Syria: Deeper into Drought

Water scarcity causing food shortages and rural flight

The Kabur river is barely above ankle height.

Executive magazine

By Paul Cochrane in Hasakah and Damascus

At face value the city of Hasakah in Syria's northeast doesn't suggest a four-year drought is underway. On the outskirts cotton pickers work away in fields and dozens of trucks line the roads piled high with sacks bursting at the seams with raw cotton, while in the local market water melons and vegetables are on sale, and the hotels have bath tubs.

The Kabur river that runs through the city is not dry, yet hardly a river, more a small stream with a depth just above ankle height – exactly what one might expect following a hot and rainless summer.

But the Kabur is much lower than normal for early autumn. The Hasakah area only received 100 millimeters of rain this year, way below the annual average of 200-250mm. As a result an estimated 36,000 families from the Hasakah Governorate have been driven off the land. In neighboring Deir-e-Zour, dust storms caused by desertification were so bad this summer that on certain days people couldn't see more than two meters in front of them. Business ground to a halt and roads were closed off after being covered in sand.

From farming to urban poverty

Indeed, according to a United Nations report, an estimated 1.3 million people in Eastern Syria have been affected by climate change and drought, while 803,000 people have lost their livelihoods. The displaced are finding their way to the larger cities, living in tents and makeshift shacks, and forced to work as day laborers or even scavenge from the rubbish dumps on the edges of Damascus.

“Those that are really dependent, herders and small farmers, their livelihoods are being destroyed. If they are not already dependent on food aid, they will be,” said Jean-Marie Frentz, program manager of the economic cooperation section at the European Commission to Syria.

The paradox of places like Hasakah, deep in drought but yet still farming away, is that Syria has still not adapted its agricultural and farming policies in line with hydrological conditions. While crops fed by rainfall have failed, irrigation and the usage of dwindling groundwater reserves presents the illusion, a veritable mirage, of an oasis of productive farming land.

Water intensive watermelons on sale in drought ridden Hasakah.

For a country that has prided itself on agricultural self-sufficiency and its use of water resources – the back of the 500 Syrian pound note depicts the Assad Dam and fields being tilled – the drought is clearly bad news. Yet unlike the past, the Syrian government is admitting they have a problem.

“For the first time the government is really speaking about the issue, and realizes it is an emergency situation. In the past, there was a tendency to deny or say it is Syrian business and no need for international assistance,” said Frentz.

The UN, along with seven NGOs and the Syrian government, have established the Syrian Drought Response Team, requesting $53.9 million from international donors. The bulk of the money - $29 million - is for food aid, while $20 million is earmarked for supporting agriculture and livelihoods.

This is significantly more than asked for in 2008 by Damascus, for some $20 million, which Syria failed to raise from donors until earlier this year.

Conceding the scale of the drought has put Damascus in a tough spot, as it was “bad public relations for Syria to have to feel like Ethiopia, of presenting an image of people starving and sick children,” said Jihad Yazigi, editor of business publication Syria Report. “And it was quite a strange situation, as the same week the appeal was made [UAE real estate developer] Majid Al Futtaim announced the launch of a $1 billion project [just outside Damascus] in Yaafour. It says something about the new Syria,” he added.

The government is even attributing the economic slowdown in the country to the drought, despite agriculture accounting for an estimated 20 percent of gross domestic product and 10 percent of total exports.

Last year, as EXECUTIVE reported, Syria experienced its worst wheat and barley harvest in recent history, producing just two million tons of wheat and 90 percent less barley than in 2007. The target for wheat production in 2009 was back to former levels of 4.5 million tons, but year end projections estimate only 3.4 million tons.

Cotton pickers in Hasakah.

Importing food staples

The up-tick is due to average rainfall in certain areas of the country, particularly along the coastline, and from better irrigation usage. However, in areas reliant on rainfall in the northeast and east there was almost zero production, said Dr Abdullah Droubi, director of Water Resources at the Arab League's Center for the Studies of Arid Zones and Dry Lands in Damascus.

As a result, the Syrian government has boosted its imports of wheat by 300,000 tones to 1.5 million tones this year to boost its reserves, crucial for keeping the populace placated via flour subsidies.

Such a shortfall in agricultural output is forcing the government to rethink how water is allocated, with agriculture accounting for 90 percent of water usage. “The government is looking over the next decade to reduce this figure by 30 percent through new irrigation techniques,” said Droubi, while the Agriculture Ministry is studying a plan to reduce cotton cultivation by 20 to 30 percent from the current one million tones per year.

A shift from heavy usage of groundwater reserves is also needed, said Frentz.

Governorate	Population	Severely affected
Rural Damascus	1,765, 622	2,500
Homs	2,033,337	20,500
Hama	1,997,870	98,000
Ar-Raqqah	934,897	155,000
Deir-e-Zour	1,566,691	41,000
Hassakeh	1,495,276	486,000
Total	9,793,693	803,000
Total households		75,641

Source: Syrian Ministry of Agriculture and Agrarian Reform; UN

No master water plan

“The general trend is that groundwater levels are falling considerably every year. In rural Damascus there has been a six meter per year drop, while in the Homs area the drop in groundwater levels ranges from 12-35 meters a year, so this is very worrying indeed and clearly not a sustainable model.”

But with no master water plan, and a lack of coordination between government bodies, coming up with viable solutions is problematic.

“Water is a very fragmented sector with many actors. For instance, the ministries of construction, agriculture, environment and local administration all cover different aspects of water. There needs to be an integrated water management policy, not a piece meal approach,” said Frentz.

Then there is the scale of the drought and climatic changes. As Droubi pointed out droughts are often cyclical, but without scientific data it is difficult to plan ahead. And for a country of 20 million people with 2.1 percent growth per annum, such data is essential to address the needs of a rapidly growing, and rapidly urbanizing population.

“We have to have a plan to combat desertification and study climate change, but there has been no research about the frequency of the drought,” said Droubi.

Photographs by George Haddad and Paul Cochrane.

Unemployed workers, unite! The ILO – Arab Employment Forum

Not much on sale: the Middle East needs to create more jobs

Executive magazine

By Paul Cochrane in Beirut

How to solve the global financial crisis is naturally a hot topic, sparking innumerable talks, conferences and forums. The Middle East is no exception. But while certain countries in the region like to boast that the crisis has largely passed them by, delegates at the International Labor Organization's (ILO) Arab Employment Forum (AEF) in Beirut last month pointed out that the Middle East had a chronic employment problem way before the financial crisis rocked markets worldwide.

Growth without jobs

The forum therefore had a degree of urgency about it, given the challenges the region faces and the highest unemployment rates in the world, set to rise from an average of 9.4 percent to as high as 11 percent this year, according to the ILO. Meanwhile, aggregate growth in the region is projected to drop two percent this year, rising to four percent in 2010.

Yet growth, as Ahmad Majdalani, the Palestinian Authority's Labor Minister, suggested, doesn't always mean jobs, citing statistics of 5.4 percent growth regionally over the past three years but only 1.5 percent growth in job opportunities. Indeed, as the director general of the ILO, Juan Somavia, said in his opening address, “the unemployment rate is only the tip of the iceberg.”

Somavia went on to blast the neo-liberal model of development as a “dysfunctional financial economy” that “privileged the short-term profit objectives of financial operators. The end result was globalization without a moral compass.”

