The Arab Spring and the book trade

Raidy Printing Group’s MarieJoe Raidy (above, centre)

TheBookseller.com

One year on from the first uprisings, the ramifications of the Arab Spring are still unfolding; not least for the Arab book trade. Paul Cochrane reports from Beirut

The Arab Spring uprisings in the Middle East and North Africa (MENA) over the last year have had a mixed effect on indigenous Arabic publishing. Book sales have plunged due to instability, and while some countries have loos- ened up on censorship, others have clamped down. Still, there is guarded – optimism about the future among publishers.

“The Arab Spring affected all business last year, as people were not interested in reading books,” says André Gaspard, managing director of Arabic-language publishing house Dar al Saqi, the Beirut-based, sister company of London-based Saqi Books.

“I’m glad that bookshops survived. From February to September 2011, it was bad, with our turnover less than 50% [compared with the same period in 2010]. In some places in the Gulf, turnover was just 10% [compared with the same period]. We’re big in the Gulf market and it was the same response from everybody: ‘Nobody is coming into our bookshop.’”

The Arabic publishing industry was already feeling the pinch from the global economic crisis, high illiteracy, and low readership levels even before the uprisings. The Arab League—the regional organisation which has 22 members across MENA, including Syria, which is currently suspended— estimates that 70 million people in the Arab world are illiterate (or 35.6% of the population), compared with a global rate of 18%. On readership, Gaspard cites a study three years ago that suggested that only 1% of university graduates read one book or more unrelated to their discipline each year.

An estimated 10,000 titles are published in Arabic annually, with an average print run of 3,000 per title—equivalent to 30 million books per annum, or 0.08 per person across the region, Gaspard notes. With a book costing between US$5 and $10, the market is estimated at $225m.

“Some say 40,000 titles are published a year, but I don’t believe this,” says Gaspard. “Whether there are 10,000 titles or 40,000, that is not much for 340 million people when you consider Britain publishes 200,000 titles a year.”

However, he expects book sales to rise in the coming years— particularly fiction. “I think publishing in MENA will be in better shape in five years’ time. We are starting from a low level so it will get better—for how can it get worse?”

Freeing the word

One reason for publisher optimism is that Arab governments in general are investing more in education. Average school enrolment reached 86% in 2011—up from 75% in 1999, according to the United Nations Educational, Scientific and Cultural Organization.

Also, and although it is in its infancy, the Arab Spring is having an undoubted thawing effect on censorship in certain countries. In Tunisia and Egypt, the first to revolt and overthrow autocratic regimes, censorship has weakened. Following the fall of the Tunisian president last year, the interim government abolished the Information Ministry, which had overseen censorship, and declared “the complete liberty of information”.

Gaspard says this was evident in that none of Dar al Saqi’s Arabic- language books had been barred from entry in 2011. “There are no censorship laws in Tunisia now, but who knows what could happen in the coming months?”

In Egypt, thousands of titles banned for criticising the regime during former President Hosni Mubarak’s rule are now available. The media is also freer, according to Saudi Arabian author and translator Hamad Alisa, who lives in Morocco.

“Before the Egyptian uprising, I sent a review of [British/Israeli historian] Avi Shlaim’s The Lion of Jordan to an Egyptian newspaper. As it was about [the late] King Hussein, they said they wouldn’t publish it because Mubarak had close relations with Jordan, and anything against Jordan was against Egypt, so the newspaper could have been sued. But after Mubarak was ousted they published the review, as there is now no special relationship with Jordan.

“The Arab Spring certainly helped Arab writers to critique other countries, like Saudi Arabia and Jordan, where corruption is high. If the regime has changed they now have full freedom to write, whereas two years ago they couldn’t,” Alisa said.

Saudi author Hamad Alisa at the Beirut Book Fair 2012

Cultural sensitivities

Where uprisings continue—such as in Yemen and Syria—censorship remains draconian, and other regimes are trying to suppress popular dissent. “Where the so-called Arab Spring has not happened, censorship is maybe worse than before, as [governments] are afraid and there is a tightening up, generally speaking,” says Gaspard.

“Lebanon is the most liberal and Saudi Arabia the most conservative, with everywhere else in between,” says MarieJoe Raidy, creative director at Raidy Printing Group, one of the region’s leading presses for books and magazines, with facilities in Beirut and Dubai in the United Arab Emirates.

