Issue 1542 EN

Signals from the Royal Court Caryle Murphy

The Future of Black Gold

The Economics

Fareed Mohamedi – Chief Economist for PFC Energy

RIGGING THE GAME Issues 1542, 25 January 2010

By Stephen Glain

of Terror Paula Mejia

Editorial

Cover Signals from the Royal Court Caryle Murphy

The Future of Black Gold

The Economics

Fareed Mohamedi – Chief Economist for PFC Energy

of Terror Paula Mejia

Established in 1987 by Prince Ahmad Bin Salman Bin Abdel Aziz

RIGGING THE GAME Issues 1542, 25 January 2010

By Stephen Glain

Established by Hisham and Mohamad Ali Hafez

Editor-in-Chief

ADEL Al TORAIFI Dear Readers,

Managing Director TARIK ALGAIN

Published by

to The Majalla Digital, this week our W elcome issue brings to you an analysis of the chang-

ing nature of the oil business. In the feature, Stephen Glain looks at why independent oil producers are increasingly vulnerable, while national oil companies are gaining leverage and may come to determine the future of global energy consumption.

We invite you to read these articles and much more on our website at Majalla.com/en. As always, we welcome and value our readers’ feedback and we invite you to take the opportunity to leave your comments or contact us if you are interested in writing for our publication.

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Issues 1542

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Contents 08 Geopolitics Signals from the Royal Court

11 In Brief Around The World Quotes Of The Week Magazine Round Up Letters

18 Features Rigging The Game

24 Ideas Teaching an Old Dog New Tricks

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THE MAJALLA EDITORIAL TEAM London Bureau Chief Manuel Almeida Cairo Bureau Chief Ahmed Ayoub Editors Paula Mejia Stephen Glain Wessam Sherif Daniel Capparelli Editorial Secretary Jan Singfield Webmaster Mohamed Saleh 22 January, 2010

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29 People Profile

The Puppet or the Puppeteer?

Interview

The Future of Black Gold-Fareed Mohamedi

35 Economics Arab Economics The Economics of Terror International Investor Trade Winds Markets

Issue 1542, 22 January 2010

Submissions To submit articles or opinion, please email: editorial@majalla.com Note: all articles should not exceed 800 words

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43 Reviews Books

Politicizing Islam Readings Reports

The Strength of Soft Counter-terrosim

50 The Political Essay The War of Ideas

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Geopolitics

Signals from the Royal Court Since King Abdullah of Saudi Arabia came to the throne in 2005, he has launched several initiatives aimed at softening the austere type of Islam that dominated the kingdom for decades. What has been the impact of the king’s policies? Has he succeeded in changing how his people think about and practice Islam?

A

s a non-Muslim resident of Saudi Arabia, I am always touched when a Saudi friend wishes me ‘Merry Christmas’ or ‘Happy New Year.’ And this year, my email box collected quite a few such messages. While scientific conclusions can’t be drawn from such a small sampling, I suspect this year’s increase was due, at least in part, to signals emanating from the Saudi royal court.

Since King Abdullah bin Abdul Aziz came to the throne in 2005, he has launched several initiatives aimed at softening the austere type of Islam that dominated the kingdom for decades. Abdullah has stressed Islam’s traditional tolerance and compassion over the antipathy for nonMuslims and foreigners evident in this harsh brand of Islam. He also has shown his aversion for its narrow-mindedness, aversion to intellectual pursuits, and extreme puritanical approach to the social mixing of men and women.

Implicit in the monarch’s endeavor is his acceptance of two realities. First, that the kingdom cannot flourish in the modern, competitive world if it espouses such views. Second, that such stances are a reason why the world sees a connection between Saudi Arabia’s official version of Islam—known to outsiders as Wahhabism or salafism—and the extremist thinking of violent jihadis such as those in Al Qaeda.

Separating these two currents has been a preoccupation of the king.

So, what has been the impact of the king’s policies? Has he succeeded in changing how his people think about and practice Islam? I would argue that he has not changed how most Saudis view Islam, but that he has given a much needed boost to those who have a more modern and open-minded Islamic worldview than the one that prevailed in years past.

“People definitely are using a different tone when talking about issues of Islam,” wrote Najla Saud, a young female law student in Riyadh. “This was not the case several years back. A ‘softer, milder’ Islam is the prevailing ‘version’ nowadays, as opposed to the more rigid teachings people were preaching and abusing for decades.”

As an example she cited “the recent wave of congratulations for the Hijri (Lunar calendar) New Year, ironically 22 January, 2010

king’s initiatives.

Caryle Murphy sent out by SMS and email from people considered to be conservatives.” In the past, she noted, “this was considered to be a very big no-no, as you would be accused of imitating the non-believers in an act that would disturb God. But now it is a practice carried out annually with no objection whatsoever.”

Abdullah’s “softer, milder” Islam allows Saudis, raised from childhood on the concept that it displeases God to say “Merry Christmas” and “Happy New Year,” to conclude that such greetings are normal human interactions that do not compromise one’s own religious beliefs.

F. Gregory Gause of the University of Vermont, who has written extensively on Saudi Arabia, said that while the king has probably not changed how most Saudis view Islam, “he has been able to change the official line on what Islam is.

He’s certainly made it more acceptable to criticize hard-line salafis. In that sense, he’s changed the discourse.”

Clerics and ordinary people with more progressive views are now more willing to speak up. The clearest example of this happened in early December when the head of the Mecca office of the ultraconservative Commission to Promote Virtue and Prevent Vice declared in an interview that the extreme gender segregation demanded by many Saudi ulema is not really part of Islam.

Sheikh Ahmed bin Qassim al Ghamdi added that these ulema were leading Muslims astray from the Prophet’s model in which the mixing of the sexes was a natural part of life. Al Ghamdi’s comments, almost revolutionary in the Saudi context, undermined a principal reason for the Commission’s work. And they would not have been made publicly without the “protection” offered Al Ghamdi by the

These have included his interfaith dialogue project, and his open acknowledgment on several occasions that extremist Muslims have given Islam a bad name around the world. This willingness to openly criticize some interpretations of Islam has raised consciousness among Saudis about their own interpretation.

The founding of the King Abdullah University for Science and Technology (KAUST) also was important – not simply because it is the kingdom’s first coeducational university. It also promotes the concept that science is a legitimate topic of study in its own right, and should be free of clerical censorship or intervention.

"Throughout history, power has attached itself, after God, to science,” the king told guests at the university’s inauguration last September. “And the Islamic nation knows too well that it will not be powerful unless it depends, after God, on science. For faith and science cannot compete except in unhealthy souls."

When it comes to women, Abdullah was the first king to have females as part of his official delegation on a foreign trip and serve in his Cabinet. He has been frequently photographed with women, and some of these photos have appeared in the local media. Abdullah has also thrown his weight behind a public campaign to halt domestic violence.

Finally, by making Saudi’s national day on September 23rd an official state holiday—thus encouraging its celebration—he has subtly injected a component other than religion into Saudi identity. As expert Gause noted, Abdullah “is trying to encourage a sense of Saudi nationalism.” In this, Abdullah is overruling, so to speak, the many fatwas from Saudi sheikhs that for years forbade celebrating national day because that would be imitating infidels.

All these initiatives have created a new environment that favors the emergence of a new brand of Saudi Islam. Fully realizing that task, however, will be a years-long endeavor involving the education of a generation. Happy New Year!

Pulitzer Prize Winner in Journalism in 1991, is an independent journalist based in Riyadh.

She is the author of “Passion for Islam”.

08

In Brief Around The World

Quotes Of The Week

Magazine Round Up

Letters

Š getty images

The War of the Excluded The decision of the Accountability and Justice Committee to exclude 511 candidates from the Iraqi elections, scheduled for 7th March, based on the affiliations of those candidates with the Baath Party, has added further tension in the Iraqi political arena. Iraq cannot endure a new political crisis, which might increase the state of tension in the Iraqi streets, and make the situation explode at any moment.

time, the Iraqi President Jalal Talabani sent a formal letter to the Federal Court on the legality of the Accountability and Justice Committee. The Iraqi Vice President Tareq al-Hashemi also announced the finding of a document—which he described as very important—that proves the illegality of the Accountability and Justice Committee.

This raised concerns about the re-opening of sectarian wounds that could undermine the legitimacy of the elections.

Joe Biden, the American vice-president, is expected to arrive to Iraq soon to indulge in negotiations that aim at bringing together the different points of view. At the same

Prime Minister Nuri al-Maliki asserted that that the prevention of about 500 political figures from participating in the upcoming parliamentary elections

Issues 1542

is not intended to target Sunni Arabs.

He stressed that it will only include those whom he described as criminals and murderers, and explained that the constitution prevents their participation in the political process. The European countries, as al-Maliki pointed out, did a similar thing when they excluded the Nazis. He also pointed out that there is an agreement among all Iraqis that the Baath Party was a violent, racist, and sectarian organization. Al-Maliki confirmed that his government had no intention to reconcile with those who believe that Osama bin Laden is the leader of the Islamic nation, or that Saddam Hussein is a martyr.

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In Brief - Around The World

Around The World 4 3

1 Iran Iranian Minister of Defense, Ahmed Waheedi threatened that his country would launch attacks on the western warships existing in the Persian Gulf waters in case his country is subject to an attack due to Tehran's nuclear program. He said, "The West should know well that these warships in the Gulf will be the best practical targets for Iran if they want to launch any military actions against us".

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3 USA In a dramatic upset that will end Democrats' super majority in the Senate, Massachusetts Republican Scott Brown defeated Democrat Martha Coakley to claim the seat held by the late Ted Kennedy for more than 46 years. This represents a major complication for President Obama's agenda and the health care legislation currently pending in Congress.

4 Netherlands 2 Lebanon US envoy to the Middle East, George Mitchell, visits the region in a tour that includes Lebanon, Syria and Israel to discuss the efforts of peace process. In his meeting with Lebanese Prime Minister Saad AlHariri, Mitchell stressed that the USA rejects the idea of settling Palestinians in Lebanon.

22 January, 2010

A Dutch court has ordered prosecutors to put the rightwing politician, Geert Wilders, the leader of the Dutch Freedom Party, on trial for making antiIslamic statements. Wilders will face charges for inciting hatred and discrimination based on religion or belief. He will also face charges for his outspoken comments and his film "Fitna", which juxtaposed the Koran and terrorist attacks.

5 Nigeria The Nigerian government lessened the curfew which the authorities imposed in Jos city for 24 hours after more than 465 killed in Nigeria violence according to the national organizations estimates.

The official sources announced, however, that 75 were killed and 200 were injured. Jos city has restored calmness after these violent actions.

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In Brief - Around The World

8 Angola

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The Angolan Parliament approved a new constitution which states that the President of the country will be directly elected after being nominated by the Majority Party in the Parliament without resorting to the people's voting. This step will be in favor of the existing President Jose Eduardo Dos Santos who has ruled the country since 1979. On the other hand, the opposition decided to boycott the elections.