The ILO has set itself the task of rectifying the structural weaknesses of the capitalist system by being that seemingly mislaid moral compass for the workers of the world. The forum was also a platform for the ILO to plug the policy paper that came out of the International Labor Conference in Geneva in June: “Recovering from the crisis: A Global Jobs Pact.” The paper, which calls for among other things investment in the real economy, received “recognition” at the G20 summit in Pittsburgh in September, and it looks like the outcome of the AEF will also receive such coveted “recognition” by Arab governments. For while the forum had the majority of the Arab League's labor ministries in attendance, and plenty of hand-wringing in speeches, the AEF was essentially all talk.

Ministries without clout

The comments of Jordan's Labor Minister, Ghazi Shbeikat, suggested a reason why. In discussing the financial crisis he said part of the problem stemmed from the region's labor ministries not being brought into governmental discussions about the economy, and that employment was seen solely as a labor ministry issue. “The crisis is an opportunity for a change in relations, for labor ministries to make economic policies,” he added.

Shbeikat made an important point in that not enough resources are allocated to labor ministries as opposed to the ministries of economy and finance. But if the other ministries were not letting labor ministries through the door before, would they now? Perhaps the region's economy and finance ministries should have been at the forum too, as well as high-level representatives of the private sector, the very people that have influence on economic policy.

Expatriate workers

Arab trade unions were also there in force, but they have witness a prolonged erosion of their strength, their ability to rally workers and their voice to advocate labor rights. For the constructive change that the ILO wants, strong labor ministries and trade unions are essential.

Therein lies the crux of the problem: Will governments that are heavily influenced by the financial sector remove the leash that has held back labor ministries and unions? Realpolitik would suggest not, especially given union involvement in politics and the resulting strikes and demonstrations, which invariably send shivers down the spines of the more authoritarian regimes in the Middle East and North Africa.

Indeed, some of the policies that governments have implemented in response to the crisis suggest that the needed change is not afoot. For instance, Shbeikat said the Jordanian government has adopted an initiative to help expatriate workers at the Aqaba Special Economic Zone (SEZ) and Qualifying Industrial Zone (QIZ) buy apartments. While this could boost the real estate sector, what Shbeikat did not mention was that the majority of the workers at the SEZ and QIZ are expatriates, and low paid ones at that. According to a 2009 US Defense Resources Management Institute paper, the number of jobs the QIZ created from 2001 to 2004 rose by 46 percent for local workers, while expatriate workers grew 360 percent. So instead of boosting the number of local workers, which would curb unemployment, the government is advocating real estate purchases.

Measuring the crisis

Other suggestions at the forum were not so nonsensical, particularly from Talal Abu Ghazaleh, Chair of the UN Global Alliance for ICT and Development. He said the Arab world “doesn't need intellectuals, businessmen or politicians, but experts in vocational work.” Ghazaleh added that to understand the scale of the region's economic problems an Arab Statistics Agency is needed. “We cannot measure the crisis if there are no measurements.” A lot of benefit could come out of implementing these two ideas alone. As for the outcome of the forum, this will depend on whether labor ministries can punch above their weight to get the policies the ILO is advocating in place.

Syria's first air show - with no planes

Executive magazine
By Paul Cochrane in Damascus

It must rank as one of the quietest air shows in modern history. Despite even posters featuring a red devil bi-wing stunt plane pictured flying upside down, the clear blue sky was clear – no helicopters, no airplanes and no screaming jet fighters performing the aerial acrobatics typically seen at international air shows. There weren't even grounded aircraft at the exhibition, near though it was to the Damascus International Airport. The attraction that closest resembled aviation technology was an Iranian-made flight simulator tucked away in a corner.

Still, the first Syria Air Show International Aviation Technology Exhibition was a premiere event for the country. It signifies that the Syrian aviation industry has made small but significant progress over the past few years, including the launch of two private airlines that broke the state-owned Syrian Arab Airlines' (SAA) monopoly. United States President Barrack Obama even extended an olive branch to Damascus this summer, suggesting America may end sanctions against the country's aviation sector.

Nonetheless, the air show raised eyebrows. “I'm wondering: why have a show?” said Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment. “Who is going to exhibit, as Syria is not buying planes?”

The post-sanctions horizon

Indeed, with American companies dominating the aviation sector worldwide Syria is unable to purchase planes due to the sanctions and instead relies on leases and Russian made aircraft. On the other hand, several company representatives said it was the potential of tapping into an essentially virgin market once the sanctions are removed that prompted them to come to the air show.

“Syria's not very commercial yet, we are here to feel out the market,” a spokeswoman for Moscow-based Sukhoi Civil Aircraft said. “We can't sell in Syria as we have 10 percent American parts in our planes; it's politics, and we don't want to jeopardize sales elsewhere. But when the sanctions are lifted [aviation companies] will flood in,” she added.

Sukhoi, however, was the only major international aviation player at the exhibit. Dominating half of the stands were Iranian aircraft, helicopter and aviation services' companies, while the rest were made up of Syrian aviation companies, the Jordanian Royal Air Force, Jordanian pilot training academies, and airport handling services from Bahrain and Egypt. Iran was over-represented as it is in the same position as Syria when it comes to aviation sanctions imposed by the US, with Syria one of the few countries Iran can viably market to.

State-owned Iranian Aerospace Industries Organization (IAIO) manufactures cargo planes, small wing aircraft and civilian planes developed in partnership with Ukrainian engineers to get around the ban on buying parts from global giants Boeing and Airbus. Asked why the company was at the air show, Amin Salari, member of IAIO's board, said, “It's the first event in Syria so we had to be here.”

Other aviation companies were of a similar mind. “We don't provide services here yet, but we hope to and are looking at the market to sell to private companies and individuals,” said Mohamad Khosravi, managing director of Tehran-based Navid Helicopter Services.

The presence of Iranian companies was indicative of the sentiment that US aviation sanctions will not end anytime soon. The Obama administration may have eased sanctions, with American companies now able to get a license to export to Syria, but so far none have. According to a well-placed source, SAA requested Airbus planes but was rejected by Washington.

“The US is basically saying they are easing exports, but the fact that SAA is going to [Russia's] Tupolev [for two new aircraft] means Syria doesn't believe this,” said Jihad Yazigi, editor of business publication Syria Report.

This was further evidenced when the US pressured Germany in late October to ground the engines of two SAA planes there were under repair, reducing the fleet to just three aircraft.

For Syria's private companies, Pearl Air (which has a 25 percent stake held by SAA) and Cham Wings, one of the air show's sponsors, they are getting around the sanctions by leasing aircraft until they can “buy American,” said one executive off the record.

“It's a double edged sword, it affects us and the owner of the sanctions. If sanctions were lifted, we'd buy more planes, technical training, services, and have deals with maintenance companies. We would buy from America, of course. Millions of dollars in deals could be made,” he said.

The potential is certainly there, with Syria attracting a record four million plus tourists this year and more airlines flying into the country.

“Services are really growing for tourism, investment and business travel - private jets and VIP lounges. Business is up for us in Syria while it is down elsewhere,” said Marwan Hijazi of Sky Aviation Services.

Photograph by Paul Cochrane

Press TV appearance: Yemen Crisis

I was on Press TV on the Middle East Today show, second part, talking about the crisis in Yemen (Sept 26).

http://www.presstv.ir/programs/detail.aspx?sectionid=3510507&id=107241#107241

Lockerbie's cloak and dagger

Commentary - Executive magazine

Earlier this month, Libyan leader Muammar al-Qaddafi's son, Seif al-Islam, told the Arab press that the case of Abdelbaset Al-Megrahi, the Libyan convicted by a Scottish court for the bombing of a PanAm flight over Lockerbie in 1988, “is over for good”.