For instance, Raidy prints up to four versions of a magazine to cater to different markets, depending on cultural sensitivities and censorship laws. This is particularly noticeable in images, with any pictorial form of nudity or scantily clad women blacked- or whited-out in publications. In terms of text, an article critical of the UAE would not be allowed to be distributed there, but it could be allowed in other countries.

Censorship is typically carried out by the ministries of information or the interior: sensitive topics include politics, ruling families, religion and even certain science subjects, such as evolution.

“Many Arab regimes are afraid of the printed word,” says Gaspard. “Books in English or French are fine, as they are the languages the elite read, but Arabic is not.” One example: while the late Saudi novelist Abdul Rahman Munif’s work is banned in Arabic in the Gulf, it is available in English translation.

In most of these countries, books must be cleared for import as well as printing. In Saudi Arabia, this has resulted in demand for books published in more liberal Arab countries. “If you want to publish there, you need permission from the Culture and Information Ministry, which reads every word. So any book that is approved has a stigma attached, whereas books from Beirut and Cairo are printed without prior permission,” says Hamad Alisa. “That is why I don’t publish in Saudi Arabia. There is a stigma that unless your book has been prohibited, it is not critical or has nothing interesting in it.”

Policies have eased in the kingdom since former ruler King Fahd’s death in 2005, with Saudi customs officials now instructed not to seize books for personal consumption on arrival.

Tome of contention

A generally softer approach to censorship is evident across the region, Gaspard says. “Censorship is getting slightly more relaxed. Forbidden books are no longer a scandal. Previously a ban was accompanied by threats and aggressive action against the publisher. Over the last five years, they say to us, ‘sorry guys, we have to ban it’, whereas before we were seen as devils. Still, it is totally stupid as content is available online.”

Religious books remain contentious—either banned by governments or through pressure from religious groups. This was evident at the government-backed Riyadh International Book Fair in Saudi Arabia last March. Considered to be the first of its kind in the country to have relative freedom from censorship, it was nevertheless stormed by some 500 religious extremists denouncing books and poetry as “un-Islamic”. The authorities arrested almost 100 of the protestors.

In Kuwait, the government banned some books at a fair in 2010. The Kuwaiti Information Ministry’s censorship committee stated that “just 25 titles out of 24,000 books [were banned] for abusing God, prophets and other religious figures; books on pornography; and others undermining Kuwait”. The move was lauded by Islamists, but drew criticism from liberal parliamentarians.

Though censorship is not as pervasive in Lebanon as elsewhere, religion is still a sensitive subject, overseen by Dar al Fatwa, the arbiter of Islamic ruling, for books on Islam. Druze clerics, from a religious minority in Lebanon and the wider region, lobbied successfully for the Arabic version of the late Philip Hitti’s The Origins of the Druze People and Religion— first published in 1928, and most recently – in 2007 by Saqi—to be banned. The Maronite Christian church was able to pressure the government to ban Dan Brown’s The Da Vinci Code in 2004.

Small wonder, then, that Arab book trade optimism is tempered by uncertainty. “There is a long way to go for a blossoming of Arab publishing,” says Gaspard.

A clash that is perpetually imminent

Executive Special Report - Commentary

Among the fables of the ancient Greek storyteller Aesop is that of a young shepherd who repeatedly raises false alarms about a looming wolf with nearby villagers; the crux comes when a real wolf later appears but nobody believes the boy’s cries before it is too late. Now, replace “young shepherd” with “the media, Middle East experts and informed sources”, then replace “wolf” with “war with Iran”, and this tale from antiquity is suddenly spun into contemporary non-fiction.

In the summer of 2007, I wrote a commentary for these pages describing the then-resounding rumors of an impending war with Iran. I could easily submit the same piece again for publication today, changing just a fact or two and updating the latest political rhetoric. It was actually two years before, in 2005, that the current wave of media reports warning of imminent war with Iran began to deluge my email inbox. Having forwarded a number of these articles to my sister over the years, she acerbically remarked to me in 2009: “You told me a war with Iran would happen last year, and the year before that but nothing happened.” I replied: “Just wait and see.”

But wait she has — in fact all of her life — with the Iranian nuclear weapons crisis playing out for three decades now like a long-running TV soap opera. The public, particularly in the West, has been regularly prepped about the pressing need to tackle Tehran; the Christian Science Monitor outlined a litany of examples in an article last year, among them that West German intelligence reported as early as 1984 that Iranian nuclear arms production “is entering its final stages”, and in 1992 Benjamin Netanyahu, then an Israeli parliamentarian, said Tehran was no more than five years from a nuclear bomb and that this threat needed to be “uprooted by an international front headed by the United States.” George W. Bush kept the fire raging with the inflammatory tones of his infamous 2002 “axis of evil” speech, labeling Iran a “rogue state” and ratcheting up the media and political campaign vilifying the Islamic Republic.