9 Pakistan Defense Secretary Robert Gates left India to make an unannounced trip to Pakistan. Gates urged Pakistan to expand its crackdown against Taliban. He warned that separation between the Pakistani and the Afghani movement will not yield any positive results and stressed that it is necessary to make pressures on Taliban along the borders of both countries.

6 West Bank The concluding statement of Fatah's Revolutionary Council meeting said that there was a need to step up the popular resistance and to expand it to all Palestinian areas harmed by the settlements and by the separation fence. Meanwhile, the Israeli Prime Minister Benjamin Netanyahu condemned the refusal of Mahmoud Abbas, the leader of the Palestinian Authority to resume peace talks without suspending settlements.

Issues 1542

7 Egypt in his strongest comments yet on a deadly Christmas Eve attack on Coptic Christians in Najaa Hammadi, Egyptian President Hosni Mubarak said that sectarian strife is threatening Egypt's unity. Mubarak affirmed that his country's reasonable people and its religious leaders and thinkers bear the greater responsibility to contain discord, ignorance and blind fanaticism and to confront the despicable sectarian strife that threatens the unity of the society.

10 Saudi Arabia Turkish Prime Minister Rajab Tayyib Erdogan declared that his country will increase the volume of trade exchange with Kingdom of Saudi Arabia to reach US$ 10 billions over the next period instead of the current US$ 5 billions. Erdogan invited the Saudis to invest in his country and said that the Turkish economy will be among the strongest economies in the world by 2012.

13

In Brief - Quotes Of The Week

Magazine Round Up

Quotes Of The Week

"Iran did not reject the principle of exchanging uranium with fuel" Manouchehr Mottaki, the Iranian Minister of Foreign Affairs, commenting on his country's nuclear project.

"Iran will face new sanctions if it doesn't change course on its nuclear program" Angela Merkel, German Chancellor, asking Iran to respond quickly to the Six-Party Committee's requirements.

"Hamas acknowledges reality of Israel, and is ready to change its charter that involves calls for destroying Israel" Statements attributed to Aziz Duwaik in Israeli newspapers.

"Statements attributed to the Speaker of the Palestinian Legislative Council are false" Salah Al-Bardawil, Spokesman of Hamas Parliamentary Bloc refutes the Israeli allegations about Duwaik.

22 January, 2010

1

Magazine Round Up 1 Time Haiti's Tragedy Not only is Haiti the poorest nation in the western hemisphere, suffering from sever malnutrition and lack of clean drinking water, but has also been recently struck by a devastating earthquake. The article discusses the effects of the earthquake on the already torn nation and handles the means to rebuild it. Michael Elliott provides a historical background of previous interventions in the country measuring how current interventions can prove different.

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3 New Statesman Back to the USSR

2 2 The Economist

This week's cover story of the New Statesman describes through historical evidence what could be the potential future of the waged American war in Afghanistan. The article argues that despite soviet military victory in Afghanistan back in 1979 they have failed on the political level, which might be the American fate as well.

Accordingly, Rodric Briathwaite shows how the surrounding politics of the conflict could lead to the success or failure of the military campaign.

Time to get Tough Obama's first year in office has been definitely good but not outstanding. The Economist this week provides an analysis of the first 12 months of Obama's presidential term, pointing it out its pros and cons. The article reiterates on issues such as the relative success in stabilizing the economy and introducing the new healthcare bill. On the other hand, the economist argues that Obama should have been "tougher" when it comes to his foreign policy, rather than being too eager to please on his primary confrontations in the diplomatic arena.

4 4 The Atlantic How America Can Rise Again In this article, James Fallows expresses his fear of an American plunge into an irreversible cycle of economic decline. Nevertheless, the article also demonstrates how American crisis management has usually managed to overcome turmoil similar to the current one. This time however, the job will be a lot harder without fixing the governing system which has become dysfunctional and might lead to undesired consequences that could disrupt the nation's future.

3 Cover Of The Week

Cover of the Week Newsweek

Clash of the Titans China's imposed control over the flow information across the internet has apparently taken its toll on its relationship with many companies and with Google particularly. The recent censorship over the internet has pushed Google to consider puling out of china, which in turn reflects the severity of decline in its relationship with the west. The article uses the China-Google face off to describe the new trends in the Chinese policy towards Washington, arguing that China may have no more reason to be "nice to the west".

Issues 1542

15

In Brief - Letters

Letters

Frenemies

LAST ISSUE

Obama's Arc of Crisis

India and Pakistan should not respond to Western attempts in creating a wedge between them. Both nations are nuclear-armed and a military confrontation between them would be fatal to millions of people.

We've noticed a change in U.S. policy after Obama's coming, but this change is still only on paper and has not borne fruit yet.

In spite of Obama winning the Nobel Peace Prize after only 9 months in office, peace in the Middle East still remains as a predicament. The U.S. President hast to realize that success or failure in the peace process will depend his actions, particularly when it comes to issues such as the withdrawal of U.S. troops from Iraq and Afghanistan, or the peaceful settlement of the Palestinian case.

Ali Galal

Steve Sanders

22 January, 2010

16

Read The Majalla weekly in English and Arabic Regular Contributors

Cover Story

Dr Jon Alterman

Everyone’s Crisis

Director and Senior Fellow of the Middle East Programme at the Center for Strategic and International Studies in Washington D.C

Syria’s State of Play

Aaron David Miller, scholar, author and policy adviser

Christopher Boucek

Geopolitics

Everyone’s crisis: Yemen’s quagmire and the need for regional involvement

Putting the House in Order Elsy Melkonian

Christopher Boucek

Debate

Can Assad be the second Sadat?

Dr. Joshua Muravchik Saeed Al-Lawendi Samir Al-Taqi

Richard Weitz

Senior Fellow and Director, Center for Political-Military Analysis at the Hudson Institute- Washington D.C.

Dr Steven Heydemann

Ideas

Tough Love The Paradox of Syrian-Iraqi Interdependence

Assad

Vice President of the US Institute of Peace and a visiting Professor at Georgetown University Washington D.C.

Phase II

Chris Phillips

People

By Stephen Glain

Aaron David Miller Syria’s State of Play

Mohammed Suleiman

International Economist and Board Member of The Young Arab Leaders, UAE Chapter

Economics

Issue 1537, 21 December 2009

Putting the House in Order Elsy Melkonian

www.majalla.com Features

Geopolitics

Everyone’s Crisis:

In Brief

Yemen’s quagmire and the need for regional involvement Yemen’s stability and security situation is rapidly deteriorating, and its potential implosion will have a dramatic impact on the region. Ultimately, there is no Yemeni or American solution for Yemen’s problems. They cannot be solved without the help of Yemen’s neighbors and international partners.

A

s the Gulf Cooperation Council met for its 30th summit in Kuwait this week, the organization discussed a number of issues of mutual concern. Iranian nuclear ambitions, a unified currency, and the ongoing global financial situation were all expected to be on the agenda. Regardless of all these legitimate concerns, the most critical issue facing the GCC is the future of Yemen.

Yemen’s stability and security situation is rapidly deteriorating, and its potential implosion will have a dramatic impact on neighboring states. The country faces an astonishing confluence of unprecedented challenges – violent extremism, economic collapse, a looming water shortage, and a growing secessionist movement. If any one of these challenges comes to a head, it could overwhelm the Yemeni government. Unless appropriate steps are taken, Yemen risks becoming a failed state and a training ground for Islamist extremism, in which case its problems will quickly envelop the entire region.

Owing to the central government’s historically weak control, Yemen has often stood on the brink of chaos. The country has survived several individual crises in the past, but today, multiple interconnected challenges are poised to converge at the same time. At the heart of the country’s problems is a looming economic crisis. Yemen’s petroleum reserves are fast running out, and it has few viable options for creating a sustainable post-oil economy. Moreover, the country is consuming its limited water resources much faster than it can now replenish them. A rapidly expanding and increasingly poor population places unbearable pressure on the government’s ability to provide basic services. Islamist terrorism, magnified by a resurgent alQaeda organization, an armed insurrection in the North, and an increasingly active secessionist movement in the South, all endanger domestic security.

Historically, the central government has faced stuff resistance in expanding its authority, as the Yemeni people associate it with corruption, cronyism, nepotism, and thwarted economic and social opportunities. Yemeni officials are considering a policy of decentralization, granting more autonomy to local 21 December, 2009

Christopher Boucek authorities, thereby institutionalizing the informal patronage systems that operate in lieu of an effective national government.

Corruption remains a major challenge for the government, amid allegations that almost 30 percent of government revenue is never deposited in government accounts. To address the serious and continuing problem of government graft, the country will need to institute sweeping judicial reforms, establishing fair and transparent prosecutions.

The situation is further complicated by a pending political transition. President Ali Abdullah Saleh has ruled the Republic of Yemen since its unification in 1990, and the next presidential election is scheduled for 2013. It is unclear whether Saleh will be constitutionally eligible to stand for reelection for what would be a third term, and he has no obvious successor in place.

Meanwhile, since 2004, the Yemeni government has been fighting a sporadic civil war against Zaidi Shi’a revivalists in the northern province of Sa'ada known as the Houthis. This conflict again erupted into open fighting in August when the government launched Operation “Scorched Earth”. Over the course of the conflict, fighting has been both fierce and indiscriminate, punctuated by periods of relative calm. The toll has been severe in Saada itself, resulting in extensive damage to infrastructure and an estimated 175,000 internally displaced people.

The conflict stems from a complex combination of competing sectarian identities, regional underdevelopment, perceived socioeconomic injustices, and historical grievances. Over time, the antagonism has increased, and the rebels want little to do with the regime.

Around The World

Quotes Of The Week

Magazine Round Up

Letters

The conflict has strained the Yemeni army, leading to questions about its ability to simultaneously engage in other missions, including counterterrorism operations. Moreover, the government’s failure to put down the rebellion has prompted concerns that other domestic challengers may perceive the regime as vulnerable, and possibly move against the central government. Islamist militants or other disaffected groups could mount attacks on other fronts while the government is distracted by the war in Saada. Ultimately – and perhaps most ominously – the war is worsening the economic crisis in Yemen. A large budget deficit is forecast for next year and the government is spending its foreign currency reserves at an alarming rate.

In November 2009, the conflict has expanded, drawing in Saudi Arabia.

After an incursion by Zaidi rebels into Saudi territory, Riyadh reportedly allowed Yemeni forces to transit through its territory in order to attack Houthi positions. Saudi aircraft later were reported to have hit Houthi positions inside Yemen. This marks a major deterioration in the situation, and provides yet another example of how instability in Yemen threatens the entire region.

Though the region has much to lose in Yemen’s ongoing meltdown, it has much to gain by coordinating an international approach to improve stability there.

The international community should encourage the Gulf states to offer Yemen membership in (or at least a ‘special relationship’ with) the Gulf Cooperation Council in exchange for tough steps, including progress on security concerns, curbing government subsidies, and addressing corruption.

Assad

Ultimately, there is no Yemeni or American solution for Yemen’s problems.

