VZCZCXRO0454
PP RUEHAG RUEHAST RUEHBC RUEHDA RUEHDE RUEHDF RUEHDIR RUEHFL RUEHIK
RUEHKUK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK
RUEHYG
DE RUEHVI #0531/01 1080956
ZNR UUUUU ZZH
P 170956Z APR 08
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 0023
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNIRA/IRAN COLLECTIVE

UNCLAS SECTION 01 OF 02 VIENNA 000531 
 
SIPDIS 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD EINV PGOV PREL IR AU
SUBJECT: AUSTRIA'S ECONOMIC RELATIONS WITH IRAN 
 
REFS:  A) VIENNA 518  B) VIENNA 142  C) 07 VIENNA 2815  D) 07 VIENNA 
 
2453  E) 07 VIENNA 1604 
 
 
Summary 
------- 
 
¶1.  (SBU) Austrian exports to Iran declined by 7.2% in 2007, 
following a drop of 21.7% in 2006.  However, Iranian exports to 
Austria - 80% of which was energy -- Austria jumped 57.1% in 2007. 
Overall trade remained a very small part (.24%) of Austria's total 
trade, although Iran is still an important export market for a small 
core of Austrian businesses.  The Austrian Economic Chamber 
continues to promote commerce with Iran, but Minister of Economics 
Martin Bartenstein noted that Iran's nuclear program "cast a cloud" 
over its commercial relations with Austria.  Austria's export 
guarantee entity, the Kontrollbank, has reduced its risk exposure 
vis-`-vis Iran by Euro 100 million in 2006 and Euro 70 million in 
¶2007.  A Kontrollbank contact confirmed that the bank is "step by 
step reducing its cover" for business in Iran.  The Kontrollbank 
will reportedly only guarantee projects with a value up to Euro 3-4 
million, consisting primarily of consumer goods.  Official 
statistics list only one major Austrian FDI project in Iran, which 
the GoA refuses to identify because it is the only one.  Austria's 
energy company OMV maintains energy interests in Iran, but all 
indications are that OMV has slowed its cooperation with Iran, 
pending a resolution of the nuclear dossier.  End Summary. 
 
 
Austrian Chamber Promoting Business in Iran 
------------------------------------------- 
 
¶2.  (U) Approximately 650 Austrian firms export to Iran, of which 30 
are present in Iran with sales offices or local joint venture 
partners.  Austria and Iran hold regular high-level bilateral 
economic meetings (mixed commissions), which aim to promote trade 
and investment.  The Austrian Economic Chamber (WKO) actively seeks 
out opportunities for Austrian businesses in Iran.  In autumn 2007, 
the WKO organized group exhibitions for Austrian firms at two fairs 
in Iran in the industrial and energy sectors.  For 2008, the WKO 
plans group exhibitions at the Iran Oil and Gas Show in May, the 
Iran Food, Hospitality and Beverage Show in May, and Iranplast in 
November. 
 
¶3.  (U) Despite these promotion activities, the WKO views the 
current economic situation in Iran as not particularly promising for 
trade and investment due to the Iranian regime's poor economic 
policies and the effects of the UN sanctions.  Nevertheless, WKO 
President Christoph Leitl has consistently publicly argued that 
increased commercial relations with Iran could serve as a 
confidence-building measure in politically difficult times. 
However, during the June 2007 visit (ref E) of Iranian Finance 
Minister Davoud Danesh Jafari, Economics Minister Martin Bartenstein 
noted that Iran's nuclear program "had cast clouds over 
Austrian-Iranian commercial relations." 
 
 
Austrian Exports to Iran Decline Last Two Years 
--------------------------------------------- -- 
 
¶4.  (U) Trade with Iran remained a very insignificant part of 
Austria's overall trade (0.24%), and Austrian exports to Iran were 
only 0.28% of Austria's total exports in 2007.  In the Middle East, 
Iran was Austria's third largest (down from second largest in 2006) 
trading partner.  In 2007, Austrian exports to Iran were Euro 315 
million ($472 million), down 7.2% from 2006 and down 21.7% from 
¶2005.  Austrian exports to Iran are primarily machinery and vehicles 
(55% of total), followed by chemical products and manufactured 
products. 
 