Seemingly fallen on deaf ears over the years are the more moderate voices that have taken pains to point out the bias and rhetoric in accounts of the weaponization of Iran’s nuclear ambitions, as Tehran has steadfastly maintained it seeks nuclear technology for energy production and scientific research. The International Atomic Energy Agency’s latest report implicating Iran, for example, was widely discredited by experts, including former United Nations weapons inspector Hans Blix — but you wouldn’t have known this from reading the headline news.

So, will there be a war? The multi-national military build up in the Gulf is certainly worrying, but like the past responses to “Iran nearly has nukes” reports, it is not unprecedented. The European Union announcing sanctions on Iranian oil — ostensibly meaning it is sourcing alternative energy supplies to avoid a shortage in the advent of a conflict — is a major move that has raised the stakes, yet it is also clearly economic and political maneuvering to put pressure on Tehran. Israel, as usual, is the wild card, being the most vocally gun-ho to ‘take out’ Iranian nuclear facilities and retain its regional nuclear supremacy, while Washington still appears intent to keep “all options on the table” for the immediate short-term. With so much saber rattling and so many military maneuvers broiling hostilities across the Gulf right now, however, one has to hope that a misunderstood action or incidental blunder does not set off a chain reaction of unintended consequences.

Let’s be clear though: the shepherd boys crying out through the media that the bombs will begin dropping tomorrow are charlatans, not fortunetellers. That the world has had to listen to them for so long, however, is massively worrying, for when the wolf of war actually is nigh and those who see it coming raise the alarm, who among us will believe them?

PAUL COCHRANE is the Middle East correspondent for International News Services and author of this special report on energy wars

Special Report:Energy Wars - Flirting with death

Executive Special Report: Energy Wars

As forces amass, one false move could trigger a global conflict

Just west of the Strait of Hormuz lies the United States Navy's Fifth Fleet in Manama which “covers the busiest 60 acres in the world,” according to military.com, the largest US army and veteran online forum. The naval command center in Manama coordinates NSA (Naval Support Activity) of nine US bases in Bahrain, two in the United Arab Emirates, the Kuwait Naval Base, and Masirah Island off Oman. It could become even busier if there is a conflict with Iran to neutralize its alleged nuclear weapons program.

Activity would likely also heat up at the 44 US military bases that effectively surround Iran in the Middle East and Turkey, commanded from the US Central Command (CentCom) at the Al Udeid Air Base in Qatar – and that does not include Afghanistan. The US would equally make use of a 1994 bilateral defense pact, the “status of forces agreement,” with the UAE, which has enabled the Emirates to have the world's most advanced F-16 E/F Block 60 fighter jets, and for 3,000 US air force personnel to be stationed at Al Dhafra Air Base.

Movement is already increasing, with 15,000 US troops – fresh out of Iraq – stationed in Kuwait. Out at sea, the US sent a third aircraft carrier group this month (March) to the Gulf, the USS Enterprise-led “strike group” that includes six other ships. Britain meanwhile has sent its top of the line, $1.5 billion warship HMS Daring for a seven month deployment to the Gulf to accompany a 25-nation, US-led Combined Maritime Forces flotilla that is, in the words of Britain’s Ministry of Defense, “to bolster maritime security and regional stability across the Middle East.” On top of this, several hundred nautical miles to the West, are four NATO ships patrolling the Gulf of Aden, ostensibly in search of Somali pirates as part of Operation Ocean Shield.

On the Iranian side, the military has carried out six war games over the past few years, with the latest, last year, dubbed the “Great Prophet 6,” involving the testing of short, medium and long-range missiles. At the beginning of 2012, Iran carried out ground maneuvers inland and near the Afghan border, and has kept its navy on high alert, with Iranian boats tailing US warships as they entered the Gulf. Not willing to be boxed into the Gulf, Iran sent warships through the Suez Canal to the Mediterranean in February to show what Admiral Habibollah Sayari said was the “might” of the Islamic Republic to the region.

Such a show of force in the Gulf is alarming amid the specter of war with Tehran, yet it is hardly the first time there has been such a multi-flagged armada charting the Gulf's waters in relation to the “Iran threat”. Back in 2008, there was a similar “unprecedented” build up of naval force, the largest since the 1990 Gulf War, which put Kuwait on its highest war alert since Saddam Hussein's forces invaded the country. Nothing happened. But this time the saber rattling by Western powers, Israel and Iran could turn into all-out conflict, whe-ther by design or through some accidental spark as the tensions rise to white hot levels (see scenarios, page 48).

