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P 030406Z NOV 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0607
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 003220 
 
SIPDIS 
 
STATE FOR VCI, EUR/PRA, AND EUR/RUS 
 
E.O. 12958: DECL: 10/31/2018 
TAGS: PARM MTCRE PREL MNUC ETTC RS
SUBJECT: STRONG CRITICISM FOR U.S. SANCTIONS AGAINST 
ROSOBORONEXPORT 
 
REF: STATE 110756 
 
Classified By: Ambassador John R. Beyrle for reasons 1.4 (b) and (d). 
 
¶1. (C) Summary.  Russian officials have denounced the U.S. 
decision to renew sanctions against Rosoboronexport (ROE) and 
its subsidiaries under the terms of the Iran, North Korea and 
Syria Nonproliferation Act (reftel).  Arguing that ROE's 
activity with Iran was fully compliant with international 
law, President Dmitriy Medvedev and Foreign Minister Sergey 
Lavrov asserted that unilateral U.S. sanctions would have no 
effect on Rosoboronexport's activity.  They warned that the 
sanctions would negatively affect bilateral relations with 
the U.S., as well as cooperation on Iran within the P5 1. 
ROE accused the U.S. of "unfair competition" by trying to 
limit Russia's ability to conduct foreign trade.  Several 
experts criticized the sanctions as yet another complication 
in U.S.-Russian relations, and cautioned that the U.S. 
decision could provoke Russia to sell more dangerous weapons 
technology to Iran and Syria.  In the economic sector, some 
news reports maintained that the sanctions would hurt 
Boeing's ability to purchase titanium through Rosoboronexport 
subsidiary VSMPO-Avisma.  However, as in the past, it is our 
understanding that the sanctions order will not have any 
impact on Boeing's titanium purchases or GM's joint venture 
with Avtovaz, since the sanction order only applies to 
purchases by or for the USG, not those of private U.S. 
companies.  End summary. 
 
--------------------------------------------- -- 
Officials Strongly Condemn Unilateral Sanctions 
--------------------------------------------- -- 
 
¶2. (SBU) On October 28, President Medvedev accused the U.S. 
of "unprincipled competition" by imposing sanctions on ROE, a 
decision he called "shortsighted" and "simply an attempt to 
close doors on suppliers."  He noted that Russia would 
continue to sell arms and military equipment to maintain the 
defense potential of its partners, regardless of the 
sanctions.  In its official statement, ROE echoed the 
President's remarks, claiming the U.S. wanted to suppress 
competition.  The statement attributed the U.S. decision to a 
desire in Washington to weaken Russia's standing as a global 
arms export leader.   ROE also dismissed U.S. arguments that 
the TOR-M1 missiles Russia supplied to Iran posed a threat to 
U.S. forces in the region.  The statement alleged that the 
TOR-M1 improved Iran's defensive air capabilities, which 
would enable Tehran to protect its nuclear, chemical, and 
energy facilities from high-precision attacks, which could be 
carried out using weapons produced in the U.S. 
 
¶3. (SBU) Both ROE and Foreign Minister Lavrov asserted that 
the sanctions had no basis in international law, and Lavrov 
warned that the U.S. decision would negatively affect 
relations with Russia.  In an October 24 press conference, 
Lavrov noted sarcastically that imposing sanctions would not 
make Russia more willing to adopt U.S. positions regarding 
Iran's nuclear program.   An official MFA statement stressed 
that the sanctions would complicate U.S.-Russian cooperation 
in the P5 1.  Russia also accused the U.S. of hypocrisy, 
arguing that the U.S. ignored arms transfers by its allies to 
rogue regimes, an implicit reference to Ukrainian arms 
supplies to the Georgian military.  Even Russia's NATO 
Ambassador Dmitriy Rogozin insisted the U.S. had no evidence 
of Russia delivering banned military technologies to Iran, 
and accused the U.S. itself of supplying the Iranian Air 
Force with forbidden equipment. 
 
¶4. (SBU) At the October 30 Shanghai Cooperation Organization 
(SCO) Heads of State Summit, the Director of the Bank for 
Development and Foreign Economic Affairs (Vneshekonombank) 
Vladimir Dmitriyev told reporters that the U.S. sanctions on 
ROE could factor into the SCO's decision to start trading in 
national currencies or third-country currencies, as opposed 
to dollars.  According to Dmitriyev, Russia's close 
military-technological cooperation with countries like China 
and India, an SCO member state and observer respectively, 
could compel the SCO to consider this idea.  However, no SCO 
member state has yet to issue any concrete proposals. 
 
--------------------- 
Experts Also Critical 
--------------------- 
 
¶5. (C) Several experts were critical of the sanctions, and 
questioned their timing at a period when bilateral relations 
 
were under great strain.  Aleksey Arbatov of the Carnegie 
Moscow Center and Georgiy Mirskiy of the Institute of Higher 
Economics told us that, with several challenges already 
complicating U.S.-Russian relations, senior Russian officials 
would regard the sanctions as disrespectful and aggressive. 
They cautioned that the sanctions could embolden hardliners 
within Medvedev and Putin's inner circles, who champion more 
active arms sales of weapons like the S-300 missile to Iran 
and Syria, and could undermine senior advisers who favor a 
more conciliatory approach towards relations with the U.S. 
The editors of the Independent Military Review, looking ahead 
past the upcoming Presidential elections, predicted the 
sanctions, in addition to missile defense, the CFE Treaty, 
and post-START negotiations, would impede the normalization 
of relations between the Kremlin and the next U.S. 
Administration.  They also dismissed any notion that the 
sanctions would hurt Rosoboronexport, which has 30 billion 
dollars of contracts and no major deals with the U.S. 
government. 
 
---------------------------- 
No Impact on U.S. Businesses 
---------------------------- 
 
¶6. (SBU) It is our understanding that the current sanctions 
order will not have any impact on U.S. businesses here, 
despite some claims in the Russian press that the renewed 
sanctions on ROE would affect Boeing's purchases of titanium 
from VSMPO-Avisma, which is part of the same corporate family 
as ROE. (Avisma is one of the world's leading suppliers of 
titanium to the global aerospace industry, and its customers 
include Airbus, Bombardier and Boeing, which uses the 
super-light metal in the 787 Dreamliner, the 777, and in 
other aircraft.)  The terms of the sanctions order only limit 
USG purchases from sanctioned companies and their 
subsidiaries, not purchases by private U.S. companies for 
non-USG contracts.  (N.B.  For any U.S. government contracts, 
we understand that Boeing acquires titanium from a U.S. 
source, rather than from Avisma).  Boeing told The Moscow 
Times that it would not be affected by the current sanctions 
order, and in past sanctions cases against ROE, Boeing has 
stated that the order would not affect their Avisma supply 
contracts.  Likewise, given the sanctions order's limitations 
to USG purchases, GM's joint venture in Togliatti with 
Avtovaz (also part of the Rostekhnologiya-Rosoboronexport 
corporate family), which began in 2001 and produces the 
Chevrolet Niva, should not be affected.  A GM Moscow senior 
adviser on government relations for Russia and the CIS 
confirmed to us that the various sanctions against ROE had 
not had any impact on GM's dealings with Avtovaz, and, as the 
sanctions are currently structured, they do not anticipate 
any impact in the future. 
 
BEYRLE