They cannot be solved without the help of Yemen’s neighbors and international partners. The consequences of inaction could be too severe to contemplate, especially as the country’s demographic and economic woes exacerbate its worsening security situation.

GCC Summit agrees joint military force to deal with security threats

Phase II

Associate in the Middle East Program at the Carnegie Endowment for International Peace.

By Stephen Glain

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21 December, 2009

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Issue 1537

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The 30th GCC Supreme Council Summit in Kuwait concluded its activities with renewing solidarity with Saudi Arabia against threats, mainly that of the Houthi rebels and supporting Saudi actions against Houthi infiltrators. The GCC leaders stressed that any violation of security and stability of the Kingdom will be seen as a violation of the GCC countries' security and stability. The six nations' leaders agreed to form a deployment force to deal with any security threats that would face any of the member countries like the threat of Houthis.

Issue 1537

The leaders approved a defense strategy of the GCC countries and stressed the importance of developing capabilities of the Joint Jazirah Shield and shared military projects. They stressed the cooperation between their countries in confronting arm smuggling to the GCC countries. The Gulf leaders renewed their unified stance on confronting terrorism and fighting its financing sources and the extremist intellect leading to it. They also called for collective and international efforts to confront terrorism, exchange information and not use or let the land of their countries be used for preparing,

planning or fostering terrorist activities.

The Summit came at a time in which Iran tested an optimized version of the solid-fuel Sejjil-2 deterrent missile.

The international community considers this missile a very bad sign that Iran is making significant advances in its missile programme. The missile that Iran tested is capable of reaching the Gulf states. This may escalate the already severe tensions between the Iranian leadership and the Gulf countries.

Many experts stress that Iran's ballistic programme is just a military arm of its nuclear programme.

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Features

Š getty images

22 January, 2010

18 18

Rigging The Game By Stephen Glain

Issues 1542

19

Features

Rigging The Game National Oil Companies and the Future of Energy Consumption Stephen Glain

Independent oil producers are increasingly vulnerable, in comparison to governments of the developing world, whose national oil companies control the future of global energy consumption. However humbling the rise of the NOC may be for the majors, most oil experts say it is a positive development for the industry as a whole.

Saudi security men guard Al-Qatif oil production plant

© getty images

I

t may seem odd, given their reputation for being only slightly less powerful than God, but independent oil producers like Exxon Mobile and British Petroleum are increasingly vulnerable to forces beyond their control. That is because these so-called oil “majors”—fully integrated companies that can locate, develop and manage energy fields on their own—produce only about ten percent of the world’s oil and gas and preside over just three percent of reserves. The balance belongs to governments in the developing world, and with the number of large virgin 22 January, 2010

fields dwindling, that means they control the future of global energy consumption and the fate of the majors along with it.

“The outlook for the majors is a big question,” says Fareed Mohamedi, who heads the oil market analysis and country risk department for PFC Energy, a Washington-based energy consultancy. “Now it’s all about the petrostates and their state-owned oil companies.”

rich governments to nationalize oil fields and cancel leases held in perpetuity by foreign oil companies. Yet they still had to rely on the international oil companies, or IOCs, to keep the rigs pumping and the fields maintained. That is rapidly changing, however, as was made abundantly clear in Iraq last month when state-run, national oil companies, or NOCs, emerged en masse from large oil auctions with lucrative contracts.

Welcome to the latest chapter in the history of resource nationalism.

During the era of decolonization, it was a rite of passage for petroleum-

So successful have companies like China’s CNPC, Malaysia’s Petronas, and Russia’s Gazprom become at insinuating their way 20

Features into the developing world that the majors have no choice but to partner up with them in consortia.

What may appear to be a netsum loss for the IOCs, however, may well help ease tensions over resource competition in the future.

“A lot of the NOCs are working to persuade their financial managers that they need to invest in reserves with the help of an IOC,” says Guy Caruso, an oil expert at the Center for Strategic and International Studies in Washington. “Between the NOCs and IOCs we can get the kind of investment needed for a prolonged period of surplus capacity.”

Though most oil-producing states have no choice but to employ IOCs to manage their wells, a task that requires considerable skill and experience to properly execute the complex of tenders, the power structure of the global oil industry over the last decade has undergone seismic change. In late 2008, for example, Nigeria put tens of billions of dollars of old leases in play by re-writing its petroleum law, sparking a bidding war between lease-holders like Exxon Mobile and Chevron and newcomers like China’s CNOOC; in 2007, Venezuelan President Hugo Chavez signed a law that allows the government to transfer control over the cruderich Orinoco Belt from a host of IOCs to the state-owned PDVSA, even as he turned to Chinese and Russian oil companies to evaluate plans for future exploration; in 2005, under pressure from Moscow, Shell agreed to swap 25% of its controlling stake in a massive petroleum field project on Sakhalin Island in the Russian Far East to Gazprom.

Their coffers brimming from robust oil sales during much of the last decade, NOCs have emerged as rivals to the IOCs, if not for the writ to manage new Issues 1542

projects then certainly for the all-important lease agreements.

As government-owned concerns, NOCs enjoy the vast resources of the state, which they can employ as sweeteners when negotiating contracts. China, for example, has launched what critics say is a neo-imperial thrust across the energy-rich developing world, offering to build and finance badly needed infrastructure projects as well as preferential trade deals, in exchange for access to reserves.

Unlike the majors, which are accountable to shareholders who expect annual returns on a quarterly basis, their state-owned rivals are prepared to lose money for years before showing a profit from their investments. Nor are the NOCs restricted from doing business with pariah states like Iran and Sudan, which are under international embargo and thus off limits to the majors.

“NOCs are able to do things in securing contracts the IOCs cannot,” says William Ramsay, director of the French Institute for International Relations’ energy program. “They can spend more than the IOCs and they have no [transparency laws] to contend with.

According to the International Energy Agency, 90 percent of new fuel supplies will over the next four decades come from the developing world. That means new capacity will be controlled by state-owned companies—first and foremost Saudi oil giant Saudi Aramco, one of the few NOCs sophisticated enough to compete with the IOCs on every level of the productions stream. Aramco, however, confines itself to its home market, the world’s largest oil producer, where it is working to expand daily production capacity to 13 million barrels, or about nine percent of the world’s total daily consumption.

Saudi Aramco’s counterparts, meanwhile, spent much of the first two quarters of 2009 scrambling to extend their global reach in a scrum of corporate activity. In the first half of last year, according to PwC, the professional services firm, NOCs accounted for more than half of the oil industry’s largest mergers and acquisitions as measured by value, up from a fifth of the total in 2008. (Deal flow fizzled in the second half of the year once crude prices began to recover along with the global economy. Some analysts expect prices will test record levels again this year after they reached the alltime high of $147.30 level in June 2008.)

However humbling the rise of the NOC may be for the majors, most oil experts say it is a positive development for the industry as a whole. Recovery rates on existing oil fields, from the North Sea to the Gulf of Mexico, are declining steadily—so quickly, according to Mohamedi, that some of the big fields will be depleted within the decade—while investment in countries with abundant supplies like Iran and Kuwait are lagging.

The IEA forecasts that oil-rich states are falling well short of the $20 trillion in new investment needed to ensure adequate energy supplies for the next quarter century.

Until now, the extraordinary profits reaped by many national companies were ploughed not into expanding capacity but into social services. Revenue from Venezuela’s PDVSA, for example has helped finance the country’s welfare state at the expense of the country’s oil fields. The same could be said for the burden Russia’s social contract is placing on Gazprom, which is badly in need of capital replacement.

Though Iran controls the South 21

Features Pars gas field, the world’s largest, it is a net gas importer because money that could be invested in the field is diverted to subsidize domestic petrol prices. Pemex of Mexico hobbles along on perhaps the stingiest of all NOC budgets; its giant Cantarell field is so poorly maintained that America’s thirdlargest oil supplier could become a net-oil importer within ten years.

Not all energy-rich states are so abusive of their precious resources, however. Petronas of Malaysia is now a major extractor and exporter of liquid natural gas, while Brazil’s Petrobas has positioned itself as a global leader in locating and producing oil from deeps-sea fields, as well as in extracting fuel from shale and tar sands. China’s CNOOC, Sinopec, and CNPC, all state-owned but run as autonomous and often competing corporations, are also on track to becoming world-class oil companies.

The December oil auction in Iraq, a dangerous but potentially huge market with reserves that rival those of Saudi Arabia’s, was something of a milestone in the evolution of the word’s top NOCs and their growing convergence with the majors. CNPC, already part of a BP-led group that is exploiting the Rumaila oil field, Iraq’s largest, co-led with Total a consortium that won the mandate to exploit another major field, at Halfaya. Petronas also did well in the auction, earning for itself a seat in the CNPC-Total consortium as well as a junior partner role in a Shell-led effort to exploit the giant Majnoon field. Even Sonangol, Angola’s NOC, emerged from the bidding with two respectable concessions.

For ambitious state-owned companies, Iraq is the ideal market. Extracting oil there is 22 January, 2010

Venezuelan President Hugo Chavez

© getty images

Energy Information Administrator Guy Caruso testifies before the House Select Committee on Energy Independence and Global Warming about the Future Of Oil © getty images

a relatively inexpensive and straightforward affair.

The NOCs are more risk-tolerant than the well-established majors, which with a few exceptions are keeping the war-torn country at arm’s length. Perhaps most importantly, the Persian Gulf lies at the heart of a growing commercial relationship between the vibrant economies of Asia and the Arab world, a fact not lost on BP, which is so keen to tap the growing Asian-Arab nexus that it has agreed to relatively unfavorable terms for the privilege to work with CNPC, a partnership that could serve as

a gateway to markets throughout the developing world.

“Everyone was surprised that BP accepted the deal on Iraq’s terms, but it makes sense,” says PFC’s Mohamedi. “First, BP’s costs will be lower because they’ll be using Chinese contractors and the second thing is they want a global partnership with China….So here’s an IOC becoming subsidiary to an NOC in that pan-Asian grid.”

There is more to be gained through enhanced cooperation between Asia’s public oil companies and the independents, however. The tighter 22

Features of fuel reserves is of vital national interest. Over time, however, as NOCs modernize and expand their operations worldwide, they may well develop trust in the market as a more efficient—and less confrontational—way of guaranteeing adequate reserves.

Representatives of the world's largest energy firms attend the second day of auction to award licenses for Iraqi oil fields in Baghdad © getty images

Despite the political instability associated with so much of the petroleum-producing world—the Middle East first and foremost— the market has proved itself a reliable guarantor of access to supply. The few cases of disruptions occurred as a result of tensions between the West and the Persian Gulf states, a region with which Beijing has been shrewd enough to nurture close and uncomplicated ties.

“Generally the market has been efficient in making supplies available,” says Ramsay.

“Eventually, the NOCs will be less proprietary and go with the market.”