It would seem to be over for Megrahi, returned to Libya in August on compassionate grounds – he has terminal cancer - after serving eight years in prison. But the Lockerbie issue, in which 270 people were murdered, is far from over.

On an almost weekly basis, certain British publications have been running articles that something was amiss in both the decision to free Megrahi and the investigation into the bombing.

The first major story was that oil giant BP signed major oil deals with Libya in the week following Megrahi's release. Could be coincidence, but certainly fishy. The British government of course claimed nothing of the sort. There could be no “trade for terrorists.”

BP then came out and scuppered that whole premise, saying it had lobbied the British government in late 2007 that a delay in concluding a prisoner-transfer agreement with the Libyan government could hurt a $900 million deal it had inked with Tripoli.

Then it was revealed that the new international mediator on the bloc, Qatar, had put its oar in, with the Minister for International Cooperation, Khalid bin Mohammed Al-Attiyah, pressing Scottish First Minister Alex Salmond over Megrahi in June. Scotland is in talks with Qatar to fund a $3.4 billion road bridge, major subsea electricity cables and other projects.

So yet another case of that sleazy troika of money, oil and dirty politics coming together. But that has been the case from the start. When Libya was accused of being the mastermind, Tripoli eventually paid out compensation to families affected by the Lockerbie bombing as part of a deal to lift economic sanctions. While Tripoli paid up, it refused to accept guilt. “We thought that it was easier for us to buy peace,” said Libyan Prime Minister Shukri Ghanem in a 2004 interview with the BBC.

If that wasn't curious enough – we are not guilty but here's millions of dollars so we can get rid of sanctions – then just as curious was the mainstream Western media's silence on why the Libyans were so jubilant when Megrahi touched down in Tripoli. It was seen as callous and miscalculated. Prime Minister Gordon Brown was “repulsed,” and Barack Obama “outraged”; but Libyans, publicly and privately, consider Megrahi to be innocent.

Yet if the mainstream media suggested that, this would imply a cover up and that Megrahi was framed for the bombing. Explaining all the ins and outs of a stitch-up would have been too much for a report on the 10 o'clock news. Indeed, there are a reported 600 pages of new and deliberately suppressed evidence that would have cleared Megrahi's name if the case had continued, and Megrahi not been pressured by the British government to drop his appeal in exchange for immediate release. Even the Scottish judges admitted there was a “mass of conflicting evidence”.

Let's take a few puzzling parts of the investigation. A “key secret witness” at the original trial, who claimed to have seen Megrahi putting the bomb on to the plane at Frankfurt, was exposed by the defense as a CIA informer that would have been paid up to $4 million if Megrahi was convicted. Then there is the circuit board and bomb timer “found” around Lockerbie and proved by a forensic scientist to have no trace of an explosion on it. But the crucial, damning evidence that put Megrahi away was the clothes found in the wreckage of the plane. A Maltese store owner claimed he sold Megrahi the clothes, yet he gave a false description of Megrahi in 19 separate statements and couldn't even recognize him in the courtroom.

The whole saga of the actual bombing, the reasons behind it and the trial itself– held in Holland without a jury – would make for a good Hollywood thriller. The Lockerbie bombing is a story of double crosses, bribed and dodgy witnesses, government corruption, CIA rogue agents, drugs for hostage deals in (where else?) Lebanon, and tampered evidence. It is also one about the ongoing 'war on terror,' and how geopolitical strategic interests get in the way of real justice.

Qaddafi junior saying that the issue is over is somewhat true for Libya. The country has successfully come in from the cold and now part of the club again; Megrahi is home, guilty in the eyes of the Scottish courts and much of the West but considered innocent in Libya. As for finding out 'whodunnit', the Lockerbie case is yet another file in that ever growing pile of unsolved, politically charged cases of murder and mayhem.

PAUL COCHRANE is the Middle East correspondent for the International News Service

Somalia: Piracy, Ransom and Wads of Cash

EUNAVFOR ship Brandenburg escorts the MV Hansa Stavanger in the pirate ridden waters off Somalia

By Paul Cochrane in London and Beirut

Executive Magazine

The financial cost of piracy off the Horn of Africa has surged over the past year as the pirates become increasingly audacious, better funded and equipped, and able to extend their reach in the high seas. From vessels warned to keep 50 nautical miles off the Somali coast a few years ago, pirates are now boarding ships as far away as the Seychelles. The area the European Union Naval Force (EUNAVFOR) patrols is some 9 million square kilometers, almost the territorial size of the United States of America.

Just as the range of pirate operations has increased, so has the ransoms being paid out, rising from $250,000 to an average of $1.25 million in 2008. According to the London-based International Maritime Bureau (IMB), there were 111 pirate attacks off the Horn of Africa in 2008, of which 42 were successful hijackings. In the first half of 2009 there have been 130 incidents.

The situation turned into what was internationally deemed 'a crisis' last year, prompting the EU to establish its first naval security mission - consisting of 12 ships - in 2008, while Russia, the US, China, India and other nations put to sea to protect their maritime vessels. In a rare show of international solidarity, the armada patrolling the Gulf of Aden is coordinating together to curb the scourge of piracy.

But covering the costs of bases in Djibouti, Kenya, Bahrain (the US base), Dubai and elsewhere runs into the tens of millions. The operating cost of EUNAVFOR alone – naval vessels, aircraft and military personnel costs aside – is $12 million a year.

The cost to the shipping and insurance industries however is far higher. Last year, pirates collected around $30 million in ransoms. Cyrus Mody, Manager of the IMB, said that figure doubles when the legal fees, negotiators, delivery of ransoms and associated costs were added. “The amount paid out is pretty much equal to what the ransom is,” he said.

The cost to insure ships transiting the Gulf of Aden is estimated at $20,000 per ship per

voyage, excluding injury, liability, and ransom coverage. A year ago, the cost of the additional insurance

premium was only $500, according to maritime newspaper Lloyd's List. It is estimated that the increased cost of war risk insurance premiums for the 25,000 ships that ply these waters – which includes an estimated 11 percent of the world's petroleum - could reach as much as $400 million.

Keeping to the designated shipping lanes in what EUNAVFOR calls “group transit” of several ships, and paying up if captured, would seem to be the only options for the world's shippers. The alternative of avoiding the Gulf of Aden and the Suez Canal is simply too expensive and time consuming.

According to the US Department of Transportation, to re-route a tanker from Saudi Arabia to the USA via the Cape of Good Hope adds approximately 2,700 miles to the voyage and some $3.5 million annually. A routing from Europe to the Far East via the Cape, rather than through the Suez Canal, would incur an estimated additional $89 million annually, which includes $74.4 million in fuel and $14.6 million in charter expenses. In addition, the rerouting would increase transit times by about 5.7 days per ship.

Pirate dens

The heightened international naval presence off the Horn of Africa has had a direct impact on curbing piracy. “The number of attacks has not decreased but the number of successful attacks has gone down, primarily because of the naval presence,” said Mody.

EUNAVFOR's specific mandate protects ships of the World Food Progamme. Commander John Harbour of the British Royal Navy and chief media spokesman for EUNAVFOR, said the rate of success was one ship hijacked for every three attempts, whereas a year later it is one in nine successful pirate attacks. “Every single day there is an attempt and everyday we thwart that attempt. And even when there is not a direct attack, we see many skiffs with armed men,” said Harbour.

A knock-on effect however of the naval presence has been the ramping up of the ransoms demanded by the pirates and heightened investment in faster speed boats, mother ships to refuel and launch skiffs on the high seas, and better weaponry.

