VZCZCXRO3102
PP RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHTRO
DE RUEHIT #0399/01 2920628
ZNY SSSSS ZZH
P 190628Z OCT 09
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 9287
INFO RUCNIRA/IRAN COLLECTIVE PRIORITY

S E C R E T SECTION 01 OF 02 ISTANBUL 000399

SIPDIS

LONDON FOR MURRAY; BERLIN FOR ROSENSTOCK-STILLER; BAKU FOR
MCCRENSKY; BAGHDAD FOR POPAL; ASHGABAT FOR TANGBORN; DUBAI
FOR IRPO

E.O. 12958: DECL: 10/09/2029
TAGS: ECON
SUBJECT: IRAN-TURKEY COMMERCE: AN "INSIDER" SAYS ITS ALL
WHO YOU KNOW

REF: A. (A) ISTANBUL 279 (NODIS
¶B. NOTAL) (B) ISTANBUL 336 (C) ISTANBUL 394

Classified By: Deputy Principal Officer Win Dayton; Reason 1.5 (d)

¶1. (S) Summary: A Turkish businessman who deals extensively
in Iran told us that the only way to do business there safely
is through an Iranian partner with high-level regime
connections, in his case a partner he claims is connected to
the son of Supreme Leader Khamenei. Our contact cautioned
that two state-owned Turkish banks -- Halk and Ziraat -- are
exploring opening up branch offices in Tehran to give Turkish
businesses a banking option other than Bank Mellat. Our
contact is working with the Tehran municipality to open a new
shopping mall, which has brought him into close contact with
Tehran Mayor Qalibaf's staff. Those interlocutors told him
that Qalibaf is already setting himself up to be the
establishment's choice for president in 2013. Our contact
also urged the USG to "make a deal" with Iran soon, because
"time is running out", hinting that Khamenei's health is a
concern, and that the succession of a new Leader could lead
to a period of instability inconducive to engagement between
Iran and the U.S. Comment: We cannot confirm the veracity
of our contact's claims that his business partner is close to
the Khamenei family, but that Iranian partner's claims are at
least plausible. We also have no basis to judge his claims
of failing health on the part of Supreme Leader Khamenei,
beyond having heard similar rumors from other contacts. We
give serious credence to our contact's claim that for a
foreign company to do business effectively in Iran, it needs
to have a regime-affiliated partner or protector working on
its behalf within the system. End summary.

An insider's perspective
----------------------

¶2. (C) We met recently with Keyhan Ozdemir (please strictly
protect), a director of Pars-Invest, a Turkish company with
construction, real estate, and energy investments in Iran.
Ozdemir claims to have Iranian business partners with direct
connections to Supreme Leader Khamenei's family, including an
Iranian business partner who claims a close personal
connection to Khamenei's son Mojtaba. Ozdemir does not
participate in Turkish business-sponsored conferences or
trade fairs with Iranian counterparts, such as the early
October Turkey-Iran Business Council (TIBC) conference (ref
C), dismissing them as "window dressing". Instead, he
candidly asserted to us that to get deals done in Iran a
foreign company needs a well-connected Iranian "protector",
preferably a partner with IRGC or Supreme Leader connections.
Reinforcing that point, Ozdemir explained that the
Turkey-Iran commerce has slowed down considerably in 2009 in
large part for three reasons, two political and one economic:
(1) Most Turkish companies, which are not politically
"plugged-in" inside Iran, drew back from Iranian investment
following the June elections out of fear of political risk.
"These are the companies that need trade associations like
the TIBC to make introductions for them." (2) Turkish
companies that had been well connected to former President
Rafsanjani's business empire have been edged out since June
by IRGC companies and by IRGC-affiliated Bonyads
(politically-connected charitable foundations that act as
holding companies), and (3) Turkey's investment of Iranian
hydrocarbons has been down significantly in 2009. On the
other hand, Ozdemir concurs with the conventional wisdom that
Turkey-Iran trade will increase in the remainder of 2009 and
into 2010. He says he is optimistic that his own biggest
pending deal -- to develop a modern shopping mall in Tehran
-- will soon receive funding approval from the Tehran
municipality, reflective of the Iranian economy's resiliency
even in hard times.