Iraqi workers at the Rumaila oil refinery

© getty images

CNOOC, CNPC, and Sinopec, as well as Petronas and Indonesia’s Pertamina, with which China has close ties, are woven into the fabric of international consortiums, the less likely Beijing is to militarize the sea lanes connecting Asia with the Persian Gulf. In addition to investing time and treasure trolling for energy supplies in the Middle East and Africa, China is also in the early stages of building a deep-water navy to transport them safely home. The prospect of an expeditionary Chinese fleet represents an implicit challenge to the U.S., which has for decades assumed responsibility for policing Issues 1542

the world’s vital sea lanes. India, China’s ancient rival, is upgrading its own naval force in large part out of anxiety over energy security.

If, in the last decade, the NOCs arrived as prominent energyindustry powerhouses in their own right, the next decade may find them at the center of a competition between two dueling energy doctrines: security of stock versus faith in the marketplace.

For now, China, Southeast Asia, and to a lesser extent Russia and some Latin American countries clearly believe physical possession

If so, they would be following a well-trodden path. Both Britain and the U.S. responded to the dawn of the petroleum era by aggrandizing oil fields worldwide, rewarding local leaders who collaborated with them, and destroying those who did not. London even partitioned the Middle East, the easier to play one energy-rich emirate against the other, while the U.S. acquired for itself a lucrative franchise in Saudi Arabia by creating the progenitor of Saudi Aramco. Both powers were eventually chased out of the countries that hosted them and they are now hearty proponents of commodities markets as agencies for resource allocation.

It is an instructive lesson for the next generation of energy giants, one they may already be taking to heart.

23

Ideas

Š getty images

22 January, 2010

24

Teaching an Old Dog

New Tricks

By Filippo Dionigi

Issues 1542

25

Ideas

Teaching an Old Dog New Tricks

Internal Obstacles for Reform in Lebanon Filippo Dionigi

The Lebanese executive branch is subject to far too many restraints to be in the position to deliver major reforms. Its main task can only be that of tackling its internal critics and foreign enemies while guaranteeing minimal standards of stability to the country.

Lebanese parliament majority leader Saad Hariri casts his ballot during the election of the parliament speaker in Beirut. Š getty images

T

he formation of a national unity government in Lebanon was the result of a long period of negotiations, establishing a fragile balance that could be shaken by a number of factors. Saad Hariri managed to form an executive branch relying on a power sharing formula characterized by a quota of ministerial positions under the sphere of influence of the president. This compromise allowed the leader of the March 14 22 January, 2010

coalition to avoid having a third of his government nominated by the opposition—effectively giving the opposition a veto power over the decisions of the new executive.

Nevertheless, the opposition remains strong—represented in the government by ten ministers, including key positions such as the Ministries for Foreign Affairs, Telecommunications and Energy.

The stability of the Lebanese

government ia subject to several internal restraints that, in all likelihood, will frustrate attempts to bring about major changes.

As a matter of fact, any major reform such as the abolition of the sectarian system, the reform of the electoral law or the recognition of extended rights to the local Palestinian population will easily prompt an escalation in tension most likely ending in violence.

26

Ideas More specifically, the distancing of Druze leader Walid Jumblatt from the March 14 coalition speaks to the internal tensions of the country, becoming a further variable of instability and weakening the majority. The repositioning of Jumblatt within the political scene has been explained by analysts as a result of the renewed importance of Damascus as a leading regional actor. A fact that became evident with Saudi brokered official visit of Prime Minister Hariri to Syria held a few days after the parliament confidence vote to the executive in an effort to normalize Lebanese-Syrian relations.

On the internal front, another problem for Hariri is the discontent of the Christian faction towards his concessions to the opposition.

The Kataeb and the Lebanese Forces were not completely satisfied with their ministerial share. They are concerned over the increasing importance of the Christian faction in the opposition, lead by Michel Aoun, which adopted an intransigent approach to the negotiations preceding the formation of the present cabinet.

March 14 Christians were also the most outspoken opponents to the adoption of Article 6 of the Ministerial Policy Statement in which the resistance was legitimized as a Lebanese right.

On this point the opposition, and especially Hezbollah, would have not accepted compromises, and article six facilitated the confidence of the parliament on the 10th of December.

But this latter issue is another serious challenge for the present executive. The recognition of the legitimacy of the resistance, which allows Hezbollah to maintain its military and security apparatus, may provoke Israel—especially if Israeli attack against Iran were to entail the neutralization of Hezbollah. This scenario would inevitably lead to dramatic Issues 1542

consequences for Lebanon. The relatively reassuring fact with regard to this issue is Hezbollah’s recent political manifesto which, despite maintaining a firm position on the importance of resistance, frames it within Lebanon’s interests.

Two main processes are trying to bring into convergence the resistance and Lebanese national interest. The first is the “national dialogue”, which relies on a mechanism of reciprocal consultations between the Lebanese rival factions. The second is informed by United Nations Security Council Resolution 1701 that establishes an international force for peacekeeping and the extension of the control of the territory in the South. The possibility of a progressive integration of the resistance within the Lebanese Armed Forces has been discussed, but Hezbollah is suspicious of the effective capacity of the army to protect the interests of the resistance. Furthermore, there have been cases in which members of the army fled to Israel raising the suspicion that the integration of the resistance within the army may endanger its secrecy and the security of its leaders. Building a relation of mutual trust between the Lebanese military and the resistance is going to be a difficult task for the government.

None of these two processes is under the direct control of the government since the president sponsors the first, and the second is administered by the UNIFIL peacekeeping mission in partnership with the Lebanese Armed Forces. In this regard, the reform of the Lebanese Army is a major point of discussion, although this issue also faces several problems, such as American reluctance to provide weaponry to the Lebanese Army.

Indeed, internal security represents another front to be tackled by the Lebanese executive. Since the

formation of the government, the country has witnessed a number of incidents such as rocket shootings and explosions of a rather obscure nature. When referring to the shooting of rockets in North Israel official versions often blame the ubiquitous Al-Qaeda. While the mysterious explosions in the south of the country (for example in Kherbet Silm and in Tayr Falsayh) were not explained, but Israel brought these events to the international attention as supposed evidence of Hezbollah’s violation of Resolution 1701.

More recently, the explosion in Hreit Hreik in the south of Beirut was linked to the presence of Palestinian factions in the suburb of Beirut. These are only a few examples demonstrating the complexity of the internal security issue under the control of the Minister of Interior, Ziad Baroud, who was reconfirmed from the previous government in the presidential quota.

But if security and sovereignty represent the two most intractable problems for the Lebanese government, institutional reform could be the main focus of a pragmatic approach to these issues. Nonetheless, institutional reform is also highly divisive.

Reform is urgent under many institutional sectors such as justice, the electoral law and education to mention a few. Recently, the idea of the abolition of sectarianism in Lebanon was also revived, an issue which faces wide opposition and which might spark bitterness along sectarian lines.

This could be the chance to undertake more balanced developmental policies, although any expectations of major changes would be misplaced. The Lebanese government is too distracted by its own survival and can only undertake cautious steps on the perilous path of national stability.

Researcher specializing in Lebanon and Hezbollah 27

People

The Puppet

or the Puppeteer? Š getty images

Issues 1542

29

People - Profile

The Puppet or the Puppeteer?

Mohammed Bade'a, the 8th General Guide of the Muslim Brotherhood Mohammed Bade'a's appointment as leader of the Muslim Brotherhood has been controversial.

Following his reputation as a weak leader, accusations abound that he is just the face of the group, while the true leader of the Brotherhood is Mahmoud Ezzat.

F

ormer cell mates of Mohammed Bade'a cannot forget the weeping that used to haunt him from time to time, 22 January, 2010

while he was echoing the famous Brotherhood anthem "I will be delivered, God willing." They used to pity him, thinking him

unable to bear the pain of his imprisonment and the solitude of his cell. Some of them called him the weeping man, and others 30

People - Profile

described him as weak, but all agreed that he could never be fit to guide the Muslim Brotherhood.

Thus, his appointment as leader of the Brotherhood came as a surprise. They knew that it was the decision of Group Deputy Mahmoud Ezzat, so Bade'a could be the public leader of the Muslim Brotherhood while Ezzat became its de facto ruler.

From the beginning of his term, changes within the Brotherhood have confirmed their suspicions.

For the first time, the Guidance Office took a decision to ban the new guide from making statements to the media. Sources also asserted that the group decided to form an information office that delivers all statements on behalf of the guide. Observers of the Muslim Brotherhood have considered this important evidence revealing of Bade'a’s vulnerability. In fact, they see his term as an extension of that of the 4th guide, Mohammed Hamed Abu al-Nasr, who was excluded from running the affairs of the group because of an illness, and whose condition allowed Mustafa Mashour to take control of the group.

Bade'a himself has also made his fair share of mistakes by revealing that he is at odds with the current regime. Early into his term he said ‘Women and Christians are not fit for the presidency, and if the people chose any of them we will not agree to that, as it is contrary to the Islamic Sharia. Whoever opposes the Muslim Brotherhood and refuses to follow our principles should leave the group.’ These opinions are dangerously close to those of Mahmoud Ezzat, and as a result, there is growing concern for the future of intellectual or organizational dissension within the group.

Mohammed Bade'a Abdul Majeed Sami was born in Mahalla alKubra on July 8, 1943, making him 67 years old. He is married to Mrs. Soumaya Shinawi, daughter of Mohammad Shinawi, one of Issues 1542

the most prominent leaders of the first generation of the Muslim Brotherhood, and one of the most prominent members of the special order. Bade'a has three children; an engineer, a doctor and a pharmacist. He currently works as a full-time professor in the Department of Pathology, Faculty of Veterinary Medicine, at the Egyptian Beni Suef University.

These facts of his life, however, do not provide much insight into Mohammed Bade'a’s personality nor his ability to rule, unless accompanied by details of the journey which has taken him through the ins and outs Muslim Brotherhood. Bade'a grew up in Mahalla al-Kubra in a religious family, but he did not know anything about the Muslim Brotherhood until 1959. During that year, he met a member of the Syrian Muslim Brotherhood, Dr Mohammed Suleiman al-Najjar, who would later invite him to join the Brotherhood. Bade'a would grow to consider al-Najjar his teacher; a man responsible for his upbringing.

After joining the Brotherhood, Bade'a began an organization based on the thought of Sayed Qutb’s book Milestones on the Road. It was then that Bade'a became enchanted with the writings of Sayed Qutb, to the extent that he said he ‘experienced the sweetness of the Qur'an only through the famous Qutb’s book In the shadows of Qur'an.

However, it was through his involvement in this organization, the ‘1965 Organization’ as it was called, that he would be sentenced to 15 years in prison.

Bade'a was released from prison in 1974, after spending 9 years behind bars. He resumed his academic life, and received a Masters degree in Veterinary Medicine from Zagazig University in 1977.

However, his role within the Muslim Brotherhood had largely diminished by then, and no role was attributed to him during the process of the second foundation

of the group. Sources inside the Muslim Brotherhood explained the absence of Bade'a from the second foundation of the group as a result of his dissatisfaction with the performance of the Brotherhood’s leader at the time, Omar Telmesani.