“When the navies united under an Aden task force, the pirates needed to be more audacious. Ransoms then rose from $250,000 to $1.25 million,” said Simon Davies, a former detective and specialist investigator with Britain's Scotland Yard and a consultant on financial crime and piracy in East Africa. “That [ransom] pie graph is getting more and more cuts in it as the money is shared around. There is money for bigger engines and dhows to ply the sea carrying extra oil,” he added.

The pirates run what Mody called an “extremely business orientated” operation, similar to many organized crime syndicates around the world. The three to five major pirate groups that operate from bases on the Somali coastline are either self-funded or financed by external investors.

Via watchers in the likes of Dubai, the pirates are informed of when a ship leaves port and what cargo it is carrying, or information is easily garnered from reading the shipping news published in local newspapers. A crew of armed men on speed boats or on a mother ship then head out on the high seas to track down potential targets. If successful, the pirates capture a vessel and sail it to Somalia. There, said Davies, the pirate crew is replaced with another crew for negotiations to take place. The onus is then on the owner of the ship and insurance companies to cough up the ransom.

Due to the frequency of attacks ship owners have set up insurance cartels, with many owners paying into a pool that will then pay out in the case of a hijacking. Then the separate insurers of a ship's cargo, hull, and other forms of insurance get involved.

“If say a cargo of sugar costs $50,000, the insurer pays 10 percent of the ransom, the owner 15 percent, hull insurer 15 percent. If maybe $150,000 short, the cartel of ships pays up,” said Davies.

Then the drop off – usually in small denomination US dollars - takes place. Back in 2005, Mody said money exchanged hands in either airport lounges or hotels in Dubai. “A phone call was made and the vessel released. In 2008, the money was taken by security companies by boat to the captured vessel. This has been taken a step further. To make it safer for delivery, the money is now being air dropped on the vessel or nearby. This is how the delivery has progressed, as if you have a security person on-board he will automatically become a threat to the pirates. And sailing in with the money from say Djibouti or Kenya, you need to hire a crew, and the crew know there is $1 million on-board...The air drop has made it cheaper and safer.”

Getting rid of the loot

One spin off from the piracy business has been for sectors catering to the pirates, from arms dealers to boat outfitters, car dealers, and other enterprises. Business has also boomed catering to the hostages. “With Europeans captured, there is a burgeoning restaurant business [in Somalia] to cater to Western palates,” said Davies.

Mody said that living standards are going up due to “lavish spending by pirates, which is encouraging local industry to build up, and flashy new cars to be driven around because of the new money.”

While part of the loot is divvied out among the pirates, some is earmarked for investment in the next venture. But if the ransom money doesn't stay in Somalia, where does it go? There have been claims that the money is laundered in Dubai – a claim the Emirate has vigorously denied – and via Beirut. Mody said quite a lot of money gets siphoned into Kenyan real estate, where there has been a marked increase in Somalis buying properties in neighborhoods such as Eastleigh in Nairobi. Davies said money may also be laundered or invested in Iran, Yemen and the Emirates.

Indicative of the pirates' business savvy, there has been minimal violence towards captured crew members. “It is a business for them and any violence towards the crew will affect this business model. If violence increased, this would change the dynamic, and that could be a turning point in how nations look at piracy. Keeping that in mind, having a link to terrorism is also not in the best of their interests. If a link is established, there would be a very serious clamp down by certain external interests,” said Mody.

Photograph courtesy EUNAVFOR

Dangerous Air Maneuvers: Aviation Sanctions Have Ended for Syria, the Embargo Should Also End for Iran

Commentary - Executive Magazine

By Paul Cochrane in Beirut

Sanctions are one of those political issues that can make amiable dinner conversation turn unpleasant, as the battle lines are drawn down the table between those for and against. Sanctions have certainly had mixed success, starting with the first recorded case of a trade embargo some 2,400 years ago between Athens and neighboring Megara. The embargo failed and sparked a war.

Sanctions have never worked since then, argue some. That is too reductionist may come the reply, while others prefer to pick-and-mix examples from embargoes through the ages to argue their case. The more pragmatic approach would be not whether sanctions “work,” but when and under what circumstances.

Sanctions that are meant to oust a dictator but result in the deaths of thousands of innocent civilians – Iraq for instance – can be considered counter-productive. Sanctions preventing a particularly nasty regime from getting hold of say chemical weapons on the other hand would appear desirable and effective.

Indeed, in a report on the effectiveness of sanctions by the Washington DC-based Institute for International Economics, out of 211 cases from World War I to 2000, there was success in only 38 percent of sanctions. Some work, others clearly don't.

Sanctions on the aviation sector can fall under the questionable effectiveness category. Meant to impede a country's access to military aviation parts is understandable. For commercial aircraft it ranks as dangerous. In the Middle East, this applies to Iran and until July, Syria, when the United States ended sanctions on the export of goods to the Syrian aviation industry. Sanctions were first imposed against Syria in 1984 and tightened in 2004 by the Bush administration.

Aviation sanctions have long been considered a risk to air safety, with airlines that own American and European manufactured aircraft (Boeing and Airbus) unable to access spare parts, navigation equipment and upgrade technology in line with international safety standards. A report prepared for the United Nations' International Civil Aviation Organization has made this clear.

The dangers for aircraft and passengers was underscored in July when two Iranian commercial planes crashed within 10 days of each other, killing 184 people. Iran claims the sanctions were to blame, and Foreign Ministry spokesman Hassan Qashqavi came out to say the aviation sanctions that have been in place since 1979 by the West, “signifies a violation of human rights.”

While no Western lives were lost in the two crashes, it may only be a matter of time before citizens of the primary sanction imposer, the US, are also 'collateral damage,' whether on board a doomed aircraft, or having a picnic when a badly serviced plane drops out of the sky.

As Flight Commander General Hazim Al Khadra, Director General of the Syrian Civil Aviation Authority told me in Damascus a few years ago: “Sanctions are a big problem because US aviation interferes with the aviation industry, the spare parts for commercial airlines in particular, which maintain the safety of passengers. And these passengers aren’t only Syrians, but also Europeans, Americans and Asians.”

Perhaps there would have to be the rather ironic situation of a plane that lacked the spare parts or proper guidance system accidentally crashing into a US embassy or military facility, for Washington to truly wake up to the hazards of unsafe aircraft.

After all, it is curious that the Air France jet that crashed off Rio de Janeiro, and the US Airways plane that ditched into the Hudson River in New York earlier this year, garnered extensive media reports about aircraft safety, yet the aviation sanctions against Syria and Iran have not. Unsafe aircraft flying around the world are not safe for anyone, whether on the ground or in the air. Indeed, I had heard of people wanting to avoid flying altogether because of the Air France crash.
The US decision to end the sanctions against the Syrian aviation sector – which has rapidly opened up in recent years to include a handful of private airlines – is a step in the right direction. But the sanctions against Iran, and its aviation sector, still continue. In fact, it looks like the sanctions are going to be tightened even further, with America proposing a ban on Iranian airplanes from landing in Western airports, along with banning insurance on trade deals with Iran, and the imposing of sanctions on any company that trades with the Islamic Republic.

While the heightened sanctions are meant to put further pressure on the Islamic Republic to change it ways, the policy should be scrutinized as to what is effective and what is not. The sanctions related to the curbing of Iran's nuclear aspirations and funding to groups like Hamas and Hizbullah is a political minefield, with strong arguments from both sides of the political spectrum as to whether such a policy is working or not. Civil aviation however should be in a special category. It is a human right for people – civilians - to be able to fly and travel freely, and moreover, safely wherever they want.

