IRAN-WEST GERMANY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000405980001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: December 9, 2009
• Sequence Number: 1
• Publication Date: March 21, 1985
• Content Type: REPORT

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
21 March 1985
IRAN-WEST GERMANY
Summary
West Germany is Iran's principal source of civilian
goods, primarily supplying heavy machinery and vehicles.
Iran is upset over the huge trade deficit it is running with
West Germany, but is unlikely to impose restrictions on
trade. Instead, Tehran is likely to use threats to turn to
other suppliers as well as steep oil discounts--reportedly
as high as 20 per cent--to entice West German firms to
accept barter deals.
Despite West Germany's strong economic ties with Iran,
Bonn has permitted virtually no arms sales to Tehran since
the war with Iraq began. Iran is using its position as a
lucrative export market for German goods to press for sales
of military equipment, especially six submarines ordered by
the Shah, but never built. Bonn almost certainly will not
sanction official sales, but Tehran is continuing its
contacts with private West German dealers and may succeed in
some grey market deals with private firms for ammunition,
radars, and communications gear. Private West German firms
have helped Iran complete construction of a rocket
production factory begun under the Shah. We believe the
factory is producing tens of thousands of RPG-7 antitank
rockets annually.
This paper was prepared by Office of Near Eastern
and South Asian Analysis, Office of Global Issues, and
Office of European Analysis. Comments and queries are welcome and may
be directed to the Chief, Persian Gulf Division, NESA,
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Economic and Political Ties
West Germany has become the principal exporter of civilian goods to Iran
since the Iranian revolution in 1979. During 1983 and 1984 Iran imported a
total of almost $5.5 billion worth of goods from West Germany, roughly 15 per
cent of all Iran's imports. Heavy machinery, technology and civilian vehicles
make up the bulk of imports from West Germany.
West German firms have been able to gain a large share of the Iranian
market in part because Tehran has terminated virtually all trade with the US
and France. West Germany also has avoided alienating Iran by refusing to sell
arms to Iraq. Cultural ties also favor the Germans since several top, post-
revolutionary Iranian officials--such as the late Chief Justice Beheshti and
current Minister of Islamic Guidance Khademi--were educated in West Germany.
West Germany's political ties with Iran are the best of any Western
European country. West German Foreign Minister Genscher's visit to Iran last
year was the most significant by a West European official since the Islamic
revolution in 1979. In addition to valuing Iran as a lucrative export market,
West Germany believes its political and economic ties with Tehran serve larger
western interests. Bonn hopes to reduce Iran's need to turn to Eastern Europe
and the Soviet Union for goods and to strengthen moderate forces in Tehran.
Bonn does not condone the excesses of the Khomeini regime, however, and
does not want to be closely identified with them. Therefore, we expect no
major steps by West Germany to upgrade or intensify political relations any
time soon. Iran, on the other hand, views its relationship with West Germany
as significant evidence that Tehran is not politically isolated. Iranian
moderates argue that it is important to build ties with such countries as West
Germany and Japan in order to preserve Iran's independence from the
superpowers.
Prior to the Iranian revolution in 1979, Iran maintained a small arms
trade with West Germany, primarily in the military services and construction
fields. West German military sales to Iran in the 1974-79 period totalled
less than $300 million. Over 80 percent of West German military trade with
Iran was in the form of technical assistance and machinery for arms
manufacturing plants. Military equipment sold before 1979 consisted mainly of
non-lethal items such as trucks, uniforms, and field radios.
Since the revolution, West German firms have helped Iran finish building
a production plant for antitank rockets (RPG-7) begun under the Shah. An
artillery and ammunition facility, on which West German firms began
construction in 1975, was still not finished in 1982, the last date for which
we have information. Firm figures are unavailable, but we believe the rocket
production plant is producing tens of thousands of RPGs annually. Both plants
are hampered by a lack of raw materials, skilled technicians, and managerial
personnel.
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Since 1979 West Germany has authorized only one arms deal with Tehran,
the sale in 1983 of $20 million in military communications equipment. Private
arms dealers, however, have sold Tehran an estimated $30 million worth of
ammunition through grey market transactions. There is little evidence that
West German firms have served as middlemen in arranging Iranian arms deals
with third countries.
West German firms, hurt by the slumping global arms market, have
unsuccessfully lobbied Bonn to approve more transfers to Iran as part of an
overall relaxation of arms sales policy. An example is Iran's attempt to
purchase six 209-class submarines from a West German firm. The contract for
the submarines, which orginated under the Shah's regime, was still outstanding
when Khomeini took power in 1979. The new regime orginally canceled the
contract, but in 1982 began discussions with the firm to try to acquire the
submarines. Despite Iranian threats to take legal action, the firm refuses to
start construction because Bonn will not consider approving their delivery
until the Iran-Iraq war ends. We believe that Bonn would accede to
requests to suspend indefinitely any future submarine deliveries.
Tehran also is pressing the West German firm, Kraftwerk Union, to
continue its nuclear power project at Bushehr, about half completed at the
time of the revolution. We believe, however, that Bonn will adhere to its
stated intention not to allow work to resume until the Iran-Iraq war ends.
Problems
The major economic issue between the two countries is the large West
German trade surplus--in 1983 and 1984 it amounted to almost $4 billion. Iran
has responded by threatening to cut imports from West Germany if Bonn does not
increase purchases of Iranian oil. West Germany imported as much as 18
percent of its oil from Iran in the 1970s, but this has fallen to a current
level of only 3.5 percent. Bonn has attempted to deflect Tehran's pressure by
explaining that it cannot direct the purchases of West German firms.
Iran also is trying to exploit its position as a significant market for
West German goods to obtain military equipment.
In addition, Tehran is trying to use its economic leverage to pressure
Bonn to curb the activities of Iranian opposition groups in West Germany. In
1982 Iran closed its Embassy in Bonn for 12 days to protest West Germany's
expulsion of pro-Khomeini activists charged with attacking anti-Khomeini
demonstrators at the University of Mainz. Last month Iran accused West
Germany of providing inadequate security following the bombing of an Iranian
bank. An Iranian opposition group claimed responsibility.
Outl ook
Despite Tehran's concern over its trade deficit with Bonn, Iran is likely
to continue relying on West German firms for the bulk of its manufactured
goods and transport vehicles. Iran will try to reduce the deficit by
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approaching individual West German firms, by threatening to find other
suppliers, and by offering oil barter deals involving price discounts--
reportedly as high as 20 per cent.
Iran also will continue efforts to obtain West German military equipment,
probably without much success.
West Germany has
stated it will not change its opposition to any major sales while the war
lasts. Iran may have some success in tapping the grey arms market and in
finding West German firms willing to sell small arms, but these firms also
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will have problems circumventing West German res
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West Germany: Trade Surplus With Iran, 1975-84
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Iran: West German Trade, 1975-84
West German
Exports
to Iran
Iran
Exports to
West Germany
'1 1 1 1 1 1I 1 1
0 1975 76 77 78 79 80 81 82 83 84
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Composition of Trade Between Iran and West Germany in 1983
West German Exports to Iran
Food, Raw
Materials,
Fuel, Misc
11.2
Other
Manufactures
26.7
Machinery
33.7
Vehicles
28.4
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SUBJECT: Iran-West Germany
NESA M 85-10054
Distribution:
1 - DDI
1 - C/PES
1 - NI0/NESA
4 - CPAS/IMD/CB
1 - OGI
1 - EURA
1 - D/NESA
2 - NESA/PPS
1 - C/PG
1 - C/PG/I
1 - PG/I
1 - P G I
DDI/NESA/PG/I
(20Mar85)
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