“This is not a time political analysts or leaders are taking a holiday or going skiing, it is a time to be active,” said Ibrahim Saif, resident scholar at the Carnegie Middle East Center in Beirut who specializes in the political economy of the Middle East.

A narrow window of opportunity

The crisis revolves around Iran’s alleged nuclear weapons program, and it is more evident than ever before that the balance of power cannot be altered by allowing Tehran to get the bomb, which would rival the Middle East’s only nuclear power, Israel, and could spark a regional nuclear arms race.

Indeed, Saudi Arabia has recently hinted that it may go nuclear, while Western intelligence agencies indicate that Riyadh funded up to 60 percent of Pakistan’s nuclear program with the tacit understanding that the kingdom could put up to six Pakistani warheads on its turf if Iran acquires nukes, according to a report in The Guardian newspaper. Saudi Arabia has never publicly called for a war on Iran, but as a prime opponent of an ascendant Islamic Republic, its stance was made clear in a leaked US diplomatic cable from 2008, with King Abdullah calling on the US to “cut off the head of the snake” by launching military strikes to destroy Iran's nuclear facilities.

While the Gulf monarchies view Iran as a threat, it is Israel that has been beating the drums of war the loudest against its long-term nemesis. As US Defense Secretary Leon Panetta stated in early February, an Israeli attack could come as early as this spring. The big question is whether Israel would unilaterally launch strikes against Iranian nuclear facilities.

According to research carried out by Scott Johnson, a defense analyst at IHS Jane’s, it would be exceedingly difficult. “The problem is that the Israelis have a limited number of aircraft that can reach key facilities, and their window of opportunity is in the minutes to hit targets and come right back. The only way to help Israeli aircraft out is via refueling in the air but they have a limited number of air-to-air refueling craft, and they would be in harms way, so would need aircraft to defend them. It would be a massive operation that would necessitate the majority of Israeli strike aircraft operating simultaneously,” he told Executive.

Indeed, reports indicate that Iran's nuclear facilities are spread around some 20 locations and have been built with US and Israeli strike capabilities in mind, while having modern Russian air defense systems to protect them. Such tactical complexities are arguably a reason for the US to not attack Iran either.

“Nuclear facilities are well dispersed, and it would take a month of constant air attacks as you can’t just drop a bomb on a facility as it is deeply buried; they would have to be pummeled. An attack would also involve a lot of search and destroy missions against Iranian missiles as well as anti-shipping missiles to stop the sinking of ships. That is why the US would be reluctant to take this on,” said Michael Elleman, Senior Fellow for Regional Security Cooperation at the International Institute of Strategic Studies (IISS) Middle East in Bahrain. “If they are really planning surgical strikes, we wouldn’t know about it. An all out war we’d see a build up. We knew a year in advance the US was going into Iraq as it was hard to keep concealed. But I don’t see the US ready to take a major offensive against Iran and I don't think it is in the US interest or anyone else’s.”

That said, President Barrack Obama has stated that Washington will work in “lockstep” with Israel to prevent Iran's nuclear aspirations, and that “all options are on the table.” But if Israel does instigate a war, it is expected that the US will have to get involved, as Iran would not sit back and do nothing, unlike the Iraqis when the Israelis bombed the Osirak nuclear facility in 1981 or the Syrians when Israel targeted the alleged nuclear facility in Al Kibar in 2007.

The Islamic Republic Strikes Back

“The attack would be so large it couldn't be ignored. I don’t think the Iranian regime would survive if they did nothing,” said Elleman. Iran would mobilize its 520,000 uniformed service members to respond to air assaults on nuclear facilities, air bases, missile sites and infrastructure. Given the Iranians' past threats to blockade the Strait of Hormuz, a naval campaign in the Gulf would be a major arena of conflict. “Iran can close the Strait of Hormuz at least temporarily, and may launch missiles against US forces and our allies in the region if it is attacked,” said Defense Intelligence Agency Director Lieutenant-General Ronald Burgess at a Senate Armed Services Committee hearing in December.

The US Institute for Peace has noted that Iran’s military is configured in a defensive posture, “specifically to counter the perceived US threat.” Lacking the same fire power and conventional military capabilities as the US, Iran would use asymmetric warfare instead.