¶5.  (U) Imports from Iran continue to fluctuate erratically.  In 
2005, imports from Iran tripled to Euro 189.5 million, fell 25.5% in 
2006 to Euro 141.1 million, then rose by 57.1% to Euro 221.6 million 
in 2007.  Iranian imports are overwhelmingly energy (80% of total), 
followed by raw materials and some manufactured products.  In 2006 
(latest figures available), Iran was the seventh largest supplier of 
oil to Austria (4.3% of total oil imports).  Iran ranked behind 
Kazakhstan (20%), Russia (16%), Nigeria (15%), Libya (15%), Saudi 
Arabia (11%), and Syria (8%). 
 
 
Export Guarantees to Iran Declining 
----------------------------------- 
 
¶6.  (SBU) The Austrian Kontrollbank, Austria's export and financing 
guarantee entity, continues to grant guarantees to Austrian 
exporters to and investors in Iran.  However, a Kontrollbank contact 
recently told post that the bank is "step by step reducing its 
cover" for business in Iran.  Total cover for exports and 
investments to Iran is now Euro 700 million ($1.0 billion), down 
Euro 90 million in 2007 and Euro 100 million in 2006.  Cover is 
available only for projects with a value up to Euro 3-4 million. 
 
VIENNA 00000531  002 OF 002 
 
 
Our contact said that there is still a variety of goods for which 
applications for cover are issued, but consumer goods represent the 
vast majority. 
 
¶7.  (SBU) According to our contact, the Kontrollbank scrutinizes 
each application much more closely since UN sanctions were 
implemented.  In addition, the Kontrollbank continues to submit all 
requests for letters of credit to finance exports to the Ministry of 
Economics to ensure that no exports to sanctioned firms, or of 
controlled items, inadvertently receive financing (ref D). 
 
 
Foreign Direct Investment 
------------------------- 
 
¶8.  (SBU) In 2004, the GoA and Iranian Government signed new 
investment and double taxation agreements.  Austrian businesses have 
invested in Iran's paper, cement, and packaging industries, and 
participate in rail and other infrastructure construction projects. 
However, Austrian National Bank (ANB) statistics list only one 
Austrian FDI project in Iran and, vice versa, only one Iranian FDI 
project in Austria.  The values of both projects are reportedly 
small (Note: The threshold for inclusion in ANB statistics is a 
shareholding of at least 10% and a minimum nominal equity investment 
of Euro 72,000).  Since there is only one investment in either 
direction, the ANB cannot disclose details on these investments for 
data protection reasons. 
 
¶9.  (U) The brewery and soft drink manufacturer Ottakringer is 
building a Euro 25 million brewery near Tehran with an Iranian 
partner, the family enterprise "Kilos Food Industries."  The brewery 
will be finished in 2010 and produce up to 600,000 hectoliters per 
year of Ottakringer's alcohol-free beer.  In the meantime, 
Ottakringer plans to enter the Iranian market with exports. 
 
 
OMV's Iranian Interests 
----------------------- 
 
¶10.  (SBU) Austria's energy company OMV has been exploring an oil 
field in the Zagros region since 2001.  The block was declared 
"commercially viable" in 2005 and a development plan is being worked 
on, according to OMV publications.  In April 2007, OMV signed a 
Heads of Agreement to participate in the development of Iran's South 
Pars gas field.  Both sides had initially hoped to finalize the 
agreement by the end of 2007, but OMV contacts have told us that 
there has been no significant progress towards finalizing the 
agreement (refs A and C).  OMV and the GoA, which controls 31.5% of 
OMV, appear reluctant to move forward with the South Pars project in 
the present political situation in Iran.  OMV, as the lead company 
in the Nabucco pipeline consortium, would like to access Iranian gas 
for the project, pending a resolution of the nuclear dossier (ref 
B). 
 
KILNER