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PP RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHTV #3385/01 3330707
ZNY SSSSS ZZH
P 290707Z NOV 07
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC PRIORITY 4363
INFO RUCNIRA/IRAN COLLECTIVE
RHEBAAA/USDOE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEKJCS/SECDEF WASHDC
RHEHNSC/NSC WASHDC

S E C R E T SECTION 01 OF 03 TEL AVIV 003385

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/26/2017
TAGS: PREL KNNP MNUC PTER IR IS
SUBJECT: PDAS MCNERNEY'S OCTOBER 24 MEETING AT THE ISRAELI
MFA ON IRAN: THE INTERNAL SITUATION (CABLE 1 OF 5)

Classified By: Marc J. Sievers, Political Counselor.
Reasons: 1.4 (b)(d).

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SUMMARY
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¶1. (S) In an October 24 meeting at the MFA, an Israeli
government interagency team led by MFA Deputy Director
General (Strategic Affairs) Miriam Ziv shared its assessment
of the internal situation in Iran with a U.S. team led by ISN
PDAS Patricia McNerney. The Israeli side made the following
points: (A) it is not clear what the replacement of Iranian
nuclear negotiator Larijani means; (B) sanctions are having
an effect in Iran, and increasing pressure on Ahmadinejad and
his supporters; and (C) Ahmadinejad is facing obstacles in
his effort to garner support from leaders and marginalized
peoples in Latin America, Asia and other parts of the
developing world. END SUMMARY.

¶2. (S) On October 24, ISN PDAS Patricia McNerney, ISN/RA
Middle East Team Leader Kurt Kessler, ISN/CPI Director Tony
Foley, and NEA Iran Desk Officer Sean Misko and embassy
POL-MIL officer met at the Israeli MFA with an interagency
team led by MFA DDG for Strategic Affairs, Miriam Ziv, to
exchange information on Iran and its nuclear program. The
Israeli team included representatives from the MFA, the Prime
Minister's office, Israeli Defense Intelligence (IDI), and
the Mossad. This is the first of three reporting cables
reporting on the discussions at the MFA, and concerns the
internal situation in Iran and the effects of sanctions.
Septels will review discussions in the MFA on the
technological stage of Iran's nuclear program, and ongoing
and future counter-terror finance efforts, as well as
discussions with Israel Atomic Energy Commission (IAEC)
officials about Iran and the IAEA.

¶3. (S) Ambassador Ziv opened the meeting by noting that she
had met with four of the P-5 ambassadors (Russia, France, UK,
China) in New York on the margins of the UN General Assembly.
She was, she said, disturbed to learn that there was no
activity going on in New York with respect to a third UNSC
sanctions resolution on Iran.

-----------------------------------------
UNCLEAR WHAT LARIJANI'S REPLACEMENT MEANS
-----------------------------------------

¶4. (S) An official from the MFA's Center for Strategic
Research (the equivalent of State's INR Bureau) then provided
his analysis of Iran's change in its nuclear negotiator. He
said that the change left Israel with more questions than
answers. Iran, nevertheless, remains able to convey to the
rest of the world that it is cooperating, as the new
negotiator had already met with EU High Represenative Javier
Solana. In the MFA's view, Iran is "going through the
motions" to suggest that everything is fine. Iran's new
negotiator reportedly stated that negotiations with Solana
would continue into November. Larijani's resignation was a
surprise for Israel. There appears to be no urgency on the
Iranian side. The Iranians know that nothing will happen
until the beginning of next year. Negotiations with Iran in
the IAEA context will go on as if nothing had happened.