Iran has developed “a strong asymmetric capacity that focuses on the use of smart munitions, light attack craft, mines, swarm tactics and missile barrages to counteract U.S. naval power,” stated a report by the Center for Strategic and International Studies. Such tactics could prove highly effective. In a war game conducted by the Pentagon in 2002, a large number of Iranian speedboats swarmed US warships, detonating explosives and attacking with fire arms and rockets. Within five to 10 minutes, the US Navy lost 16 warships, including an aircraft carrier, cruisers and amphibious vessels. While the US has developed its response to such swarm tactics over the past decade, the Iranians have equally improved their asymmetric capabilities.

Stumbling into war?

What is concerning analysts is that given the current tensions in the region and the build up of military forces, along with the Iranians and the US and its allies having conducted war games in the Gulf, there is the possibility of the world stumbling into a war. “My impression right now is rhetoric has been ramped up in the West to have effective sanctions. We’ve seen the EU agree on an oil export ban, and seeing more and more pressure put on countries in Asia to go along. It is part of human psychology to avoid war, but my worry is that if there is a mistake, a miscommunication or incident in the Persian Gulf, this could lead to a situation that spirals out of control,” said Elleman. “Iran is constantly doing war games and is quite careful when they do it, but what if they fire an anti-ship missile and it gets away from them? A pure accident results in the sinking of a Saudi tanker or casualties on a US or French frigate in the Gulf,” Elleman added. “It is not likely, but I don’t think any of us are smart enough to anticipate it. Frankly, that is what I worry about the most is someone making a poor decision and then it escalates, for do we have mechanisms in place with Iran to control it?”

Gulf War Three

If any of the above plays out, Gulf War Three, if not World War Three, would be underway.

The Gulf Cooperation Council (GCC) countries would be in the immediate line of fire from the Iranians, notably the countries hosting US military facilities, and ports. “If ever there was an inter-Gulf war, the ports would be the prime targets. It is not just cutting off Hormuz that can starve a country, as all countries are import dependent,” said Shahin Shamsabadi, Senior Associate of the Middle East & North Africa (MENA) Practice at The Risk Advisory Group in Dubai.

If GCC countries were attacked in response to a US led attack on Iran, Elleman said the GCC militaries would coordinate with the US and the response would depend on which country was hit. “If it was Bahrain, what do they have to retaliate with? They have very limited capacity and that is why they asked the Fifth Fleet to be here. The UAE I suspect would take some action with their air force. I’m most impressed with their planners and intelligence people, they have their act together relative to the rest of the GCC,” he said. But the conflict would not solely focus around the Gulf in a US instigated war. The Iranians could use covert attacks against US interests globally as well as enlist proxy forces in neighboring Afghanistan to target US and NATO forces. In such a scenario, the US would get no support from Pakistan, a major player in Afghanistan. Islamabad, which is going through a low-point in relations with Washington, stated in February it will not support an attack on Iran or allow the US to use its local airbases for military operations, although whether it would actually do more for Iran is unclear.

If Israel carried out the initial strikes, this would add another dimension to the conflict.

“An Israeli element to the attack would unite Iranians and possibly other states against the attackers, although it obviously depends on the scale of the attack,” said Shamsabadi.

Hezbollah, could retaliate, raining rockets onto the “Zionist entity” from Lebanon, which would prompt a harsh Israeli military response. But this is where it gets complicated. With Syria descending into civil war, the response of Iran’s regional ally to a Gulf war is an unknown, but the West and Israel could capitalize on instability in the region to bolster the rebels in Syria to further destabilize the country. This could also drag the Russians in. It is a strategic ally of Syria, and the port of Tartous is the Russian navy’s only base in the Mediterranean. “For the Russians, it is of utmost importance to protect the Syrian regime as it provides intelligence, access to the Mediterranean and arms deals,” said Saif.

If the conflict spread from the Gulf to the Levant, two fronts would be open in the Middle East, and with the uprisings that have swept the region over the past year still in various phases, compounded by the economic damage a conflict would entail, major instability throughout the MENA would ensue. As fault tree analysis shows, one event can have a top-down effect that leads to numerous other lower-level events. “All the branches that could be spun off if a war breaks out are incalculable,” concludes Elleman.

The Most Dire of Straits

The point that could choke the world

Executive Special Report

The prospect of a war against Iran has been on the cards for decades. Since 2005, innumerable media reports have proclaimed that war is imminent, and this year will be the year it will happen. Think tanks, war strategists, risk consultancies and the various militaries have all compiled papers on how a conflict in the Gulf could play out. The headline of a 2009 article on the website of the United States Army sums it up: “Future Gulf War: Arab and American Forces against Iranian Capabilities.”

