P 201536Z MAR 09
FM AMEMBASSY BERLIN
TO SECSTATE WASHDC PRIORITY 3638
INFO IRAN COLLECTIVE PRIORITY
AMEMBASSY ABU DHABI PRIORITY 
AMEMBASSY BAGHDAD PRIORITY 
USMISSION UNVIE VIENNA PRIORITY 
IRAN RPO DUBAI PRIORITY
USMISSION USUN NEW YORK PRIORITY 
NSC WASHINGTON DC PRIORITY
SECDEF WASHINGTON DC PRIORITY
USEU BRUSSELS PRIORITY

C O N F I D E N T I A L BERLIN 000336 
 
 
PLEASE PASS TO EUR/CE FOR CHODGES, PSCHROEDER; NEA/IR; EEB 
FOR COULTER; S/SAGSWA; ISN; TREASURY FOR JONATHAN BURKE 
 
E.O. 12958: DECL: 03/20/2019 
TAGS: ETRD ENRG PREL EFIN ETTC KMVP IZ IR GM
SUBJECT: INDUSTRY SAYS GERMAN GOVERNMENT ADOPTING TOUGH 
TONE ON IRAN 
 
REF: A. 09 BERLIN 00298 
     ¶B. 09 BERLIN 00289 
     ¶C. 09 BERLIN 00220 
     ¶D. 09 BERLIN 00120 
     ¶E. 08 BERLIN 00772 
 
Classified By: Minister-Counselor for Economic Affairs Robert A. Pollar 
d for reasons 1.4 (b) and (d) 
 
¶1.  (C)  Summary:  German officials are exerting stronger 
moral pressure on industry to discourage business with Iran 
beyond those measures specifically stipulated in sanctions 
regimes, according to industry contacts.  German government 
officials have reportedly emphasized the undesirability of 
Liquefied Natural Gas (LNG) technology exports to Iran and 
the need for German banks to fortify their scrutiny of 
transactions related to Iran.  Recent trade data indicates 
that the German government's moral suasion campaign may be 
showing some results although overall trade with Iran 
increased in 2008.  The problem is that German industry, 
especially SMEs, is unlikely to stop trading with Iran so 
long as it is legal.  Industry has shown keen interest in the 
U.S. policy review on Iran.  Post welcomes information and 
support from Treasury's Office of Foreign Assets Control 
(OFAC) in addressing lingering misperceptions about USG 
policy.  End Summary. 
 
------------------------------------------- 
GERMAN TRADE: FOODSTUFFS UP, HIGH-TECH DOWN 
------------------------------------------- 
 
¶2.  (U) Evidence now suggests the German government s 
campaign (REFs D, E) to reduce exports to Iran may be showing 
modest results, according to EuroStat data.  Although 
Germany,s exports to Iran rose 9.0% in 2008 over 2007 levels 
to a total of 3.9 billion euro, the broad category of food 
(up 179 million euro) accounted for 56% of this increase. 
Germany's food exports to Iran jumped from 43 million euro in 
2007 to 222 million euro in 2008, the vast majority of which 
was grain.  (In fact, German exports of grain exploded from 
less than a million euro in 2007 to 165 million euro last 
year.)  Meanwhile, some industrial categories, notably, three 
high-technology categories, showed significant decreases: 
specialized machinery (down 44 million euro or 16%), 
metalworking machinery (down 18 million or 40%) and 
telecommunications equipment (down 13 million euro or 19%). 
(Note: EU export data does not separately categorize refinery 
or LNG equipment.) 
 
-------------------- 
GERMANY'S TOUGH LINE 
-------------------- 
 
¶3.  (C)  Major industry organizations have complained to Post 
about pressure from the German government.  On March 4, Felix 
Neugart of the German Chamber of Industry and Commerce (DIHK) 
told EconOff that some German officials have been telling 
industry privately that Israel is very likely to attack Iran 
if insufficient pressure is brought to bear on Iran to change 
its course.  Steffen Behm, Director of Africa and Middle East 
for the German Federation of Industries (BDI), likewise 
described the German government's efforts to discourage LNG 
deals with Iran as "very strong." 
 