As a result, Bade'a left Egypt for Yemen in the early 1980s, where he became a founding member of the "Dozens Organization".

This organization consisted of a number of Muslim Brotherhood leaders who started forming organizational links in Arab countries without the knowledge of Omar Telmesani. Bade'a returned to Egypt only after the death of Omar Telmesani, and the guide at this time was Muhammad Hamid Abu al-Nasr.

However, due to his illness, Mustafa Mashour was the actual leader to the group.

During the next few years, Bade'a was responsible for the educational program of the group until he assumed the leadership position following an organizational crisis that has been called the worst in the recent history of the Brotherhood. Bade'a’s management of the group will be dictated by his aim to become a preacher of reconciliation with the organization’s opponents, as was manifested in his inauguration speech when he asserted that the group was not in a feud with the regime. In addition, his leadership will be marked by his recognition, unlike that of past leaders, that the Muslim Brotherhood is undergoing a crisis.

However, the most serious issue he will have to confront relates to the perception of weakness that follows him, and the belief that Ezzat is truly in charge of the organization. One Brotherhood leader was quoted as saying that Bade'a may soon discover that crying in prison is easier than leading the Muslim Brotherhood, because prison torments are much less than those of following the whims and ambitions of Mahmoud Ezzat.

31

People - Interview

The Future of Black Gold

Fareed Mohamedi – Chief Economist for PFC Energy Fareed Mohamedi, Chief Economist for PFC Energy, shared his thoughts with The Majalla about several oil related issues; global energy markets, the future of oil, the rise of China and its growing economic nexus with the Persian Gulf, and the outlook for an increasingly indebted U.S. economy.

T

o understand global energy markets is to understand the global economy, and Fareed Mohamedi knows them as well as anyone. As the head of oil market analysis and country risk for the Washington, D.C.-based PFC Energy, a leading consulting firm, Mohamedi is an expert at evaluating the investment environment for the world’s international oil companies and the political and economic factors that influence energy prices and energy production. In an interview with The Majalla, Mohamedi discussed the future of oil, the rise of China and its growing economic nexus with the Persian Gulf, and the outlook for an increasingly indebted U.S. economy.

The Majalla: How is PFC adjusting to a changing energy market?

What we’ve done is help NOCs [national oil companies, such as Saudi Aramco and Brazil’s Petrobras] come up with strategies for partnering with others and they’re listening. At the same time, the IOCs [international oil companies, such a British Petroleum and ExxonMobile] want to know about NOCs. Who are they partnering with? What are the opportunities? We always approached petrostates from the standpoint of country risk and how they deal with the foreign oil 22 January, 2010

companies. But now I’m trying to interest companies beyond oil. Take Boeing, which is selling so much of its products to the emirates. A Boeing executive might want to know more about the region than what their business development managers are telling them. We’re trying to diversify our product, brand beyond oil.

Q: Are you reacting to cycle trends or fundamental and long term ones?

I’m reacting to a longer term trend, though one that has been exacerbated by the cyclical trend. The future of IOCs is a very big question. About 75 percent of energy reserves are controlled

by NOCs. Outside of that, decline rates are really steepening. Assets are diminishing, particularly those held by large companies. They can replace gas but they are not so successful in replacing oil. They’re running out. Let’s take decline rates starting in 2000. We noticed that those assets were declining at 3 to 5 percent a year or so, but now they’re accelerating, by 7 to 9 percent, which means in ten years you run out of oil in those assets.

Q: So we’re running out of oil?

We’re not running out of oil because

we’re finding more stuff. But the race becomes even more serious to avoid the end of oil because the base you’re standing on becomes more precarious.

But our peak production level will never exceed 95 million to 100 million barrels a day and we’re now at 85 million to 87 million.

Q: What do the Saudis say about that?

The Saudis say “look, we have invested ‘X’ billions of dollars in upstream production and we’ll provide 12 million to 13 million barrels per day. We need the money for inter-generational distribution – that means saving it – or inter-sector distribution, which means economic diversification. We can’t give more than that. Maybe we’ll consider 15 million barrels a day as capacity but right now we don’t want to go over 13 million. And look at what’s happened in the market.

You say you have insecurity of supply, we have insecurity of demand. We put in all this surplus capacity in and last year we had to cut production by a million barrels a day. And we’re maintaining it for you. There is also climate change and alternative sources of fuel to consider. We have given, so don’t’ ask us for more.”

Q: Of course, the demand trajectory will rise so long as the Chinese economy

32

People - Interview continues to grow.

We’re bullish on China. The party has reformed itself and made itself a meritocracy. That’s a big point. The second thing is that in sharp contrast to India, China has a gun to its head called the China people. It says “fine, you want to deprive us of democracy, you want to decide everything, you’d better decide and you’d better deliver.” Meanwhile, the Indian elite goes about merrily doing what it does and it says to the people in the slums, “You have no water to drink? Then go vote.” But what are they getting for it?

You go through this laborious process and you end up getting a single tap.

Q: Do you anticipate a revaluation of China’s currency next year?

Beijing has revalued its currency by 20 percent since 2006. This has not led to a slowdown in exports and they’re waiting to see what will happen next year on exports. They’ll do these things, but on their time and on their terms. They learned the lesson of the Japanese, when they revalued the yen too quickly and got a bubble and a crash. Revaluation is an easy thing to do and it makes people feel richer, to feel their money is going a lot further, but you have to manage things carefully to avoid an asset bubble.

They need to cater to their own consumer markets.

Q: How will an appreciated Chinese currency affect the developed world?

The U.S. de-industrialized, it consumed and China produced. Now we need a rebalancing. But what is the model for reindustrialization? No one else has done it. The UK went whole hog into services.

Maggie [Thatcher] said “we’re going to have a supply side revolution,” and look what happened. You got a supply side revolution and it happened in the East.

We got a demand-side revolution based on debt. Manchester, Birmingham, they couldn’t rebuild themselves. Can Detroit?

I believe a country with a population of 300 million cannot live without an industrial sector. Services are predatory.

China also has to consume more. The model for this is Japan, but Japan never made it. Instead, the Japanese economy continued to be hugely constructionoriented, with bridges to nowhere.

Q: What about South Korea? That’s a country that diversified into services and promoted consumption.

Yes, but they did it on debt. To a certain extent so has China, with its most recent stimulus package. Korea first ushered in corporate debt in the 1990s and then consumer debt in 2000 and it had a major crash.

The Asian model for growth has been Issues 1542

incredibly effective. It’s lifted hundreds of millions of people out of poverty but its one weakness is finance. They cheat on finance. They subsidized credit, they have these sweetheart deals between banks and companies. They cheat and then they get nailed on it. Also, the Asians over-emphasize exports rather than creating a more balanced economy.

There is so much pent up demand for jobs they see that as a successful model for employment. There is a famous dictum from [former Malaysian Prime Minister] Mahathir Mohammed about how growth is like a river during a flood. It obscures the rocks below and the rocks are politics.

Q: What is your outlook for the Gulf economy?

Bullish. There is a whole new energy architecture being built. Recall when Franklin Roosevelt met with Saudi King Abdel Aziz bin Abdulrahman Al-Saud at Great Bitter Lake in 1945. Back then, the architecture was built by the four major U.S. oil companies that would develop the oil and the U.S. Navy to ensure its delivery to war-torn Germany and Japan.

That architecture started falling apart in the 1970s and the IOCs have been moved aside. Now it’s all the NOCs. That’s one element. The second is you’re seeing the Gulf integrating with Asia in terms of goods and services.

Q: The New Silk Road?

Exactly.

Q: What will be the outcome of the confrontation over Iran’s nuclear ambitions?

We will learn to live with an Iranian nuclear bomb.

Q: Isn’t that destabilizing?

Have the Iranians ever done anything [beyond their sphere of influence] that was truly risky? Iran has got enormous problems at home. The elites who came in with the Islamic revolution are divided.

The global elites are threatened by the lower middle class that suffered during the war and see globalization as trouble.

I think the system is under as much strain as it’s ever been.

The regime had two pillars of legitimacy – democracy and religion. With the [recent and disputed presidential] election, they’ve lost one pillar and the other, religion, is being used to expand its authoritarianism.

Q: Looking beyond the Middle East, what is the outlook for Interest rates?

We’re in this awkward phase where some countries are raising rates and others, like the U.S., will likely be keeping them low for some time.

Our model for what’s happening in the U.S. is Japan. This is a ten-year debt work out. Our total indebtedness is 350 percent of gross domestic product when you include corporate, government, and individual obligations. Prudently, anything over 200 percent of income is bad, and we’re looking at 3.5 times.

Reindustrialization is hard. There is a model in Germany, which has maintained itself as one of the largest exporters and producers of manufactured goods. We’re still no. 2 in manufacturing, but the trajectory is still headed south. As much as we hate government in this country, we need an industrial policy and we need an energy policy. It’s absurd that we’ve become so reliant on hydrocarbons. It’s also absurd that large companies like General Motors did not use their lobbies to get a national health care system. It’s this massive expense. Get it off your books.

Instead, they’re doing the opposite. This country completely amazes me.

Q: How does the U.S. distinguish itself in this increasingly multipolar economy? Can the America right itself fiscally without raising taxes?

I see a very inward, confused fractured and potentially populist nation, with the Republican right wing being the populist and Democrats, of all people, trying to save capitalism. The genius of George W. Bush and [his political advisor, Karl] Rove is that they figured there was this malaise in the land and they exploited it.

They promised the second coming in the form of tax cuts, and it’s still going on.

How can the U.S. compete industrially in the world when we’ve so denigrated the state? The state is the best promoter of industry anywhere, from Britain to Germany to the U.S. The U.S. government still has enormous capacity. There is no other country in the world that can put a man on the moon, invade a country and maintain millions of miles of highway all at the same time. But there’s this psychology that denigrates the state, even though fifty percent of Americans get health care that is in one way or another assisted by state. It’s astounding how we live in la-la land.

The other problem is that the elites have fractured. We had two advantages during the Great Depression. We had no debt so we could inflate the economy by borrowing and also we had an elite class that represented both the northeast and the southern parts of the country and they said “let’s rebuild.” You have nothing like that now and that’s what worries me.

It’s not asleep at the wheel, it’s shooting yourself in the head.

Interview conducted by Stephen Glain 33

Economics Arab Economics

International Investor

Markets

The Economics of Terror By Paula Mejia

Issues 1542

35

Economics - Arab Economics

The Economics of Terror Who Doesn’t Love a Welfare State?

Paula Mejia By providing communities with important benefits in exchange for their support, violent radical groups are able to develop into highly efficient terrorist organizations. There is thus an important economic factor that comes into play with regards to the success of violent organizations. These groups are organized in such a way that the relationship to the communities they serve is dependent upon mutual aid, and this has important implications for counter-terrorism strategies that seek to limit their progress.