What is fundamentally different now is that there has been a sustained covert war by unknown actors against Iranian nuclear facilities and scientists over the past few years — from scientists killed by car bombs on the streets of Tehran to mysterious “accidents” and cyber attacks at nuclear facilities — and that an economic war has essentially been declared through the heightened sanctions by the US and European Union (EU) in recent months.

Crucially, the oil sanctions, meant to hit Iran where it hurts given its budgetary reliance on hydrocarbons, have removed a major logistical obstacle to conflict, in that the EU, which imports 4 to 5 percent of its oil from Iran — some 600,000 barrels per day (bpd) — will not have to scramble for alternative energy sources in the advent of war; they are already doing so now.

While the sanctions are to go fully into effect by July, countries are already starting to abide by the decision; Britain, Austria, Poland and Portugal, for instance, cut their imports of Iranian crude to zero in the third quarter of 2011. Iran unilaterally halted exports to France and Britain last month and most international oil companies, with the exception of Asian firms, have also pulled out of Iran to abide by the new sanctions.

The US has not imported Iranian oil since the overthrow of the Shah in 1979, and its reliance on Middle Eastern oil is the lowest it has been in decades. From 2005 to 2011, the US’ overall oil imports have fallen from 60.3 percent of consumption to 47 percent, while from the Persian Gulf it has dropped by 26.7 percent to 18 percent of total imports by 2011, according to the US’ Energy Information Administration (EIA) figures.

But with the 30km-wide Strait of Hormuz the conduit for more than 20 percent of the world’s oil and 40 percent of traded oil on the markets, it is essential to the global economy that this oil keeps flowing. With almost 17 million bpd passing through the passage in 2011, the Iranians’ threat to block the Strait is taken very seriously. As oil expert Daniel Yergin notes in “The Quest”, his recent bestselling book: “the Strait is the number one choke point for global oil supplies.”

It has been a long-term goal of the US to ensure the Strait remains open, spending an estimated $6.8 trillion (including baseline costs such as training, pensions, long-term debt repayments and military base usage globally connected to the Gulf) between 1976 and 2008 projecting military force in the Persian Gulf, according to research by Princeton's Energy Policy department, averaging $492 billion annually between 2003 and 2008.

The US imported 663.2 million barrels from Saudi Arabia, Iraq and Kuwait in 2011. Through a rough calculation for 2011 using the five year annual average calculated above — $492 billion divided by 663.2 million barrels per year (b/y) — the US is paying $742 per barrel to ensure that this oil reaches its shores. When taking into consideration the 6.2 billion b/y that passes through the Strait annually, it is costing the “the world’s policeman” $79 a barrel to keep itself and everyone else in Gulf oil.

The US Department of Defense’s January paper “Sustaining US Global Leadership: Priorities for 21st Century Defense” states, “US policy will emphasize Gulf security, in collaboration with Gulf Cooperation Council countries when appropriate, to prevent Iran’s development of a nuclear weapon capability and counter its destabilizing policies. The United States will do this while standing up for Israel's security and a comprehensive Middle East peace.” The recent build up of naval activity can therefore be interpreted as the US reasserting its military dominance over the Gulf (see page 30). But with the oil supplies for the main cheerleaders for confronting Iran — the US, EU and Israel — largely cushioned to any disruptions in the Strait (not least due to massive stockpiles in the US and EU — see page 42), this has, more than ever, helped pave the way for the possibility of war.

Starving Asia

For Asian countries the situation is far more serious. Three-quarters of the Gulf's oil exports are destined for the East; the closure of the Strait or a Gulf conflict would effectively starve Asia of energy, which would have serious economic ramifications regionally and globally. How to placate China, Japan, South Korea and India has therefore been a stumbling block in the West's strategy to isolate Iran. Yet there is more at stake than energy imports. Russia and China were among the nine nations (out of 35) that voted against the International Atomic Energy Agency's (IAEA) Iran file in November which said the Islamic Republic had carried out activities “relevant to” acquiring a nuclear weapon. While Iranian and Gulf energy supplies were a likely factor behind China's “no”, Beijing is officially opposed to nuclear proliferation and has adopted a “studied neutrality” on Iran. China is concerned with US encroachment in what it perceives as its own back yard, according to Kerry Brown, head of the Asia Programme at the Chatham House in London. He adds that there is a deep conviction in China that American policy in the Gulf aims to keep Chinese interests at bay, causing the country to feel increasingly contained. Furthermore, by controlling the Gulf, the US is able to use energy as a bargaining chip with China and other Asian countries.