¶3. (C) The key sector to watch, according to Ozdemir, is the
banking sector, as Turkish-Iran trade cannot expand
significantly without more efficient banking cooperation.
Ozdemir told us that Turkish state-owned banks Halk and
Ziraat have been quietly seeking Turkish and Iranian
government permission to open bank branch offices in Tehran.
(Halk and Ziraat already have small "representative offices"
in Tehran, he claimed, but these offices do not perform
banking functions.) The primary function would be to offer
banking services to Turkish companies and investors in Iran,
to give them a banking option other than Bank Mellat, the
lone Iranian bank that operates in Turkey. According to
Ozdemir, the GoT has cautioned Halk and Ziraat to "go slow"
until it becomes more clear whether international diplomacy
with Iran succeeds or fails, and thus whether the risk of
significantly tougher banking sanctions on Iran lessens or

ISTANBUL 00000399 002 OF 002


increases. Most of Ozdemir's deals in Iran are paid in
Euros, as "Iranians prefer Euros to (Turkish) Lira and Turks
definitely don't want (Iranian) Rials."

¶4. (C) Regarding Iran's approach to privatization, Ozdemir
asserted that privatizing certain sectors is a genuine
priority for Khamenei, though he does not want to push the
bureaucracy (including the IRGC) too hard. According to
Ozdemir, Khamenei is willing to continue to push for
so-called privatization in the petrochemical industry,
electricity production and distribution, transportation,
"some" shipping and banking, and some Bonyads. But Ozdemir
underscored that Khamenei is committed to keeping the
telecommunications and hydrocarbon sectors is "safe hands."
The chief problem is that Iranian decision-makers "don't
understand what privatization means." Selling a state-run
bank or a telecommunications company to a holding company
that itself is controlled by regime entities (per ref C) "is
not privatization." Ozdemir said that Tehran Mayor Qalibaf,
alone among Iran's top leadership, understands and supports
the western concept of privatization and the need for Iran to
have a stronger private sector.

Qalibaf already running for 2013 Presidential elections
--------------------------------------------- --------

¶5. (C) From discussions with Tehran municipality officials
reporting directly to Tehran Mayor Qalibaf, Ozdemir assessed
that Qalibaf is already in full campaign mode for the 2013
Iranian Presidential election. Qalibaf is actively
maneuvering behind the scenes to lock in support from Supreme
Leader Khamenei, and indeed Qalibaf's decision not to run in
the June election this year was based on an unspoken
understanding that staying out this time would position him
well to be the establishment's preferred choice next time.
According to Ozdemir, Qalibaf is using the benefits of his
office to build a sizable war-chest of campaign funds, though
he is careful to ensure that his and his staff's "energetic"
collection of such funds does not adversely impact Tehran's
municipal services or other operations, or his reputation as
an effective manager.

"Time is Running Out" to make a deal with Khamenei
--------------------------------------------- -----

¶6. (C) Turning to a brief discussion of current diplomacy
vis-a-vis Iran, Ozdemir urged the USG to "make a deal" with
Iran soon, because "time is running out". He hinted that
Ayatollah Khamenei's health is a concern. Khamenei wants to
ensure a smooth succession for his son, Mojtaba, to succeed
him, but Ozdemir assessed that the installation of a new
Supreme Leader in Iran, if it becomes necessary in the coming
year or two, could lead to a period of instability that would
be inconducive to engagement between Iran and the U.S.

Comment
------

¶7. (S) We cannot confirm the veracity of Ozdemir's claim
that his Iranian business partner is personally close to
Mojtaba Khamenei, although we have met that Iranian business
partner (ref A) and can confirm that his claims to a Khamenei
family connection are at least plausible. We also have no
basis to judge Ozdemir's claims of failing health on the part
of Supreme Leader Khamenei, beyond having heard similar
rumors from other contacts (Ref B). We give serious credence
to Ozdemir's claim that for a foreign company to do business
effectively in Iran, it must have a regime-affiliated partner
or protector working on its behalf within the system.

WIENER