, THE SENATE 
PASSED MOTIONS CALLING ON THE GOI TO UNDERTAKE INTERNATIONAL 
AND BILATERAL INITIATIVES TO IMPROVE LIVING CONDITIONS THERE 
(REF K).  ON MAY 14, U/S TOIA MET WITH A GROUP OF SENATORS 
FROM ACROSS POLITICAL LINES WHO WANTED TO KNOW WHAT THE GOI 
WAS DOING IN RESPONSE TO THE MOTIONS.  A GROUP OF SEVEN AN 
PARLIAMENTARIANS VISITED IRAQ MAY 24 - 27, EVEN MEETING WITH 
TARIQ AZIZ; LARGER PARLIAMENTARY AND BUSINESS DELEGATIONS ARE 
SCHEDULED JUNE 22 -27, AND JULY 5 - 10 RESPECTIVELY.  "NEA" 
ECONOMIC DEPUTY DIRECTOR FEDERICO FAILLA SAID THERE WAS STRONG 
SENTIMENT AMONG THE POLITICAL LEFT AND THE CATHOLIC CHURCH IN 
FAVOR OF EASING IRAQI SUFFERING, ESPECIALLY AMONG CHILDREN. 
HE COMMENTED THAT IT WOULD BE A "BIG" [DOMESTIC] POLITICAL 
MISTAKE TO SHOW INSENSITIVITY TOWARD THIS SUFFERING.  "NEA" 
POLITICAL DEPUTY BRASIOLI AGREED, CALLING THE ITALIAN URGE TO 
ASSIST THE IRAQI PEOPLE AS BOTH "CULTURAL AND PHILOSOPHICAL." 
HE NOTED THE "HUNDREDS OF LETTERS" THE MFA RECEIVES EACH MONTH 
URGING THE GOVERNMENT TO DO SOMETHING. 
 
 
ITALY IS LIBYA'S "FIRST PARTNER ECONOMICALLY" 
-------------------------------------------- 
 
¶11. (C)   ITALY CONSIDERS ITSELF LIBYA'S "FIRST PARTNER" 
ECONOMICALLY AND IS THE WORLD'S LARGEST EXPORTER TO THE 
COUNTRY, ACCOUNTING FOR 21 PERCENT (USD 1.2 BILLION) OF ITS 
TOTAL 1995 IMPORTS.  THE MFA'S TRUPIANO SAYS ITALY WANTS TO 
NARROW ITS USD 3 BILLION ANNUAL TRADE DEFICIT WITH LIBYA.  MFA 
ECONOMIC DG DI ROBERTO AND "NEA" ECONOMIC DIRECTOR TRUPIANO 
TRAVELLED TO TRIPOLI THE WEEK OF MAY 18-24.  THE NUMBER ONE 
AGENDA ITEM WAS LIBYAN REPAYMENT OF CIRCA USD 1 BILLION IN 
OUTSTANDING DEBT.  IN PREPARATION, ITALIAN AND LIBYAN 
NEGOTIATORS MET MAY 15 TO DISCUSS THE QUESTION -- THE FIRST 
TIME THE LIBYANS HAVE AGREED TO SUCH MEETINGS.  TRUPIANO TOLD 
ECOUNS JUNE 5 THAT HE WAS OPTIMISTIC THAT A TECHNICAL MEETING 
THE WEEK OF JUNE 9 COULD MAKE PROGRESS THAT MIGHT ALLOW THE 
REPAYMENT OF ABOUT HALF THE OUTSTANDING PRINCIPAL "SOON."  DG 
DI ROBERTO, HOWEVER, SAID HE WAS FAR LESS SANGUINE THAT ITALY 
WOULD SEE REPAYMENTS IN THE NEAR FUTURE. 
 
¶12. (C) BEFORE LEAVING FOR TRIPOLI, TRUPIANO HAD TOLD EMBOFFS 
THAT LIBYA CONTINUALLY ASKS ITALY TO EXPAND THE BILATERAL 
COMMERCIAL RELATIONSHIP; ITALY REFUSES TO DO SO, HOWEVER, 
UNTIL LIBYA MAKES GOOD ON ITS DEBT.  STILL, ITALY IS ANXIOUS 
FOR LIBYA TO RE-JOIN THE INTERNATIONAL COMMUNITY -- AND HAS 
TOLD LIBYAN OFFICIALS THAT IT WILL HELP, IF LIBYA FIRST HELPS 
ITSELF.  THE MFA FEELS THAT QADDHAFI HAS INDEED "CHANGED" AND 
USES AS EVIDENCE HIS ATTENDANCE AT THE JUNE 1996 ARAB SUMMIT 
IN CAIRO, HIS MORE "HUMANITARIAN" ATTITUDE TOWARD THE 
PALESTINIAN COMMUNITY IN LIBYA AND HIS "COOPERATION" WITH 
RECENT EGYPTIAN INSPECTION TEAMS AT TARHUNAH.  ITALIAN MFA 
OFFICIALS CITE STEADY PRESSURE TO HELP GET THE SANCTIONS 
LIFTED FROM MAGHREB STATES, ALL OF WHOM REPORTEDLY BELIEVE 
QADDHAFI HAS TURNED A NEW LEAF. 
 