Saudi Arabia's oil policy

Petroleum Minister Ali Al Naimi represents the oil technocrats and the interests of the king and the estimated 7,000-25,000 members of the House of Saud

By Paul Cochrane for Petroleum Review

With a quarter of the world's reserves Saudi Arabia is the most influential member of the Organization of Petroleum Exporting Countries (OPEC) and able to put an extra two million barrels of oil on the international markets within days. But the kingdom is notoriously opaque about its oil policy and reserves, with decisions made at the highest level by the ruling House of Saud. It is an elite that even the White House appears to have minimal influence over, and one that is keen to ensure its own survival in the face of growing domestic concerns and a changing geopolitical environment.

Since oil company Saudi Aramco was fully nationalized in 1980, the kingdom's oil policy has been relatively clear and consistent. Based on a low price band (between $18-$25 a barrel), Saudi aimed to maintain price stability through excess spare capacity, thereby avoiding price spikes, and ensuring the long-term profitability of its large reserves. But from 1999, the Kingdom's oil policy started to change course as internal problems started to mount: rising unemployment, a population that has grown 300 percent in 30 years, and an oil dependent economy seriously in need of diversification.

To boost revenues, Riyadh in conjunction with OPEC reigned in production to lower oil inventories. In a period of surging global demand driven by the emerging Asian economies, oil prices steadily rose, pushed further by speculation. As a result of this boon, the kingdom's accumulated some $500 billion in foreign reserves and was able to dismiss the Bush administration's calls for heightened oil production. But the global financial crisis in late 2008 caused oil prices and demand to drop. Pressure was again put on Riyadh, this time to keep prices low to stimulate economic recovery.

“Why did the Saudis let the price of oil go up and up, when they of all people would realize there would be a correction?” said Simon Henderson, director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy. “As the swing producer it would be left to Saudi leadership to get OPEC into line afterwards which, frankly, they have managed to do to everyone's surprise.”

In June, Saudi Aramco increased output to 12 million barrels per day (bpd) after three new projects came online, at the Nuayyim, Khurais and Shaybah fields. With an estimated 4.5 million bpd in spare capacity, Saudi Arabia's OPEC output is 8 million bpd.

The financial crisis has presented Saudi Arabia with major challenges. High oil prices are needed to fund economic diversification and infrastructure projects, while at the same time the country has a vested interest in the recovery of the global financial system. Equally, Saudi Arabia is aware of the growing importance put on alternative energies, which could in the long run lessen the West's dependence on the Kingdom, changing a relationship that since 1945 has been based on security in exchange for oil. Furthermore, given that the Saudis effectively subsidize oil sales to the US through discounted transportation costs, the Asian markets – especially India and China – are becoming increasingly attractive given their geographically proximity and willingness to pay international market prices.

Cementing the foundations of a long lasting relationship: King Saud with President Roosevelt in 1945

“Surging demand from Asia will almost certainly divert supplies east and unless Saudi supply keeps growing, it could mean a big reduction to the USA, unless we start paying a security premium, which I suspect China would top,” said Matthew Simmons, Chairman of energy consultancy Simmons & Company in the US, and author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”

Saudi Arabia has worked particularly hard to foster warm relations with China, investing in refineries and the Chinese economy. “China is a secure market for Saudi Arabia, and will be in the future, so it is very clear it's not just exporting crude, but upstream and downstream activities are also being explored,” said Othman Cole, research associate at Cambridge University's Centre for Energy Studies in Britain.

This shift eastwards has been observed by OPEC. “The last full revision of the OPEC Masterplan in 2003-2004, estimated that by 2050 they didn't expect any Gulf OPEC member to be selling oil to the US. The entire Gulf market has been moving east for sometime,” said Kent Moors, an energy policy expert at Duquesne University in the US.

The current, and indeed long term, significance of the Asian markets was made crystal clear by King Abdullah's first overseas visit since ascending the throne in 2005. It was to Beijing, notably not to Washington. Next on the monarch's itinerary was New Delhi.

Saudi Arabia has been increasingly looking to the Eastern markets: King Abdullah with Indian Prime Minister Manmohan Singh in New Delhi, 2005

“Asia is a growing market for Saudi, and how that re-balance will effect the US influence and relationship is still unclear,” said Cole.

Any change in bilateral relations has not yet been reflected in current US foreign policy towards Riyadh, demonstrated during President Barrack Obama's visit in June.

“Relations are good between King Abdullah and Obama, that was the surprising thing, for Obama to have bonded with an Arab potentate with global views very different from European and US perspectives,” said Henderson. “Logically, Obama should have said, for God's sake, keep oil prices down, but gave them a pass, which I thought was a mistake.”

What is not clear is if the US and Saudi Arabia might actually be seeing eye-to-eye on the current OPEC price band of $75-$80 per barrel. Simmons thinks the West is tacitly supportive of higher oil prices. “Our government leaders now seem to understand that higher prices open all sorts of doors, such as creating alternate energy sources and helping create economic prosperity in the Middle East,” he said.

Such a policy would be to kingdom's advantage. “I suspect Saudi would love to see prices exceed $200 a barrel to pay for the seven new industrial cities and other critical expenses to modernize a kingdom soon to be 40 million people,” Simmons added.

Oil policy is decided by what Daryl Champion, author of “The Paradoxical Kingdom: Saudi Arabia and the Momentum of Reform”, said was an “an inner circle of elite decision-makers centered around the king and key princes.”

Within this elite, Simmons said two camps are emerging in regard to oil reserves and what that could mean for oil prices.

“One, as best expressed by many Aramco and Petroleum Ministry officials, is that none of the great fields have many problems and will last for many more decades. The other end of spectrum worry that these same fields are at risk of being overproduced and favour a new era of field-by-field production flow transparency. If they embraced transparency, I suspect the results would send oil prices far higher, benefiting the Kingdom,” said Simmons.

While Petroleum Minister Ali Al Naimi represent the oil technocrats, he also addresses the interests of the king and the estimated 7,000-25,000 members of the House of Saud. How a change in leadership will impact on policy when King Abdullah, aged 84, passes away is not evident. With Crown Prince Sultan in declining health, interior minister Prince Naif, 74, is considered next in line for the throne after being recently appointed second deputy prime minister.

Currently, Riyadh appears to be hedging against changes in the energy market, with Al Naimi acknowledging at a summit in Houston in February the need for nuclear power and renewable energy, adding that in the future Saudi Arabia would export the same British Thermal Unit (BTU) equivalent in electricity from solar power as present crude oil levels. The kingdom is also actively moving beyond the production process. “Saudi Arabia and Kuwait have put aside between $12 billion and $15 billion for controlling future energy from the Caspian region,” said Moors, “moving from the traditional approach of controlling the process, facilities and refineries, to being gate keepers to access and future projects. There has also been an increase of Saudi money to control tanker production facilities.”

But while Saudi Arabia is secretive about its oil policy and reserves, the kingdom does not necessarily have a firm grasp over where the oil markets are going.

“Many people assume senior Saudi officials have some magic crystal ball on oil, but they are just as puzzled as the folks at the International Energy Agency or [the US'] Energy Information Administration and most of everyone’s data comes from 'guesstimates'. The blind are really leading the blind,” said Simmons.