PAKISTAN ARABIAN SEA

Unlike Afghanistan’s Taliban, which depends on the opium poppy trade for revenues, Pakistan’s Taliban is funding its Jihad from a variety of sources ranging from emerald and marble mining, to timber trading, and the imposition of Jiziya – a poll tax – collected from minority Sikh, Hindu and Christian communities 100 miles 160km

INDIA

North West Frontier Province Federally Admin.

Tribal Areas Taliban controlled

AFGHANISTAN

B A L O C H I S TA N

P

Quetta

R

A

K

I

S

Emeralds: Sold for as little as $50 per carat. Gems smuggled KASHMIR to Thailand, Switzerland and Israel where cut, polished stones can sell for up to $100,000 per carat.

Taliban revenue from conflict emeralds estimated at $2 million Mines under Taliban control: 1 – Fizza Gat, Mingora, mine has projected yield of about 13.2 million carats; 2 – Shamozai, Swat; 3 – Gojaro Kalay, Shangla.

Taliban pay labourers about $12 a day – almost twice monthly salary of a local civil servant ($186) Islamabad Taliban timber trade: Large-scale illegal cutting of pine forests began with 2007 Taliban offensive. Government estimates annual loss of $800m from illegal timber trade.

P U N J A B 4 – Miandam forest; 5 – Malam Jabba, Pakistan’s only ski resort destroyed, surrounding pine forests cut down Marble quarrying: 6 – Ziarat white marble quarry.

Taliban charge tax of $7 on each truck load of marble.

T A N Estimated revenue is worth $15,000 a month

PAKISTAN CONTROLLED in with important social benefits. violent organizations shaping the CHITRAL KASHMIR Despite their ideological, and historical SWAT politics of the Middle East today also

50 miles 80km thrive

obin Hood, the English Folk story hero, was a skilled archer, and swordsman, but most of all he was Extent differences, these terrorist groups haveVALLEY rely on this very policy. of Kalam MALAKAND known for being an outlaw. His crime Taliban added control this socio-economic dimension DIVISION The story of Hamas is exemplary and that of his clan, was robbing from Taliban to complement their military front— strongholds the rich and giving to the poor. The and the finding is that this addition is in terms of the power that radical religious HAZARA groups canDIVISION acquire from the tale of Robin Hood, and particularly significantDIR in their successes. Dir welfare-like provisions they guarantee his popularity amongst those he Mingora Sufi Muhammad: Radical SHANGLA A F G H AAccording N I S T A to N MIT Professor Eli their “constituents.” helped, stands to teach us much about The Palestinian cleric who struck controversial the economic foundation behind the Berman, author of Radical Religious group was founded in the 1950’s by BAJAUR February deal with Islamabad support of Shariah terrorist law organizations. and Violent: The New Economics of the Islamic Brotherhood in Gaza, to enforce In fact, theMalakand story of Robin Hood, sharesMOHMAND Terrorism, violent radical religious whose mission in all of their branches throughout division MANSEHRA important characteristics with powerful organizations included providing social services thrive by taking BUNER Jallalabad terrorist organizations of the day. From advantage of the absence of the State. such as creating a Charbagh network of clinics, the FARC in Colombia to the Tamils By providing communities with schools, charities and sports clubs.

Sultanwas in Sri Lanka, these organizations have important benefits in Mardan their inception, Hamas exchange for their As such, since Tarbela both funded their own efforts, and loyalty, and at times has sponsored an extensive social their involvement, Reservoir Peshawar Daggar perhaps more importantly, increased they are able to develop into highly network. According to the Council on their conscripts and support network, efficient organizations. Foreign relations, in addition to its KHYBERterrorist by providing the communities they Interestingly, weRefugee find that various military wing, this has allowed Hamas camps Mullah Fazlullah: Taliban ORAKZAI 22 January, 2010 leader in Swat and son-in-law of P KURRAM Sufi. Controls emerald mining

A K I S T A N

Islamabad Rawalpindi

36

Economics - Arab Economics to develop a tradition in which the majority of its estimated $70 million annual budget is given to an extensive social services network.

By installing their organization as a de facto welfare state, Hamas was largely able to promote its reputation amongst Palestinians as averse to corruption.

The Council on Foreign Relations further notes that their ability to exert influence over social institutions in a severely limited environment, partly explains their victory over Fatah in the 2006 legislative vote.

In fact, Israeli scholar Reuven Paz notes that aapproximately 90 percent of Hamas’ work is in social, welfare, cultural, and educational activities.

This is especially impressive when the Palestinian Authority fails to provide such services. In other words, the socioeconomic benefits provided by similar groups function as an effective public relations strategy in a context where the people’s allegiance is largely based on which group can better function as a state.

Interestingly, however, the welfare aspect that plays a role in the resilience of terrorist organizations is not a one way street. Although these groups provide services, much like the state they aim to replace, they also demand contributions from the communities they protect. While some radical organizations provide us with straight forward examples by asking communities for a “safety tax”, other organizations have a more complex, yet still efficient, relationship with their community that is based on reciprocal support.

for two reasons. First, it illustrates how the economic foundation of violent organizations can help to foster an efficient system of support for that organization. Secondly, it raises important questions with regards to what types of incentive systems the international community can create so as to support their goals in counterterrorism.

According to Berman’s research, the link that the use of social welfare activism highlights is that radical groups survive and thrive because they are able to create a system based on mutual aid. This is especially important because these groups are dependent on limiting defection. Like other nonviolent mutual aid organizations, terrorist groups worry about free-riders who benefit from their social works but who do not contribute to their organization. However, for terrorist groups, the stakes are higher, as freeriders could easily turn into sources of information for their rivals. Berman’s research, however, has demonstrated that by requiring mutual aid, that is, the significant involvement of their communities in their social works via donations or other means, these groups are better able to ensure that their affiliates are loyal to the organization itself.

Again Hamas is an interesting case for their relationship to Islamic social welfare activism. There are important accusations regarding Hamas that claim the group diverts charitable funds to finance its military infrastructure and violent activities. The International Crisis Group reports that Islamic social welfare institutions affiliated with the organization have ‘incited violence and recruited militants among beneficiaries of their services.’

Thus, there is an important economic factor that comes into play with regards to the success of violent organizations.

These groups are organized in such a way that the relationship to the communities they serve is dependent upon mutual aid. At the same time however, these organizations become increasingly better equipped to provide socio-economic benefits that improves their image and allows them to present themselves as a para-state, in areas that are usually plagued by state-failure.

What does this mean for the economic incentives that the international community can put into place to create effective counter-terrorism strategies? Before addressing this issue, it is important to distinguish the relationship that these organizations establish through mutual aid, from a more simple relationship that implies buying-off supporters.

The use of social welfare activism by violent radical organization is relevant

Although, as in most cases of conflict, there are surely some

Issues 1542

participants who benefit financially from violence, there is an important difference behind these instances and the reasons for the organizational success of radical organizations that provide communities with social benefits. The greed-grievance debate puts into question whether the true motivations behind violent actors lie in pure economic opportunities they find in situations of conflict—such as drug trafficking in failed states—or whether their violence is really the only means they are able to address the grievances—socioeconomic, political or otherwise—that they face. For the most part, members of violent radical groups support the grievance side of the debate. True, suicide bombers’ families are compensated financially, but analyses demonstrate time and again that many recruits of terrorist organizations come from well-todo families. The son of a banker, the case of the Nigerian accused in the attempted bombing of the plane headed to Detroit last December, illustrates this trend.

From similar examples one can only gather that even if greed-like incentives play a role in the successful recruitment of members for radical organizations, the extent to which they do is very limited. Instead, it is the welfare-like function of radical organizations that puts them in a position where the communities they work in feel obligated to promote their cause. As such, counter-terrorism strategies aimed at buying off potential terrorists are unlikely to work, as the key aspect behind the success of terrorist organizations is based on the dynamic of reciprocity they create.

Similarly, eradicating the social welfare activism that financially supports the activities of organizations like Hamas is unlikely to impact their military activity. Instead, it would probably lead to the further deterioration of the communities such groups work in, and thus only increase the support they receive from those communities. Yet, the insight provided by the successes of these organizations in providing for their communities, functioning as de facto welfare states, furthers the need of creating strong states.

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Economics - International Investor

Trade Winds EU-Arab Relations: Working Around Trade Negotiations Impasses Negotiating trade deals with the European Union will remain difficult for Arab countries. By opening to commerce on their own terms, however, some countries, especially those located around the Mediterranean, could significantly improve their lot as well as their terms with the EU.

E

U Arab relations are again in the limelight, as is the case each time a Southern European country takes on the rotating the presidency of the European Union (EU). This first half of 2010, it is the Spanish who want to bring the new Euro-Mediterranean Union a few steps forward. The Union was created in 2008 under initiative of French president Nicolas Sarkozy to revive a moribund “Euromed” process, which involved the creation of a free trade area between the EU and the countries of the Mediterranean rim.

The 2010 deadline for this free trade area has not been fully met. Trade talks with the Gulf countries, also launched in the 1990s, have petered out. There are no signs that an EU GCC free trade agreement will see light anytime soon.

What makes it so difficult to negotiate greater integration between the economies of the Mediterranean rim and the Persian Gulf, (henceforth MENA - Middle East and North Africa, excluding Israel and Turkey from the analysis), and the EU? The first difficulty stems from the structure of existing trade relations: most MENA exports are energy exports. Hydrocarbons enter the EU duty and quota free. Therefore, MENA governments do not feel pressed to improve access to Europe. Furthermore, most countries around the Mediterranean already benefit from preferential access to the EU market. The high-tariff North African region’s markets are no major export destination for Europe, given their generally low income levels. Europe is looking towards Asia. While the wealthier economies in the Gulf are somewhat more lucrative export markets, most Gulf states are quasi freeports in practice: applied tariffs are very low. The EU would like to invest more in manufacturing and services. But the EU’s mandate so far has not allowed Brussels to negotiate FDI on behalf of the member states.

In services, such as telecommunications, energy, banking, business services etc, the EU would like to have better market access.

But here it tends to face a wall of refusal in most Middle Eastern economies. Given that the EU itself remains rather protective in these same sectors, Brussels negotiators are not necessarily able to offer an interesting quid pro quo.

A second major reason for difficult trade talks is the EU’s import regime in agriculture.

The purported Euro-Mediterranean “free trade area” carves out larges swathes of fruit, vegetables and processed foods that would be of great interest to MENA producers.

22 January, 2010

light manufacturing, given its geographic proximity with the EU. In an ideal world, more labour migration opportunities – these are not an area of negotiation in trade agreements, however – would improve prospects of MENA’s numerous young population, and help the EU pay its gaping pensions deficit. Yet we are unfortunately not in an ideal world.

Iana Dreyer At the best, some quotas allow Europeans to see some North African produce in their supermarket shelves. The irony is that the same EU member states who want to improve relations with Euromed countries, such as precisely Spain, or France, are those who compete most, head-on, with other Mediterranean producers of fruit and vegetables, olive oil, or grain. They will not open their markets without fierce resistance.

