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Cablegate: Iran Sanctions Act: Plans for New Turkish Deal On

VZCZCBSO567
OO RUEHBS
DE RUEHC #4797/01 1431352
ZNR UUUUU ZZH
O P 221344Z MAY 08
FM SECSTATE WASHDC
TO RUEHAK/AMEMBASSY ANKARA IMMEDIATE 4431
INFO IRAN COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 STATE 054797

SENSITIVE

E.O. 12958: N/A
TAGS: ENRG EPET ETTC IR PREL TU
SUBJECT: IRAN SANCTIONS ACT: PLANS FOR NEW TURKISH DEAL ON
INVESTMENT IN IRAN'S ENERGY SECTOR

REF: A. 08 ANKARA 711
B. 07 ANKARA 1809

1. (U) This is an action message; please see paragraphs 3 and
4 below.

2. (SBU) Washington thanks post for its reporting on Turkey's
plans to develop Iranian South Pars gas for Turkish and
European consumption. On the margins of the April 17
Economic Partnership Commission with Turkey, EEB DAS Hengel
raised U.S. concerns about investments in the Iranian oil and
gas sector with MFA Deputy Undersecretary Haydar Berk. Hengel
underlined that U.S. policy opposing such investment had not
changed and that there was much Congressional interest in
reports of pending deals with Iran. Hengel also noted our
obligations under the Iran Sanctions Act. Berk said
emphatically that no investment deals with Iran were moving
ahead and that Turkey would not do anything with Iran that
would so clearly antagonize the U.S. and Israel. At the
same time, he commented that Turkey must think about its
long-term energy requirements and therefore needs to continue
to engage with the Iranians.

3. (SBU) The Embassy is requested to reiterate our concerns
at a senior level of the Turkish government to underscore the
risks inherent in doing business with Iran, and to discourage
the GOT from pursuing these negotiations further with Iran.

4. (SBU) In raising our concerns, Embassy may draw as
appropriate on the following points.

-- We are concerned to hear of Turkish Petroleum Company's
(TPAO) continued pursuit of a deal to develop Iran's South
Pars gas fields, as well as plans to welcome an Iranian
delegation in Ankara.

-- Although not directly covered by current UN sanctions, new
energy deals such as the one contemplated by TPAO undermine
the concept reflected in the P-5 plus 1 proposal of offering
enhanced economic and energy engagement as an inducement for
Iranian compliance.

-- TPAO's signing of new deals with Iran would be a serious
blow to the international effort to bring Iran into
compliance with UNSC resolutions regarding its nuclear
activities.

-- This is not the time for "business as usual" with Iran,
and TPAO may want to reconsider the risks of being associated
with the Iranian regime. We believe that companies should
ask themselves whether they really want to do business with a
country that is already under sanctions from three UNSC
Chapter 7 resolutions.

-- The Financial Action Task Force (FATF) stated in October
2007 that Iran's lack of a comprehensive anti-money
laundering and combating the financing of terrorism (AML/CFT)
regime represents a significant vulnerability in the
international financial system. Further, on March 3, 2008,
the United Nations Security Council passed Resolution 1803
(UNSCR 1803), calling on all states to exercise vigilance
over activities of financial institutions in their
territories with all banks domiciled in Iran and their
branches and subsidiaries abroad.

-- On the financial front, the cost of doing business with
Iran has increased. Iran's credit risk rating has gone up,
and many banks have stopped issuing letters of credit to
companies seeking to do business with Iran. Major
international banks including Deutsche Bank, Dresdner Bank
and Commerzbank have also scaled back or completely severed
their Iran-related business.

-- New energy investments in Iran also raise concern under
the Iran Sanctions Act (ISA). ISA is triggered when "a
person has, with actual knowledge" made an investment of
$20,000,000 or more "that directly and significantly
contributed to the enhancement of Iran's ability to develop
petroleum resources of Iran." The ISA definition of
"investment" encompasses, among other things, "entry into a
contract that includes responsibility for the development of
petroleum resources located in Iran."

-- We hope your government understands our concerns. In view
of the serious negative consequences involved, we ask that
you urge TPAO to reconsider going forward with this deal.

-- More broadly, we hope the Turkish government will
discourage Turkish firms from entering into new energy
investments with Iran.

5. (U) The Department would appreciate further information
from post regarding the nature and terms of TPAO's planned
investment. Please send any updates to Paul Malik in EUR/SE
and Sonata Coulter in EEB/ESC/TFS.
RICE

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