“Asian demand is rising exponentially; the US having oversight of the Persian Gulf means an inside track when it comes to the Asian powers, and a prize the US is not going to give up like Britain following the 1958 Suez Crisis; the US has learned its lessons,” said Professor Anoush Ehteshami, head of the School of Government and International Affairs at Durham University in England. “Indicative is the US is buying less oil from Saudi Arabia than in the past 20 to 30 years but the relationship is stronger than ever.”

Annoying the neighbors

The formidable Russian bear has been vexed and unsettled by some US regional strategies, facing encroachment in Eastern Europe from NATO’s planned deployment of a missile defense system, and in Central Asia from the large US military presence in Afghanistan. While Russia does not rely on Gulf oil and would stand to gain from rising oil prices upon the closure of the Straits, regime change in Tehran would equal the loss of a geo-strategic and non-aligned partner, and open the way for Russia to be circumvented as an energy corridor to the Caspian Sea and Central Asia, home to 48 billion barrels of oil and 449 trillion cubic feet of natural gas, according to statistics from BP.

Such a scenario would likely raise the hackles of Moscow and Beijing alike. Their grievances would only be compounded by their strategic setbacks in Libya where they curried particular favor with the former Gaddafi regime, and the current risk, especially to Moscow, of the fall of Bashar al Assad. Already the Russians have lost $4.5 billion in weapons contracts in Libya, according to the Moscow-based Center for Analysis of World Arms Trade (CAWAT), while $18.8 billion worth of contracts with Chinese companies are now in jeopardy, according to official Chinese statistics. Furthermore, the Russians could have already lost $13 billion from the effect of a United Nations arms embargo on Iran according to CAWAT, and face billions in losses from cancelled weapons contracts with Syria where it has already invested more than $20 billion in the infrastructure, energy and tourism sectors, according to the global analysis and advisory firm Oxford Analytica. That’s enough to make any bear irate enough to start a fight, and arguably the main reason why there is a lot more at stake than just the flow of oil out of the Gulf being interrupted.

Cashing in on conflict

A rise in oil prices will cause many frowns and a few smiles

Executive Special Report

The oil crisis in 1973 saw oil prices quadruple, equivalent today to a jump from $125 to $500 per barrel at late February prices. If Iran is attacked and oil tanker traffic is disrupted through the Strait of Hormuz, some 17 million barrels per day (bpd) would be taken off line and the markets would immediately react. Analysts forecast a price spike anywhere from a third (to more than $166 per barrel) to a 100 percent surge (to $250) depending on the scale and length of the conflict.

But what needs to be taken into consideration is current global production, as the markets have been skittish of late. The extent of the markets’ jitters was reflected when the European Union announced oil sanctions on Iran — not implementing them — causing oil prices to rise, to $110 a barrel in January and gained some 15 percent throughout last month on the back of rising tensions. And with the EU having to re-source 600,000 bpd, this has had an effect on the markets. As the United States’ Energy Information Administration (EIA) noted in its monthly Oil Market Report in February, “International sanctions targeting Iran’s existing oil exports do not come into effect until July 1, but they are already having an impact on crude trade flows in Europe, Asia and the Middle East.”

Add to this that Europe no longer has access to around 145,000 bpd it imported from Syria due to last year’s sanctions, and post-Gaddafi Libya is still not at full operating capacity, pumping some 300,000 bpd less than the 1.6 million bpd pumped before the civil war. Equally, instability and attacks on pipelines in Yemen has seen oil production drop by 40 percent over the past few years, from 286,000 bpd in 2009 to an average of 170,000 bpd last year. To boot, the Republic of South Sudan stopped all oil production and exports in late January over a dispute over oil transit fees with its northern neighbor that is not likely to be resolved anytime soon. In total that already amounts to 911,000 bpd off the market.

“I think if the situation in Sudan continues, the more effect this will have internationally,” said Marc Mercer, an East Africa specialist at risk consultancy Eurasia Group in London. “350,000 barrels off the market is not big enough to have a huge shock on the market at the moment; having said that, from the Chinese perspective, 5 percent of their oil comes from Sudan.”

Indeed, if Iranian and Gulf oil also went offline, China would be in a serious quandary, with the Gulf providing just under half of its crude oil imports, as would Japan, South Korea and India, with the Asian markets accounting for roughly three-quarters of the Gulf’s crude exports.