¶13.  (C)  ITALY WILL NOT ALTER ITS DEPENDENCE ON LIBYAN OIL; 
REPLACING IT WOULD BE COSTLY IN TERMS OF LOST INVESTMENTS, 
HIGHER PETROLEUM PRICES, AND FUTURE TRADE TIES.  IN FACT, 
ITALIAN DEPENDENCE ON LIBYAN ENERGY COULD INCREASE BY EARLY 
NEXT CENTURY, WHEN LIBYA COULD SUPPLY EIGHT PERCENT OF ITALY'S 
NATURAL GAS.  STATE-OWNED AGIP -- THE LARGEST FOREIGN OIL 
COMPANY IN LIBYA -- IS POISED TO BUILD A GAS PIPELINE BETWEEN 
LIBYA AND SICILY WHICH MAY GO INTO OPERATION IN THE YEAR 2000. 
CONSTRUCTION HAS NOT YET STARTED DUE, WE BELIEVE, TO AGIP AND 
GOI UNCERTAINTY ABOUT THE APPLICABILITY OF THE IRAN-LIBYA 
SANCTIONS ACT, BUT ARE NOT SANGUINE THAT THE PROJECT WILL BE 
PUT OFF FOREVER. 
 
¶14.  (C) WITH LIBYA, AS WITH THE OTHER "ROGUES," WE CAN EXPECT 
ITALY TO OBSERVE THE LETTER OF THE LAW WITH REGARD TO UNSC- 
MANDATED SANCTIONS, BUT NOT GO AN INCH FURTHER.  ITALY CAN BE 
EXPECTED TO CONTINUE TO INTERPRET GRAY AREAS OF SANCTIONS 
RESOLUTIONS IN LIBYA'S FAVOR, AS IT DID WITH REGARD TO THE 
INVESTMENT OF LIBYAN OIL REVENUES IN UNBLOCKED ITALIAN 
ACCOUNTS (REF L). 
 
COMMENT:  A DIFFERENT PERSPECTIVE ON ROGUES 
------------------------------------------- 
 
¶15. (C) THE ITALIANS KNOW THAT WE ARE IRRITATED BY THEIR CLOSE 
TIES WITH THE "ROGUES," AND POLITELY DISAGREE WITH MANY OF OUR 
POLICY PROPOSALS.  THE POWER OF THESE DISAGREEMENTS IS THAT 
THEY ARISE FROM A DEEP BELIEF AND A PROFOUND NEED, ONE 
PHILOSOPHICAL, THE OTHER COMMERCIAL. 
 
¶16. (C) PHILOSOPHICALLY, THE ITALIANS, LIKE MANY OF THEIR 
EUROPEAN COUNTERPARTS, BELIEVE THAT DIALOGUE, RATHER THAN 
ISOLATION, IS THE KEY TO MODERATING THE BEHAVIOR OF PROBLEM 
STATES.  THE GOI DOES HAVE A "ROGUE STATES" POLICY, AN MFA 
CONTACT TOLD POLOFF RECENTLY, AND DINI SPELLED IT OUT IN THE 
"ENERGY" ARTICLE (PARA 4).  COMMERCIALLY, ITALIANS HAVE REAL, 
SUBSTANTIAL BUSINESS INTERESTS IN THESE COUNTRIES THAT WOULD 
BE PUT AT RISK BY POLICIES MORE TO OUR LIKING.  ADOPTING A US- 
STYLE POLICY OF ISOLATION WOULD JEOPARDIZE THE REPAYMENT OF AT 
LEAST USD 5 BILLION IN OUTSTANDING DEBTS FROM IRAN AND LIBYA, 
AND REQUIRE THE COUNTRY TO FIND A NEW SOURCE FOR NEARLY HALF 
ITS PETROLEUM IMPORTS (REF P).  IN ADDITION, DESPITE A USD 60 
BILLION WORLDWIDE TRADE SURPLUS IN 1996, THE GOI CLEARLY FEELS 
DRIVEN TO BRING MORE BALANCE TO TRADE ACCOUNTS WITH OIL- 
EXPORTING COUNTRIES WHERE IT SEES LARGE DEFICITS.  IT THUS 
WOULD NOT WANT TO TAKE ANY STEPS THAT MIGHT WORSEN THE 
ENVIRONMENT FOR INCREASING ITALIAN EXPORTS TO THESE STATES. 
 
¶17.  (C) THE ITALIANS INSIST THAT THEY ARE NOT "DOING 
ANYTHING" TO VIOLATE COMMITMENTS MADE WITHIN INTERNATIONAL 
CONTEXTS.  HOWEVER, IN THE WAKE OF EU FURY OVER ILSA AND 
HELMS-BURTON, THEY HAVE BECOME INCREASINGLY WILLING TO 
CHARACTERIZE U.S. POLICIES OF ISOLATION AND IMPOSITION OF 
SANCTIONS AS "IRRECONCILIABLE" AND MISGUIDED AND TO ARGUE 
AGAINST SUCH WITHIN THE EU.  FOR EXAMPLE, THE GOI'S 
UNDISGUISED OPENNESS IN LOOKING FOR A COMPROMISE SOLUTION TO 
THE "PAN AM PROBLEM," AND TO PROMOTING ALTERNATIVES, AS IT DID 
AT THE RECENT WORKING GROUP MEETING IN BRUSSELS MAY 24, 
EXPLAIN QADDHAFI'S PERSISTENT USE OF ITALY AS LIBYA'S 
INTERLOCUTOR WITH THE INTERNATIONAL COMMUNITY.  IRAN HAS NEVER 
GONE OFF THE GOI'S RADAR, AND AS MFA OFFICIALS PUT IT "THE 
GERMANS ARE JUST AS ANXIOUS TO GO BACK AS WE ARE!"  THE JUNE 2 
GENERAL AFFAIRS COUNCIL DECISION TO CONTINUE TO INDEFINITELY 
POSTPONE THE RETURN OF EU AMBASSADORS WILL REQUIRE AL EU 
PARTNERS TO WAIT A LITTLE LONGER FOR THE BRIGHTER RELATIONSHIP 
THEY ENVISION WITH NEWLY ELECTED PRESIDENT KHATAMI. 
 
BARTHOLOMEW