¶5. (S) The MFA official suggested that the change in
negotiators may have been connected with Russian President
Putin's October 15-17 visit to Iran to attend the Caspian
Summit. The MFA official claimed that Iran expected that
Putin would "bring something good with him." Instead, Putin
met with Supreme Leader Ayatollah Khamenei and only proposed
supplying power plants to Iran, and did not discuss
enrichment. He observed that there was no statement about
the Bushehr reactor. Ziv recalled that the Russian
ambassador to the UN had told her before PM Olmert's visit to
Russia that Putin would tell Olmert that Russia would not
supply Iran with fuel for the Bushehr reactor. PM Olmert
subsequently declared in public that the Russians would not
provide the fuel for the Bushehr reactor. MFA
Nonproliferation and Counterterrorism Department Deputy
Director Jonathan Miller added that a Russian embassy
official told him that the contracts over Bushehr need to be
"re-done," that this will take a long time, and that fuel
supply is not even "on the table" for now. The Mossad
representative said that the Russians have decided to supply
fuel, but are in a "wait-and-see" mode, and that it will not
happen for a few months. An IDI officer said that work on

TEL AVIV 00003385 002 OF 003


the contracts continues, and that the IAEA is involved in the
arrangements, such as the sealing of the fuel.

¶6. (S) Returning to Larijani's resignation, the MFA official
said that it may be part of an escalating power struggle
among Iran's conservative elites. The signals it sends are
unclear. The MFA noted that Jalili is reportedly a close
associate and supporter of Ahmadinejad. While Ahmadinejad
does not control the Supreme Council for National Security
(SCNS), the appointment of Jalili as SCNS secretary -- a
crucial position -- was significant and appeared to reflect
fallout in the relationship between Ahmadinejad and Larijani.
As to the question, "Why Jalili?" the MFA official noted
that he is inexperienced and young, and wondered out loud
whether Jalili is just a front man. He noted that several
high-ranking conservatives, including former Iranian FM
Veleyati, have criticized the change. Former Iranian
President Rafsanjani's brother also criticized Larijani's
removal. The MFA official wondered whether it meant that
Rafsanjani is coming out of silence and positioning himself
for a comeback. The MFA official continued by suggesting
that Ahmadinejad was dissatisfied that Larijani had been
appointed as Iran's nuclear negotiator. Larijani had
unsuccessfully run against Ahmadinejad in the 2005
presidential elections, and was appointed by Iran's Supreme
Leader, Ayatollah Khamenei. He also observed that there were
conflicting rumors -- one, that Larijani remains in the
system, with Jalili merely serving as a go-between; and the
other, that Larijani and his entire team have been removed.

¶7. (S) Discussion then led to the view that Iran's Supreme
Leader is strengthening Ahmadinejad, and that the hard-line
conservatives are gaining power at the expense of
traditionalists like Larijani. Jalili seems to be more of a
revolutionary, like Ahmadinejad. The view also emerged that
external factors appear to be the primary driver on the Iran
nuclear issue. The resignation may simply reflect a change
in tactics as opposed to policy. All agreed that Jalili
would probably be more difficult to negotiate with than
Larijani.

--------------------------------------
SANCTIONS ARE HAVING AN EFFECT IN IRAN
--------------------------------------

¶8. (S) The MFA official then observed that it appears that
some of Iran's assumptions have been shaken. First, two
Chapter VII UNSC sanctions resolutions have been passed
unanimously. Secondly, internal opposition to Ahmadinejad's
hard-line faction appears to feel more empowered, as
demonstrated by more vocal criticism of Ahmadinejad's
policies. Indeed, the unanimous adoption of UNSCR 1737 led
to a flood of public criticism of Ahmadinejad. The MFA
official assessed that the sustained criticism of
Ahmadinejad's handling of the economy suggests that sanctions
are working in Iran. Ahmadinejad had recently run into
protests at two universities, and appears to be losing his
popularity among Iran's lower class. Anecdotal information
shows that the public is still dissatisfied with the fuel
rationing, especially as cheap fuel was a promise of the
Revolution, and one of Ahmadinejad's election promises. The
MFA official assessed that the fuel rationing was the result
of long-standing USG sanctions and fears within the regime
that the West would attempt to restrict Iran's import of
refined petroleum. (COMMENT: This differs from the USG
assessment that Iran's fuel rationing program is the result
of Iran's limited domestic refining capacity. END COMMENT.)