A similar situation prevails in the EU’s fisheries sector, which is over-protected and heavily subsidized. Complying with the EU’s stringent and costly sanitary and phytosanitary requirements – the EU does not accept any other standard than its own, even in a free trade area - is very tradedeterring.

The third area of friction is the fact that EU trade agreements bring with them an arsenal of EU regulations, such as competition, government procurement, or increasingly stringent demands in intellectual property rights. These regulations are complex and often costly to implement. The EU also exports – with not much success - the idea of regional integration, regardless whether this fits local conditions or not. Furthermore, the EU makes demands to comply with political, social, labour and environmental standards that some MENA governments do not find palatable. In the labour and environmental sphere, many economists would find these ill-adapted to local levels of development.

It goes without saying that deeper economic links between the EU and MENA would be of great benefit to both. Opening EU agricultural markets could bring greater variety and better prices for EU consumers as well as unheard-of opportunities for MENA farmers. Both sides would benefit substantially if services trade and investment were liberalized. Northern Africa could benefit much more than it is now from opportunities to expand into call centres or

So what can MENA countries do to benefit most from links with the EU without having to wait for the outcome of burdensome negotiations? A simple answer would be: “just do it”. Many MENA countries remain very closed to the world economy. Algeria, Lybia or Syria need to join the World Trade Organization to begin with. Tariffs in many North African economies remain high by international standards. Tunisia has opened its markets substantially to the EU and benefited greatly from trade links with the bloc. Lowering or eliminating tariffs is one of the first steps to take if a country wants to attract investment: this lowers the price of inputs for production, and obliges companies to compete on global markets. But the great gap between Tunisia’s applied tariffs for EU and non-EU imports distorts its economic structure and renders its economy excessively dependent on the EU. In a world in which emerging markets in Asia, Latin America and next door in the Middle East play a greater role, having an open, non discriminatory trade and investment regime is the most sensible policy to adopt. By going it independently of trade negotiations, MENA countries could do this on their own terms and not heed EU conditions. Geographic proximity with the EU will remain a positive factor to attract investments. And once a country starts raising its income, the EU might well be ready to negotiate more comprehensive free trade deals with better terms for agriculture and services, as it has started to do in its last free trade agreements with the Caribbean and South Korea.

An open trade regime would revive a grand Arab tradition of international commerce.

This has started already in the Gulf, with spectacular results, and would certainly deserve to be spread more widely. Why wait for Europe?

Trade Policy Analyst, European Centre for International Political Economy 38

Geopolitics In Brief

Features

Debate

Interview

Economics The Political Essay

Ideas Profile

Issues 1542

Reviews

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Economics - Markets

China to overtake Japan By reaching a GDP of 33.5 trillion Yuan ($4.9 trillion) in 2009, China has recorded a 10.7% Gross Domestic Product increase in the 4th quarter of last year. Consequently, the Chinese government has Issues 1542

surpassed its initial 8% target. This significant increase has proved critical in the stabilization of the Chinese economy and mitigating the effects of the global crunch. On the other hand forecasts

confirm that Japan is expected to uncover a 6% increase next February.

Accordingly, if reports prove accurate, China would replace Japan as the world's second largest economy.

41

Reviews Books

Issues 1542

Readings

Reports

43

Reviews - Books

Politicizing Islam The Final Verdict: Facing People of Darkness Hamed Zenaz Dar Al-Saqy, 2009 Hamed Zenaz's book has been a source of controversy due its unconcealed critique of religious intervention in the affairs of Arab states. Nevertheless the book is considered by many as an eye opening read, especially for those studying the socio-political background of the Arab world.

W

ith the rise of concepts such as secularism and the objectification of religion, many books are now addressing the relationship between religion and the state.

Hamed Zenaz contributes to this literature by discussing the effect of "state-sponsored" Islam on the progress of nations in his latest book, The Final Verdict.

The book’s central thesis is that Islam cannot be combined with modernity. Zenas points out specifically, that this aim is impossible to achieve. According to Zenaz, the founding scripts of Islam cannot be modernized or updated. Consequently, Zenaz attempts to find reasons for why Islam has proved to be an obstacle in the path towards modernity.

The author raises issues regarding the commanding presence of Islam in the Arab region, in addition to what he perceives as attempts by political and religious leaders to "Islamize" people's lives. These trends, he argues, have obstructed secularism and progress. Zenaz 22 January, 2010

further explains that the process of Islamization is not only regional; its reach extends beyond domestic boundaries creating a phenomenon he calls "cross-continental Islam".

Zenaz however could be criticized of being too simplistic in his analysis of the rise of Islamization in the region. The book delivers statistics such as the increased rate of the construction of mosques throughout the Arab world, in contrast to the construction of churches. This argument however is questionable, as such figures can hardly be considered an indicator for the rise of Islam in the region.

Islamic thinker, Ibn Rushd. These movements have tried to reach a middle ground between Islamic references and modernization by finding ways to incorporate Islam in different aspects of life. Zenaz however claims that all Islamic reform initiatives have failed to achieve any significant change in Arab communities because they built their initial ideas by combining Islamic Shari'a and logic. According to him, this is impossible due to a lack of “Arab awareness.”

Furthermore, Zenaz uses Algeria—his home country—as a benchmark for supporting many of his arguments. This gives the book credibility; although it does not necessarily reflect the status quo in the whole region, where every country is exposed to unique circumstances.

Zenaz further claims that Jihad is a crucial component of Islamic identity, transmitted by its thinkers to every new socio-political context they set foot in. Nevertheless, Zenaz does not deliver the verses in which Jihad is introduced, nor does he provide the historic context for the idea. As a result, his work can be criticized for being overly subjective.

The author also discusses the effect of Islamic reformist orientations in Arab societies, initially lead by the

Additionally, the book introduces the concept of secularism-phobia that is rooted in the philosophy of 44

Reviews - Books most Arab thinkers who claim that the separation of state and Islam is impossible. For Zenaz, the fear of separating religion from the state disrupts the political structure by which Arab countries are ruled. Zenaz believes that Islamic fundamentalism is the reason for the strong opposition of Muslim nations to secular influence.

Fundamentalism has created a perception among thinkers that secularism is the opposite of religion, which could lead to the dissipation of Islamic culture and traditions. Moderate Islamic thinkers however argue that the first four centuries following the rise of Islam have witnessed a wide cultural revolution that was integrated in Islamic traditions.

This has led to state liberation from religious authority, and was only halted by recent recessions.

Hence, secularism has failed to take place in Arab countries not because of a robust Islamic culture, but because these countries suffer from continuous conflict, and developmental problems.

What is considered most intriguing about this book is that it has received very harsh critiques from many Arab thinkers who accused its author of waging a blasphemous war against Islam. This in turn, has provided empirical proof to many aspects of the book, since in fact many thinkers still cling to Islam as the only gateway towards the future, ignoring the influence of developing Islamic thought itself to cope with the revolutionary rise of modernity. The book could be considered a very elaborate study of the Arab nations' relationship with religion, however this study is made through relatively subjective eyes that emphasized the enmeshed religious culture and overlooked the absence of socio-political awareness among people of the region.

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Al-Qaradawi

Hassan Turabi

Ghannouchi 45

Reviews - Readings

Readings Books Our Choice: A Plan to Save the Climate Crisis Al Gore November 2009

Al Gore’s most recent book on climate change argues that it is now abundantly clear that we have at our fingertips all of the tools we need to solve the climate crisis. The only missing ingredient is collective will. The book describes the climate crisis as an unparalleled opportunity to finally and effectively address many persistent causes of suffering and misery that have long been neglected. It is also understood as an occasion to transform the prospects of future generations, giving them a chance to live healthier, more prosperous lives as they continue their pursuit of happiness. Our Choice gathers in one place all of the most effective solutions that are available now and that, together, will solve this crisis.

It is meant to depoliticize the issue as much as possible and inspire readers to take action.

Cover

Palestine Inside and Out: An Everyday Occupation

Cover

Saree Makdisi April 2010

In chronicling Israel's occupation of Palestinian territories-from road blocks to curfews, economic chaos to health care crises-UCLA professor Makdisi sketches a powerful account of a reality few Westerners know. According to Makdisi, the global media rarely covers the "routine" destruction of the occupation.

Makdisi unequivocally condemns attacks on civilians, Israeli or Palestinian, and acknowledges the many Israelis working toward conflict resolution. The combined weight of personal stories of abject suffering, harsh statistics and facts on the ground make Makdisi's case that the occupation is destroying the Palestinian people, and possibly any chance for peaceful coexistence.

The Imperial Cruise: A Secret History of Empire and War

Cover

James Bradely November 2009

In 1905 President Teddy Roosevelt dispatched Secretary of War William Taft, his gun-toting daughter Alice and a gaggle of congressmen on a mission to Japan, the Philippines, China, and Korea. There, they would quietly forge a series of agreements that divided Asia. The Imperial cruise argues that these secret pacts lit the fuse that would result in a number of devastating wars: WWII, the Korean War, the communist revolution in China. Bradley retraces that voyage and uncovers the important role that America's imperial past would had on future events.

22 January, 2010

46

Reviews - Readings

Chinese Society: Change Conflict and Resistance Elizabeth Perry and Mark Selden May 2010

Cover

This bestselling introduction to Chinese society uses the themes of resistance and protest to explore the complexity of life in contemporary China. An interdisciplinary team of China scholars draw on perspectives from sociology, anthropology, psychology, history and political science and covers a broad range of issues. Topics covered include labour and environmental disputes, rural and ethnic conflict, migration, legal challenges, intellectual and religious dissidence, and opposition to family planning. This edition adds two new chapters on gender and the family, and the reform of the Hukou system thus providing a comprehensive text for both specialists on the country, and those new to Chinese society.

Reports

Cover

Unkept Promise: Failure to End Military Business Activity in Indonesia

Human Rights Watch January 2010

This Human Rights Watch report provides a detailed critique of a current trend in Indonesia. In particular, the organization critiques the presidential decree and Defense Ministry regulations addressing military involvement in businesses that were issued in October 2009. It finds that these measures do not satisfy the requirement in a 2004 law that the government fully divest the armed forces of its business interests as a means to promote military professionalism and civilian control.

The United States in the New Asia Evan A. Feigenbaum Council on Foreign Relations Report

Cover

In this Council Special Report, commissioned by CFR’s International Institutions and Global Governance program, Evan A. Feigenbaum and Robert A. Manning examine Asia’s regional architecture and consider what it means for the United States. They identify shortcomings in the region’s existing multilateral mix and contend that the United States must increase its involvement in shaping Asian institutions in order to advance U.S. strategic interests. The authors outline six principles for U.S. policy toward Asia as a whole and recommend particular policies toward Northeast and Southeast Asia. Among other steps, they urge the United States to maintain a strong presence at Asian meetings; avoid intractable security issues and focus instead on topics ripe for cooperation; make use of ad hoc groupings as well as formal ones; vigorously pursue regional and global trade liberalization efforts; and view some Asian institutions that exclude the United States as acceptable, just as with the European Union.