Street smart in Gemmazieh

Commentary - Executive magazine

If you believed Lebanon's ad campaign, you'd think the country is a paradise of pristine nature, beautiful shorelines and night time cavorting. On touring the country you wouldn't see the Saida rubbish dump that regularly collapses into the sea, the smoggy haze over Beirut at sunset, or the belching fumes as you sit in yet another traffic jam. Neither would you experience the raging torrent of traffic heading north from Beirut, or the long line of cars crawling along nightlife hotspot Rue Gouraud in Gemmazieh. Such images would not be good for Lebanon's brand identity.

This is quite understandable, no country would highlight such downsides. But with tourism to contribute directly and indirectly an estimated $7.78 billion to the Lebanese economy this year - equivalent to 28.1 percent of GDP - such images should be embarrassing to the sector. Resolving Lebanon's environmental woes requires macro efforts and capital to invest in infrastructure improvements. Yet there are initiatives that can be taken on a more local level.

Take Gemmazieh street (the official name is Rue Gouraud). To drive the one kilometer long, one way street that runs from the edge of Martyrs' Square to the Electricite du Liban building, it can take anywhere from 20 minutes to an hour as people search for a parking space or hand over keys to a valet. For an essentially straight and flat street, close to areas with parking space, like downtown and Charles Helou Station, such a log jam would seem a major urban planning oversight.

But in Gemmazieh's case, an area of 'traditional character' as the sign posts tell us, the street turned into a nightlife hub haphazardly, bar by bar, restaurant by restaurant. The one kilometer long traffic jam is also not solely down to a lack of planning. A big contributer is the Lebanese penchant for valet car parking, a combination of unwillingness to walk and, two, to show off.

What if Rue Gouraud were to follow the example of cities as far apart as Shanghai, Cape Town, York, Copenhagen, Montreal and Curtiba, Brazil? What all these cities have done is pedestrianize streets or whole blocks, whether for retail, nightlife or areas of historic interest. Neither extreme temperatures, rain, sunshine or humidity have made these areas less popular.

But Gemmazieh would not need to look abroad to see how pedestrianization was implemented – half a kilometer away is pedestrian friendly downtown Beirut. With the upcoming opening of the Beirut Souks, the pedestrian area will be extended even further, and it could spread eastwards if Rue Gouraud followed suit.

How this could work would be for Rue Gouraud to have rising bollards at either end, making the street pedestrian but also accessible at specific times for delivery trucks and residents with parking permits.

Parking space could be found in Martyrs' Square, and if Charles Helou was given a lick of paint, fumigated, and linked via a bridge, several hundred more vehicles could be parked. For those unwilling to walk, a fleet of golf carts could be added to the current half a dozen that ply downtown to transport people. Pedestrianized, bars and restaurants could spill onto Rue Gouraud, and there could be live music, buskers, dancers, and street artists. People would mix and mingle, no-one would be aggravated from a traffic jam or altercation with a valet, and air pollution would undoubtedly be reduced.

While this sounds desirable there are always obstacles to contend with, particularly ones unique to Lebanon. In other cities, when pedestrianization has taken place, gentrification has also occurred, changing demographics. Lebanon's 'old rent' laws, where rents were frozen at a particular monthly rate prior to the civil war, has prevented this from happening. It has also meant demand by more elderly residents for vehicle access. Noise pollution is another potential issue, although if the demographics changed would be less of a problem, with those moving in aware of the neighborhood's lively night time atmosphere. The valet car parking mafia, which attempts to control the parking spaces that line Gouraud and surrounding streets, could also oppose such a move to pedestrianization.

Then the night-goers themselves may very well resist such an idea, too used to valet parking and reluctant to give up a perceived convenience – although it may take 40 minutes to get to the valet, as opposed to a 10 minute walk from parking lots on the easter edge of downtown, or if it was renovated, Charles Helou.

But that are indications some nightlife patrons are willing to forgo their valet. A bar owner, not overly in favor of pedestrianization, admitted that out of the 150 cars usually valet parked every Friday, on one particular night there were only 15 as people shunned their cars to walk. While anecdotal, this does suggest that people are willing to forgo the valet to save time.

For access to Gouraud to improve – whether by improving parking or opting for pedestrianization – this would require a united front by residents and business owners to surmount the biggest obstacle, bureaucracy and vested political interests.

PAUL COCHRANE is the Beirut-based Middle East correspondent for International News Services

Sanctions busting – an Iranian imperative

Money Laundering Bulletin - August 2009

Iran is an international outcast for its nuclear ambitions but ranks as high in the geographical risk league over its long-standing refusal to cooperate in the fight against money laundering (let alone terrorist financing). There may though be signs, albeit mixed, of movement in Tehran, writes Paul Cochrane.

Iran has been under international scrutiny since the Islamic revolution 30 years ago, with sanctions by the United States tightened under the Clinton administration through the Iran-Libya Sanctions Act.

Since Iran's decision to embark on a nuclear programme, US sanctions have intensified, but in the face of such restrictions Iranian banks and individuals are increasingly using joint venture banks in the Middle East and South America to bypass scrutiny. At the very same time, the Central Bank of Iran denies that money laundering exists in the country, even while implementing a new Anti Money Laundering law.

Iran has been at the hard end of recent Financial Action Task Force (FATF) statements, warning in October, 2007 that “Iran’s lack of a comprehensive anti-money laundering/counterterrorist finance regime represents a significant vulnerability within the international financial system.” Since then the FATF has issued three additional statements, the last, in October, 2008, reiterating the risk of terrorist financing (TF) and urging all jurisdictions to “strengthen preventive measures to protect their financial sectors.”

The FATF statements appear to have been taken seriously by Iran, which has applied for membership of the Paris-based body. “At the same time that the Ahmadinejad government was dismissive of US and UN sanctions, it was concerned about FATF, sending a lobby group to Paris to stop a second warning,” said Michael Jacobson, Senior Fellow at the Washington Institute for Near East Policy.

Last year, the Iranian parliament passed an Anti-Money Laundering (AML) law and sent it to the Guardian Council for final ratification. Enacted in April, 2009, the law creates a High Council on Anti-Money Laundering chaired by the Minister of Economic Affairs and Finance, with members including the governor of the Central Bank of Iran (CBI). However, a Financial Intelligence Unit (FIU), which is a requirement of the FATF, has yet to be established.

Jay Jhaveri, Head of Asia at World-Check, a British company that maintains a database on high and heightened risk individuals and entities, said the AML legislation is “pretty standard, the key buzzwords are there. It's almost a standard cut and paste from FATF guidelines.” But lacking a FIU, he said Iranian “banks and financial institutions don't have anyone to report suspicious activity to.”

A further area where legislation is falling short is in addressing terrorist financing (TF), a particularly charged area given the political animosity between the United States and Iran. The US State Department designated Iran as a international sponsor of terrorism in 1984, accusing Iran of funding Palestinian organization Hamas, the Lebanese militant group Hizbullah and since 2003, militias in Iraq such as Asa'ib Ahl al-Haq and Kata'ib Hizbullah. The US has directly linked Iran's Islamic Revolutionary Guard Corps Quds Force (IRGC-QF) – a paramilitary wing of the government that is also heavily involved in business in Iran – to financing, arming and training such groups. The IRGC-QF has been designated by the U.S. Department of the Treasury under Executive Order 13224 for providing material support to terrorists, stating that the IRGC is funneling money to Hamas, and between US$100-US$200 million a year to Hizbullah through Iranian banks, notably state-owned Bank Saderat and Bank Melli.

Confirmation of funding to Hamas was given by Khaled Meshal, the leader of the Hamas political bureau in Syria, on a visit to Tehran in 2007, when he stated that Iran had been providing financial support since Hamas was voted into office in the Palestinians territories in 2006. Meshal did not state any figures, but added that funding would continue.

