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Cablegate: Codel Moran Meetings with Pm and Central Bank

DE RUEHMK #1083/01 3391113
P 051113Z DEC 07

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 001083



E.O. 12958: DECL: 12/05/2017

Classified By: Ambassador Adam Ereli for reasons 1.4 (b) and (d).

1.(C) Summary: Bahrain's Prime Minister told Codel Moran November 29 (before the release of the new National Intelligence Estimate) that he believed Iran has gone too far down the road to stop it from obtaining a nuclear weapon. The U.S.-Bahrain relationship had contained Iran for many years, and Bahrain would continue to stand with the U.S. in the future. The Central Bank Governor assured the delegation that Bahrain remained committed to the dollar peg and that labor market reforms would wean the country off of cheap, imported labor. End summary.

2.(U) Representatives James Moran, Tom Davis, and Steve Chabot visited Bahrain on November 29 and met with Prime Minister Khalifa bin Salman Al-Khalifa and Central Bank of Bahrain Governor Rashid Al-Miraj. --------------------------------------------- -- Prime Minister: Bahrain Stands with Her Friends --------------------------------------------- --

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3.(C) Responding to questions from Representatives Moran and Davis on Iran, Prime Minister Khalifa bin Salman Al-Khalifa said that he believed Iran will acquire a nuclear weapon, but that it won't use it. (Note: His comments came before media reports December 3 on the release of the new National Intelligence Estimate on Iran.) He said Iran had gone "too far down that road to prevent it from getting the bomb." What was important now was for the U.S. and its friends in the region to "learn from past mistakes and move on." The PM dismissed Iranian President Ahmedinejad's assurances during his recent visit to Bahrain as "mere politics." He emphasized that Bahrain will assert its rights even in the face of Iranian threats. Deputy Prime Minister Jawad bin Salem Al-Arayedh interjected that the U.S.-Bahrain relationship had contained Iran over the years and that Ahmedinejad had found little support among the GCC states.

4.(C) Turning to other issues, the PM agreed that the Free Trade Agreement was a symbol of the strong relationship between the U.S. and Bahrain. He told the delegation that other GCC states had criticized Bahrain roundly for signing the FTA, but now they seek its advice on how to negotiate their own FTAs with the U.S. He hoped that the Congressmen would remember that Bahrain stood by the U.S. even when its neighbors weren't pleased.

5.(C) Throughout his remarks, the PM stressed the importance of direct communication. He commented that even as technological advances allow us to communicate over great distances, we should not rely on technology alone. It is important, he said, that "you come visit with your friends." --------------------------------------------- Central Bank: Bahrain Committed to Dollar Peg ---------------------------------------------

6.(C) Bahrain Central Bank Governor Rashid Al-Miraj told Codel Moran that the GOB has concluded that reliance on cheap, imported labor is not sustainable and that the labor reform effort underway in the country aimed to give Bahrainis the skills they will need to compete in a 21st century labor market. New labor fees designed to raise the cost of foreign labor would pay for training Bahrainis and helping smaller businesses adjust to the new realities. He said that future growth will depend on education and noted that financial services already accounted for 25 percent of Bahrain's GDP.

7.(C) Al-Miraj responded to a question from Rep. Davis on speculation that some Gulf governments may abandon the dollar peg by stating flatly that "the Central Bank of Bahrain is committed to the dollar peg." He explained that Bahrain and the other GCC states are firmly tied to the dollar peg, particularly considering that oil and many other key exports are priced in dollars. He didn't consider the Euro to be a credible reserve currency, noting that Europe had yet to determine how to deal with the socio-economic fallout of its demographic challenges. Al-Miraj also noted that the GCC had decided some years ago to use the dollar as the basis for monetary union. Undoing that decision, he said, would take much time and effort.

8.(C) Rep. Chabot asked whether governments in the region are genuinely concerned that the price of oil is too high. Al-Miraj assured him that they were; producers want stable markets. He estimated that speculative fears push the per barrel cost around 20 dollars higher than market fundamentals would dictate. Al-Miraj believed that the lack of new refining capacity in the U.S. and Europe was also a factor. MANAMA 00001083 002 OF 002

9.(C) Responding to a question from Rep. Davis about Iran's role in the local economy, Al-Miraj said that the real player is Saudi Arabia. While Iran represented a potentially huge market, its role as a trading partner had remained limited. On the other hand, half of Saudi GDP was within an hour's drive of Bahrain.

10.(U) Codel Moran did not have an opportunity to clear this message. ********************************************* ******** Visit Embassy Manama's Classified Website: XXXXXXXXXXXX********************************************* ******** ERELI

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