----------------------------------------- 
INDUSTRY STILL RESISTANT TO MORAL SUASION 
----------------------------------------- 
 
¶4.  (C)  Elements of German industry remain skeptical of the 
German government's moral suasion campaign.  Industry 
contacts said some exporters give credence to German press 
stories that claim the USG is discouraging Europeans from 
trading with Iran so that U.S. firms can win business there. 
According to Behm, BDI advises German companies to strictly 
adhere to any sanctions regime, but cannot do much more when 
the German government itself only informally discourages 
firms from conducting legal business.  He argued that German 
exporters deserve clear guidelines and legal certainty, 
particularly on LNG technology.  Similarly, Behm said that 
the German Federal Financial Supervisory Authority (BaFIN) is 
pressing German banks to undertake extremely onerous due 
diligence on customers to little effect.  BDI opposes 
unilateral measures that, it argues, merely shift market 
share from German firms to companies from China and Russia. 
 
¶5.  (C)  German companies' responsiveness to moral suasion is 
often tied to their size.  Neugart of the DIHK contended that 
despite German officials' strong language, security arguments 
hold no sway with small and medium enterprises.  In a March 6 
meeting, representatives of the Bavarian Business Association 
(VBW) told EconOff that larger Bavarian firms are less likely 
to trade with Iran because of risks to their reputations, but 
smaller, more specialized companies are apt to export 
whatever is permitted under the law.  VBW reps said many 
firms complained that restrictions on trade with Iran are 
affecting their bottom line, particularly in the energy 
sector.  In these cases, VBW advised such firms to explore 
the growing business opportunities in Iraq as an alternative 
market.  VBW urged the U.S. government to consider further 
outreach to more fully explain its sanctions policies. 
 
------------------------------------- 
STRONG INTEREST IN U.S. POLICY REVIEW 
------------------------------------- 
 
¶6.  (C)  Industry contacts are keenly interested in the U.S. 
policy review and hope the process will be completed quickly 
so that German stakeholders (both government and industry) 
have a clearer sense of where U.S. policy is going. 
Privately, industry associations recognize that the conflict 
over Iran's nuclear ambitions may reach a critical point 
within months.  Most industry observers argued that 
regardless of who wins Iran's June election, sanctions will 
not persuade a regime and populace accustomed to economic 
hardship to change course, and they remained skeptical that 
Iran would abandon what its leadership regards as "a national 
development project."  Nonetheless, a German Federation of 
Wholesale and Foreign Trade contact severely criticized 
former Chancellor Gerhard Schroeder's recent meeting with 
President Mahmoud Ahmadinejad in Tehran because he said it 
made Ahmadinejad appear to be a credible leader (REF C). 
 
------- 
COMMENT 
------- 
 
¶7.  (C)  German industry has consistently downplayed the 
Iranian threat in the past to forestall government pressure, 
but now seems resigned to a gradual closing of the Iran 
market as the German government closes ranks.  Unlike in past 
encounters, industry contacts did not point to policy 
differences between the MFA and EconMin regarding trade with 
Iran.  Industry representatives also displayed greater 
openness to American leadership, but remained skeptical that 
a diplomatic solution was possible. 
 
¶8.  (C)  Industry's reports of German government pressure on 
LNG technology exporters tracks with what German government 
interlocutors, including Economics Minister Karl-Theodor zu 
Guttenberg (REF A), have recently emphasized to us:  The 
German government recognizes LNG technology as a key lever in 
pressuring Iran and is therefore discouraging German 
companies from exporting such technologies to Iran.  Post 
also sees the decreases in Germany's high tech exports 
(machinery, metalworking and telecom), coupled with the 
dramatic 94 percent drop in government export guarantees (REF 
D), as small, but encouraging signs in the right direction. 
That said, we should continue to press the German government 
on trade with Iran; clearly, the unanticipated 2008 increase 
is a source of embarrassment to many officials.  The Mission 
will continue its outreach to Germany's exporters in the 
business communities of Munich, Hamburg, Frankfurt and 
Duesseldorf, and would welcome a visit by U.S. sanctions and 
export controls experts, building on OFAC's successful 
meetings on Iran sanctions with German industry in Berlin in 
¶2008.  This also could be an opportunity to address German 
industry questions about the results of the policy review. 
 
 
Koenig