Unlike in Lebanon where Iranian banks operate freely, Israel strictly monitors Palestinian financial transactions, meaning funding from Iran has to enter the Palestinian territories through other channels. “A lot of the money is bulk cashing smuggling, particularly into Gaza through tunnels, with people travelling from Iran and bringing huge amounts, some in the millions of dollars,” said Jacobson.

Given Iran's support for such groups – all listed on the Office of Foreign Assets Control (OFAC) list and deemed terrorist groups by the US government – Tehran does not consider the likes of Hamas and Hizbullah as terrorist organizations.

“There is an element of politicization in the OFAC list, with a few years ago Libya the bad boy, and since removed from the OFAC list. There is always a gray area between terrorist and freedom fighters; Hamas was elected, so what do you say?” said Jhaveri.

But Tehran's inability to tackle TF remains a concern of FATF and its 40 Recommendations Plus 9 on TF. “The plus 9 has largely been ignored in Iran, which probably comes down to the definition of terrorism,” added Jhaveri. “I believe FATF will address that in their next report, that legislation doesn't address the plus 9 properly.”

Iran's definition of ML is a further area where Tehran and the international community are not seeing eye-to-eye, with the Central Bank primarily focused on criminal proceeds and the narcotics trade. “Like a lot of countries in the beginning [of implementing legislation], ML is considered proceeds of narcotics. So in a lot of reports, when Iran talks of ML, the predicate crime behind that is narcotics related,” said Jhaveri.

According to the United Nations Office on Drugs and Crime, approximately 60 percent of Afghanistan’s opium is trafficked across Iran’s border, supplying an estimated three million Iranian drug addicts as well as being transported on to Turkey and Europe. According to a study carried out by Dr Bijan Bidabad, an Economic Consultant in Tehran, “revenues from drug sales and transportation in some years is equal to Iran's oil revenue.” Iran's oil and gas revenues were US$80 billion in 2007-2008, according to the CBI.

The World Bank meanwhile has reported that an estimated 19 percent of Iran’s GDP stems from unofficial economic activities, while according to the US State Department, “a prominent Iranian banking official has estimated that money laundering encompasses an estimated 20 percent of Iran’s economy. Other reports have found that approximately US$12 billion is laundered annually via smuggling commodities in Iran and another US$6 billion laundered by international criminal networks.”

Money is typically laundered through non-official banks, said Bidabad, known as Qarzol Hassaneh Funds, which “belong to pressure groups and the Ministry of Defense and Armed Forces Logistics (MODAFL).” State run banks and businesses are further areas of concern, but Jhaveri said as they are state controlled, enforcement of AML regulations was unlikely as it would directly hurt the government. Iran ranked 141 out of 180 countries listed in Transparency International 's 2008 Corruption Perception Index.

Real estate is a further area where funds are laundered, according to the State Department, with settlements and payments often made out overseas. Dubai in the United Arab Emirates has been singled out as a major hub for Iranians to launder money, acquire real estate and re-export Iranian-made goods. “A lot of bypassing of Iranian semi-governmental agencies is done via Dubai, while a lot of private activity is also carried out there,” said Bidabad.

The Central Bank, however, came out in April to say that US claims regarding money laundering are baseless. “(Iran's) banking laws and regulations do not allow that kind of illegal activities,” the CBI governor, Mahmoud Bahmani, was quoted as saying in the Iranian press. “The money laundering law approved by the Guardian Council is now being enforced in the banks throughout the country,” he added.

Side stepping international regulations

The Iran Sanctions Act (ISA), originally called the Iran-Libya Sanctions Act (ILSA), was issued in 1995 under Executive Order 12959 in response to Iran's nuclear programme and support for Palestinian and Lebanese terrorist organizations. The ISA banned US trade and investment in Iran, while in July, 2006 the United Nations Security Council passed five resolutions related to nuclear proliferation, with three calling for financial restrictions on Iran.

In the years since, the US Treasury Department has designated four Iranian banks – Bank Sepah, Melli, Mellat and the Export Development Bank of Iran – for proliferation under Executive Order 13382, while Bank Saderat was designated under a separate order for funding Hizbullah and Hamas. The international clamp down on Iran was heightened last year when the European Union (in June, 2008) imposed sanctions on Iran's largest bank, Bank Melli, freezing assets and preventing the bank from doing business in the EU.

The effect of such sanctions on Iran has been mixed. “Are they having an economic impact and raising the cost of business? Yes. But curtailing the nuclear programme? No,” said Jacobson.

Indeed, international banks took notice of the stepped up US sanctions and executive orders, with Treasury officials in 2007, saying that over 40 international banks and financial institutions had either cut off or stepped back from business with Iran. But the seriousness with which Washington takes such sanctions was only highlighted in January, 2009, in a landmark case by the Manhattan District Attorney and the Justice Department against LloydsTSB. The British bank was fined US$350 million for falsifying outgoing US wire transfers from Sudan and Iran, with over US$300 million transferred up to 2004 for Iranian banks Melli, Sepah and Saderat. A further nine EU banks are currently being investigated.

“There is now a fear factor of a heavy or perhaps even crippling fine,” said Jhaveri. “But as long as banks are trading in non-USD curries like Euros, they seem to believe that they are ok.”

Jhaveri added that Asian banks, particularly in Malaysia and India, “deal with Iran with kid gloves.” He said banks have separate units that deal with Iran, making sure transactions are not carried out in US dollars or via a US institution. “There is a fear that if money comes via the US, and Iran is mentioned, the money will be frozen. So they have specialists to make sure no mistakes take place,” he said.

While such policies are required for banks and businesses dealing with Iran, the state-owned banks that are blacklisted by OFAC are resorting to other means to get around restrictions.

In April this year, OFAC listed state banks the Commercial Bank of Syria (CBS) and Bank Saderat formed a joint venture in Damascus to create “Banki”, ostensibly to act as a conduit for bilateral trade. However, a source close to the deal said that the motivation was “wholly political,” with CBS pushed into the deal by the Iranian and Syrian governments. Iranian banks Melli and Saderat had carried out a similar policy in 2004, joining to form a private bank, Future Bank, in Bahrain. It was able to operate outside of the OFAC list until March last year. A senior source at a Middle Eastern Central Bank said it would be logical for Banki to be put under the same US sanctions as the parent institutions.

It is a similar story in Venezuela, said Douglas Farah, senior fellow for the International Assessment and Strategy Center in Washington D.C. “Wholly owned Iranian banks have been established that are supposedly joint ventures, with Venezuela saying they put in half of the money, but it is usually Iran. The clearest case is Banco Internationale Desarrollo CSA, founded as part of the Saderat group in 2007. Everyone on the board is Iranian, and it is a 100 percent Saderat subsidiary,” said Farah.

“It is an area of concern because it is constituted in Venezuela and acting out of Venezuela, so not facing sanctions like Saderat, which allows them to evade sanctions with relative ease,” he added. A second bank of concern is Banesco, the second largest commercial bank in Venezuela. “They have some suspicious characters on the board and have opened a large office in Panama, handling a great deal of Iranian money that comes from Saderat via branches in Dubai,” said Farah. And while these banks may face scrutiny from international regulators and the US Treasury, “it doesn't get the same scrutiny as Iranian banks. It's the same in Europe, so a nice way to get a free flow of money,” he added.