¶9. (S) The MFA official said that sanctions are also
increasing the risk premium associated with investments in
Iran. Ahmadinejad had recently dismissed the head of Iran's
Central Bank, who was not appointed by Ahmadinejad, as well
as the oil minister. The MFA official assessed that the high
profile personnel changes may be a response to public
criticism of Ahmadinejad's handling of the economy. The
official added that Ahmadinejad believes he should do "more
of the same" on the economy, even if it does not work.
Despite these challenges, Israeli analysts were originally of
the view that Ahmadinejad was losing power. His ability to
shuffle personnel and insert supporters into high-level
positions in key ministries, however, suggests that
Ahmadinejad may be adapting and learning how to cope.

¶10. (S) The Mossad official said that Iran's middle class and
bazaar merchants are running into real problems at Iran's
banks. Even simple transactions through Dubai carry an

TEL AVIV 00003385 003 OF 003


increased risk premium between 20-40 percent. The Israeli
MFA official also noted that problems are cropping up in
Iran's investment sector, with many companies having doubts
which in turn have led to hesitation in doing business.
There is an increasing view among the bazaaris that something
must be done about the sanctions. As a result, Iran is
forced to look for new partners in Europe and Asia.

¶11. (S) The IDI officer observed that Ahmadinejad made a huge
mistake when he lowered interest rates below the rate of
inflation. He cautioned, however, that Ahmadinejad could
survive. He could say that his ministers have made mistakes,
dismiss them, and continue with his own policies.

¶12. (S) Regarding sanctions, the IDI officer observed that
half a year later, they are having a psychological effect
across the board. Advisors on the Iranian economy, in
addition to bankers, are now feeling the pressure. Even the
Supreme Leader might see problems and decide that something
must be done. At the same time, Ahmadinejad disputes this.
He feigns confidence by asserting that the Hidden Imam will
return and solve all of Iran's problems.

--------------------------------------------- -------
AHMADINEJAD FINDING IT HARD TO GARNER SUPPORT ABROAD
--------------------------------------------- -------

¶13. (S) Regarding Ahmadinejad's efforts to build alliances
with leaders in Latin America and Asia, the MFA official said
that he has reached out to the developing world through his
outlandish statements on the Holocaust. He is viewed as a
hero by some in the Arab world, and leftists in Latin America
support him. The problem for Ahmadinejad, the official
observed, is that the friction between the Sunnis and Shia is
at its height due to Iraq. Leaders of the Arab world are
also worried that Hizballah might steal the show in Lebanon.
Ahmadinejad is working hard but is facing obstacles in
developing diplomatic support for his stance. The IDI
officer said that Ahmadinejad is having problems getting
support from "people in the street" in Latin America. Those
people do not share his comparison of the Iranian Revolution
and their revolutions. According to the MFA official, the
Iranian Government recently hosted a conference in Tehran
aimed at comparing the Latin American and Iranian
revolutions. One of the invited guests was Che Guevara's
daughter, who used her speech to criticize the Iranian
Revolution and make clear that her father's ideas were very
different from those propagated by Iran's revolutionary
mullahs. Some of the Latin American leaders are also wary of
his attempts to reach out to their peoples. They see it as a
challenge to their power. The IDI officer said Israel is
concerned about "opaque Hizballah / Al Qods Force activity"
in Latin America. He did not elaborate.

¶14. (S) Discussion then turned to public diplomacy, and the
success Israel has had with its Farsi-language Radio Israel
broadcasts into Iran. The MFA official said that pressure is
increasing on Tehran, and that this is evidenced by more
criticism of the regime on blog sites, and the expansion of
criticism into new areas.

¶15. (U) This cable has not been reviewed by ISN PDAS Patricia
McNerney.

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