Interview Mark Schneider, Senior Vice President; Special Adviser on Latin America Washington, International Crisis Group Rebuilding Haiti: The Work of Decades Council on Foreign Relations

The January 12 earthquake in Haiti was "the worst national disaster in the history of the Western Hemisphere," says Mark Schneider, former Peace Corps director in the Clinton administration in an interview with the Council on Foreign Relations.

"Long-term reconstruction" will last more than a decade, he says, and involve billions of dollars in aid. The objective is not just to put Haiti back together, he says, but to create "a New Haiti" with a new education system and other changes throughout the society.

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47

Reviews - Reports

The Strength of Soft Counter-terrosim Saudi Arabia’s Soft Counter-terrorism Strategy: Prevention, Rehabilitation and Aftercare Carnegie Papers Christopher Boucek September 2008

Saudi Arabia has created a counterterrorism program commended for its success rate, but criticized for its progressive some would say “soft” components. Boucek, however, demonstrates that the softness of the program— the government’s commitment to incorporating social and psychological support for detainees— is the key to the program’s success.

S

audi Arabia’s counterterrorism campaign has shocked many with its accomplishments.

highlights the progress that this strategy has initiated in the field of counterterrorism.

Following the deadly terrorist attacks in 2003, the Kingdom initiated a program that focused on the use of soft measures to counter the ideological influence of violent extremists. While the program has been criticized for being too soft, Christopher Boucek of the Carnegie Endowment for International Peace,

The report, Saudi Arabia’s Soft Counterterrorism Strategy, explains that the primary objective behind this program is to engage and combat an ideology that the Saudi government believes is based on corrupted and deviant interpretations of Islam.

22 January, 2010

Boucek explains further that the Saudi

government created this program based on the understanding that violent extremism has to be combated from a multi-pronged approach, as relying solely on traditional security measures has proved an inefficient strategy.

As such, the Saudi government formulated a program aimed at prevention, rehabilitation, and postrelease care, or PRAC. The program, operational since 2004, has had 48

Reviews - Reports success rates in the 90th percentile.

This impressive success rate, argues Boucek, is due to the soft policies that seek to address the underlying factors that led these people to look to violent Islamism in the first place. In order to achieve their goals, the Kingdom has focused its efforts on strengthening the legitimacy of the government and reinforcing the traditional Saudi interpretation of Islam, which stresses ‘obedience and loyalty to the state and its leadership.’

Interestingly, this implies that the counterterrorist methods of Saudi Arabia have moved beyond traditional security strategies. The government instead interprets terrorism as a war of ideas; and one in which the winner is the group who can demonstrate that their version of Islam is the correct one. As a result, much of the efforts of PRAC aim to cast extremists as illegitimate for perverting true Islam.

The key components of the Kingdom’s counterterrorism policy focus on prevention, rehabilitation and aftercare programs. Importantly, the psychological and social emphases of these programs demonstrate that the involvement of terrorists with extremist groups can be deterred through the right social network. It is commendable that the Kingdom understood the capacity and responsibility it has to create and support the types of networks that prevent men and women form joining terrorist groups.

An important example of this recognition is the prevention programs that are included in school curricula.

These government programs, focused on educating the public about radical Islam and providing alternatives to radicalization, are varied and thus provide a wide-range of appeal to different demographics. The projects range from ‘athletic competitions, to lectures, writing contests, and public information campaigns’ all of which, the report claims, have had a significant impact on Saudi Arabia’s perceptions of terrorism.

While prevention is important, it is the rehabilitation and aftercare aspects of the strategy that have attracted the most attention for their soft— albeit successful—characteristics.

These parts of the program focus on comprehensive counselling initiatives designed to re-educate violent extremists and sympathizers and to Issues 1542

encourage extremists to renounce terrorist ideologies. The government also encourages family participation in the process and even provides alternative income in cases where the sole breadwinner has been imprisoned.

Other aid, such as schooling and health care are also provided.

The success of these tactics is found in that they not only create a dialogue of comprehension with the detainees, but they also demonstrate that “the system” can work on their behalf.

When the government shows detainees that they are on their side, and look to support them and their family, it is difficult for detainees to hold on to views that claim the government ‘is complicit with infidels.’ Such efforts are also successful because they prevent radical groups from further influencing families when their members are gone. ‘The government recognizes that if it fails to provide this support, it is very possible that extremist elements will move in and do so.’

However, the success that the program boasts today was not easy to come by. When the program began, meetings between counsellors and detainees did not go well. Many detainees refused to meet with clerics, and overtly questioned their religious authority. However, as time passed, and the program gained credibility, the initial hostility that detainees expressed decreased. Today, some detainees only attend one session before denouncing their extremist beliefs. While the majority attend various sessions, the success rate of the program, and its progressive measures, speaks to the potential that initiatives with a focus “soft” measures might have in different conflicts—and even in the general rehabilitation of prisoners who are not detained on accounts of terrorism.

The aspect of the program that perhaps is most impressive however, is the aftercare attention that former detainees receive. While many rehabilitation programs exist, very few continue to stay in contact with and support former radicals. Yet, the continuation of these services is most successful in preventing recidivism ‘by addressing social concerns before they become grievances.’ For example, once individuals renounced their radical beliefs, previous assistance is provided in locating a job and receiving other benefits, including

additional government stipends, a car, and an apartment. Prisoners are also encouraged to marry and have children, as it is widely believed that men with responsibilities will be less likely to be attracted to violence and radical views. Consequently, the result of these aftercare programs is that they are able to encourage the successful reintegration of detainees into Saudi society.

Boucek’s final assessment of the counterterrorism strategy of the Saudi Kingdom is quite positive, recommending that other nations emulate the program. Whilst governments stand to learn much from the Saudi experience, one must also keep in mind the substantial amount of resources and commitment that Saudi society and its government dedicated to the program. This type of societal commitment is crucial to the program’s success. Done halfheartedly, it is unlikely that a similar program would achieve the main attributes of the Saudi strategy, which is to create an all-encompassing social network that supports detainees and prevents future radicalization.

Another interesting aspect of counterterrorism that was not addressed in the report has the role of reconciliation between former terrorists and those who were victimized by their actions.

The expectations of victims are also important factors to take into account when designing strategies for counterterrorism, as their disillusionment with government strategies could potentially spark another round of extremism.

Nonetheless, throughout the Middle East, Europe, and Asia, similar programs are starting to emerge.

Algeria, Egypt, Jordan, Yemen, Singapore, Indonesia, and Malaysia have all established rehabilitation and engagement programs, as has the US military through Task Force 134 in Iraq. Boucek notes the spread of this strategy is ultimately based upon the recognition that the defeat of extremism cannot be achieved through hard security measures alone. ‘That in itself, is a major accomplishment’ of the Saudi program.

For the full report see: www.carnegieendowment.org 49

The Political Essay

The War of Ideas

The debate on whether or not to intervene in states like Somalia and Afghanistan so as to deny terrorist groups their safe havens has evolved in such a way that the two positions are now mutually exclusive. The most important issue is recruitment and, in this “war of ideas”, the traditional notion of territory becomes less important, because all territory is important.

I

In November last year, a group of up to twenty young men was arrested in Minneapolis.

They were accused of belonging to Al Shabaab, the extremist movement that has taken control over at least half of Somalia’s territory and which has very close ties to al Qaeda. The New York Times described this case as ‘one of the most extensive domestic terrorism investigations since the Sept. 11 attacks’. Among the evidence that this was a very dangerous group, one of its former members, Shirwa Ahmed, blew himself up in a suicide attack in 2008 in the north of Somalia.

In the end, what seemed to disturb US national authorities the most was that all suspects carried American passports and all were American citizens.

The debate in the US and Europe on whether or not to intervene in states like Somalia and Afghanistan so as to deny terrorist groups their safe havens has evolved in such a way that the two positions are now mutually exclusive.

One side claims that if terrorists’ easy access to safe havens like Somalia or Afghanistan under Taliban rule is not prevented, the threat will get out of hand. The other position contests that claim by reminding us that the threat of terrorism can also—and in a more deadlier form—come from within, and that state building enterprises, such as the one in Afghanistan, are destined to fail.

Framing this discussion in such terms is extremely simplistic. As a British philosopher once wrote, ‘any distinction is drawn for a purpose, and a dichotomy is usually offered as part of a claim that one kind of thing is better that the other.’ The debate on terrorism and ‘failed states’—the link that gained so much notoriety after 9/11—exemplifies that description.

Although a terrorist plot can be planned and executed either in a developed state or in a failing one, 22 January, 2010

Somalia, Yemen, and even as some analysts have warned, Guinea Bissau on the West coast of Africa, were all easy destinations for jihadists who found Afghanistan was no longer the place for them.

Manuel Almeida terrorist organizations also need bases and training camps, even if those bases are located in inhospitable places like the caves of Afghanistan. Members of terrorist organizations can easily establish themselves in any country, but a terrorist organization will not be able, at least as easily, to build training camps to train recruits in shooting weapons and exploding bombs within a state that controls its borders and effectively controls its territory.

Terrorist organizations, like mafias, take advantage of the lawlessness of today’s failed or failing states to kidnap, extort, finance their activities with other illegal ones, and to recruit new members. It is certainly easier to do all this in a country like Somalia, where all the so-called ‘root causes of terrorism’ such as poverty and oppression are most acute, than it is doing it in Germany, for example, and get away with it. The claim that a much too collapsed state is not a good place even for terrorist organizations is refuted by the present case of Somali, the collapsed state that quickly became a paradise for militants.

The US-led intervention in Afghanistan managed, to a considerable degree, to deprive al Qaeda of its safe haven. The problem however is that al Qaeda quickly found other places to establish itself under less pressure. The neighbouring Pakistan, Uzbekistan, Tajikistan,

Although al Qaeda—and affiliated groups—use a strong anti-modern rhetoric, the organisation and its techniques are highly dependent on the internet and all the pro-mobility elements that make it so easy to travel or communicate over long distances.

They use mobile phones, credit cards, TVs, and airplanes, independently of being in Kandahar or in London.

Also, as recent years have proven, the biggest threat might come from within. Home-grown terrorists can be indoctrinated either when travelling to Somalia or Pakistan, or by simply accessing jihadi websites on the internet from their apartments in New York.

The most important issue is recruitment, which also adds to the evidence that this debate cannot be restricted to a matter of geography.

In this “war of ideas” for the minds of impressionable people, and especially due to the use of internet for radicalization purposes, the traditional notion of territory becomes less important, because all territory is important.

The threat within strong states, and the threat of terrorist safe havens in failing, failed, or collapsed ones, are two sides of the same coin. Police and intelligence work, as well as addressing poverty—though many terrorists are at least from middle classes and are highly educated— and countering radicalization are essential. But facing the problem of the safe havens in today’s and tomorrow’s ‘failed states’ is also crucial. The questions about the latter remain if it is a sustainable approach, and if doesn’t do more harm than good.

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