Copyright Informa Group

Euro-Arab Gas Pipeline

The Euro-Arab Mashreq gas pipeline is approaching completion

Paul Cochrane reports from Damascus

Petroleum Review August 2009

THE EURO-MASHREQ gas pipeline that runs 1,200 kilometers from Egypt through Jordan and Syria to Turkey has taken 20 years to come to fruition. The end is in sight however, with the project awaiting a final tender for the last leg through northern Syria. But while the pipeline is already pumping gas from Egypt to its eastern neighbours, there are currently doubts over Egypt's ability to meet burgeoning demand, while secure distribution contracts still have to be inked.

The pipeline (its acronym is EAM) is set to be fully finished and operational by 2011-2012 - later than expected. The reason for the delay is the re-tendering of the 62 kilometre leg between Syria's second largest city Aleppo, in the north of the country, with the Turkey border town Kilis.

In October, 2008, a US$71 million contract was awarded to Russia's Stroytransgaz, but annulled earlier this year. “The Aleppo-Kilis phase is being re-tendered due to the fall in energy prices and Syria hoping to get a better deal through a competitive tender,” said Richard Kupisz, team leader of the Euro-Arab Mashreq Gas Co-operation Centre (EAMGCC) in Damascus.

The bidding process is currently under technical evaluation and expected to be signed in the later half of the year. Once underway, the pipeline will take an estimated 18 months to complete. “The route is not very difficult, a smooth terrain. In the past we laid one kilometre or more of pipe a day, so once in operation, goes quite quickly,” said Naeem Danhash, Project Director of the EAMGCC. “The only issue is the big values.”

From Kilis, a 15-kilometre, 12-inch pipeline is needed to connect into the Turkish grid, where it could potentially tie into the proposed Nabucco pipeline. Danhash said the reason the Aleppo-Kilis route is to be completed before the 180-kilometre Furglus (east of Hama in central Syria) to Aleppo link in the pipeline, is that it is the fastest way to link to Turkey. He said the gap will be offset by the current Syrian grid, with the current Furglus-Aleppo pipeline to be expanded from 24-inches to 36-inches to boost capacity. “Syria is keen to import gas via Turkey, so the government is funding most of that [development] along with the Arab Fund for Economic and Social Development,” said Danhash.

The final stage, to secure contracts between producers and consumers, has yet to be completed, raising concerns over the financing of the EAM. “What is important for financiers is sales contracts from governments - it could be between Egypt and Bulgaria, or Lebanon and Iraq - but we don't have that,” said Danhash.

The pipeline’s route to Lebanon, which splits from the Homs to Banias route (on the Syrian coastline), and runs 32 kilometers to Tripoli in northern Lebanon, has been completed for about five years. Kupisz said that the Lebanese government has drawn up a draft agreement with Egypt for 600 million cubic metres (mcm) of gas per year for delivery this August. But the EAM is still awaiting certification from Beirut, attributed to continuing political animosity between the Lebanese and Syrian governments. With a new Lebanese parliament elected in June, there is high expectation that Beirut will green-light the flow of gas via a swap arrangement, with Syria using Egyptian gas and then pumping Syrian gas to Lebanon.

In Syria, domestic consumption of gas transported from Egypt will be primarily purchased by the Syrian Gas Company. Onward arrangements to Lebanon, Turkey and Europe have not been arranged yet, with Kupisz saying it was still too early to do so.

“In Turkey, at least 70 licences have been issued for private gas distribution, so more likely to be a private company that will get the distribution licence [for the EAM in Turkey],” said Kupisz.

Supply issues

Looking at supply issues, the two main gas suppliers in the EAM are Egypt and Syria, with Egypt the crucial provider.

At present, Egypt exports 2.5 mcm/d through the EAM, with 2mcm/d earmarked for Jordan and 0.5mcm/d to Syria. “Officially this should be increased to 6mcm/d and afterwards to 9mcm/d, but nobody knows [if this will happen],” said Kupisz.

Syria produces 21-22mcm/d of gas, with some 4-5mcm/d used for gas injection into fields or as burn off, leaving around 16mcm/d for electricity generation and industrial use, said Ziad Ayoub Arbahe, an energy consultant in Damascus. At present this is sufficient, but with power plants to come online in the next few years and electricity demand growing by 10 percent a year, Syria will need to offset the supply gap.

Such uncertainties have clouded the viability of the project to deliver adequate gas requirements, one of the issues that has plagued the neighbouring Nabucco project, which would pipe gas from central Asia via Turkey to Europe.

“Neither the Mashreq pipeline or the Nabucco pipeline are in a position to be realised, and neither has received enough financial backing,” said Graham Coop, general council at the Energy Charter Secretariat in Brussels.

The success of the EAM hinges on Egypt being able to ramp up gas output to meet rising demand for a ballooning population (currently estimated at 79.4 million but projected to reach 100 million by 2021), meet other export commitments, and develop future projects, such as the possible expansion of the Spanish Egyptian Gas Company (SEGAS) LNG complex in Damietta, and the framework agreement with Italy's ENI to build a second liquefaction train.

“There is enough gas [for Egypt] to meet current commitments, but for the major projects, these need to be underpinned by further discoveries,” said Craig McMahon, a North Africa analyst at energy consultants Wood MacKenzie.

It is currently a matter of what Cairo considers a priority: using energy as a political tool within the Levant, or exporting gas to Europe according to fluctuating seasonal demand and for higher prices.

“For Egypt the pipeline is one option, but it could equally expand LNG infrastructure, so there are a number of competing actors,” said McMahon. Cost preferential agreements have been signed between Egypt and Jordan, Syria and Israel. But with Cairo keen to access hard currency, such markets might not be always economically preferential. Adding to this is the geological complexity and depth of Egypt's gas fields, seriously boosting the cost of extraction. “If Egypt has the potential to sell gas through LNG and at international gas prices, why not do it?” said McMahon.

While the guaranteed success of the EAM is still in doubt, developments could secure gas volumes if the countries involved become full members of the Energy Charter Secretariat. The Energy Charter treaty promotes four main areas: trade on World Trade Organisation principles, freedom of transit, energy efficiency and investment protection. If countries violate the treaty, sanctions can be imposed. Asked whether current observers Jordan and Egypt signed up as full members this would benefit the EAM, Coop said: “It would certainly add security to the project and for the European Union.”

While analysts question Egypt's ability to extract enough gas, McMahon is actually optimistic Egypt will provide. “There is every reason to be optimistic, although we need further exploration success and to see those wells drilled,” he said. “But it is hard to imagine increases from Egypt in the shorter term.”

All is not lost

All is not lost however if Egypt is neither legally required to pump gas via the EAM or able to meet demand. An estimated 40% of Syria has not been prospected for gas. “Potentially we could find huge reserves,” said Arbahe.

Piping gas from Qatar and Iraq to Syria, and from Iran via the Nabucco network are other options. “If a pipeline comes from Iraq or Qatar there would be a principle pipeline, and a viable network,” said Arbahe.

Iraq is considered the most viable option, with the Akass field in the west of the country only 50 kilometres from the Syrian network. “They have spare capacity, and the Akass region is not a big market, so it is logical to go to Syria,” said Kupisz. A contract has been signed for 1.5mcm/d to be processed in Syria for domestic or export use, but is currently under a new licensing round in Iraq.

Longer term, gas from central Iraq could be connected to the EAM pipeline, potentially able to provide 30mcm/d over time.

“International oil companies are looking at it, and attracting great interest, although Iraq's infrastructure is not developed,” said Danhash. “But the medium to long term prospects for Syria to become a gas hub are excellent.”

"The Iraqi supply could ultimately be the answer," concluded McMahon.

Photo courtesy of the EAMGCC