The big picture issue in the advent of a war with Iran is how will 20 percent of the world’s oil production, as well as natural gas, be distributed? Of the 21.45 million bpd produced in the Gulf, 4.45 million bpd is consumed domestically and 17 million bpd is exported. An estimated 5 million bpd could be exported via Saudi Arabia’s Petroline pipeline from the east to Yanbu on the Red Sea, leaving some 12 million bpd under threat. The Trans-Arabian Pipeline, which ran to Lebanon, has not been operational for decades.

One option is the 1.5 million bpd, 370-kilometer-long Abu Dhabi Crude Oil Pipeline that runs from the Habshan oilfields in the west of the UAE to Fujairah outside the Strait of Hormuz, but the pipeline is not yet operational due to delays and is not expected to be functional until the summer. This leaves few options for the remaining oil other than to linger in storage.

The Saudi save?

The world’s swing producer, Saudi Arabia, has promised to boost capacity to help offset demand, although it remains to be seen how the Saudis could export such increased output in the advent of a Gulf conflict, given the kingdom’s lack of transparency when it comes to actual production output. An added complication is that the bulk of Saudi exports go to Asia, meaning oil transported to the Red Sea would then have to head east again, adding on 1,200 nautical miles and five days to shipping times.

What would close the supply gap would be the stock piles amassed by Organization for Economic Cooperation and Development (OECD) governments, equivalent to 1.6 billion barrels, enough to cover the loss of 11.5 million bpd for four and a half months, according to the Center for Global Energy Studies’ publication Global Oil Insight.

According to research carried out by a major Gulf bank, which asked for anonymity, a two-week shut down of the Strait would result in a 25 percent loss in oil trade, causing revenue losses to GCC countries of some $5 billion. After a month, it would lead to a 50 percent loss in oil trade, equivalent to $10 billion. “Based on our assumptions, the impacts wouldn't be very dramatic as it is not realistic for Iran to block the Strait even if they mined it, so two weeks seems to be a reasonable estimate,” said an high-ranking economic analyst at the bank.

But this is perhaps rather a conservative estimate, or “best case scenario.” With an average of 14 tankers a day passing through the Strait, each carrying an estimated $200 million worth of fuel on board, that would be around $2.8 billion worth of oil (at market prices) off the market. Another reading is that the GCC countries earned $465 billion in oil revenues in 2011, equivalent to $1.27 billion a day, although that includes non-sea exports and domestic sales. Therefore, in a worse case scenario, GCC countries could lose more than a $1 billion a day in oil revenues.

Liquefied natural gas (LNG) is another story. Qatar is now the global hub of LNG, accounting for roughly a third of production at 77 million tons per annum, while Abu Dhabi produces 6 million. With the Strait blocked, LNG would be locked in as the primary export route is by sea. Indeed, Qatar’s Ras Laffan Port loaded 1,000 LNG tankers last year, equivalent to 2.7 tankers per day. If LNG exports were blocked, it would be a devastating blow for India, which receives nearly 90 percent of its LNG from Qatar, as well as for other Asian countries, while Italy receives 10 percent of its annual gas needs from Qatar, and Britain 15 percent. Needless to say, a temporary shut down of LNG would be a serious hit to Qatar, which earned $30 billion last year from gas exports. “Of all the Gulf countries I think Qatar is the most worried about a conflict as, theoretically, they would face the chilling prospect of all LNG being undeliverable unless it could be transported to Oman or the UAE, where it could be re-shipped, but I don't think these countries have the re-liquefaction capabilities,” said the analyst.

The good side of bad

But not everyone holds that a war with Iran would be bad. “It wouldn’t affect us at all, as we will be getting $200 a barrel. The Fujairah pipeline could be opened faster and the UAE is always lucky when we face problems,” said a spokesperson for the Abu Dhabi National Oil Company. This would hold true after the crisis ends. According to research by the International Bank of Qatar (IBQ), for every $1 increase in oil prices, the GCC earns an extra $4.5 billion.

“If oil prices shift upwards due to the conflict, the loss of volume (incurred) could be offset (afterwards) by the sale of oil at high prices,” said the economic analyst. Oil producing countries outside of the Gulf would also stand to gain significantly from the price spike. “If oil prices go up, the Russians for instance would benefit hugely as their cost of extraction is much higher than in the Middle East, so would end up making higher margins,” said Michael Elleman, senior fellow for regional security cooperation at the International Institute for Strategic Studies-Middle East in Bahrain.

And while logic would dictate that international oil companies (IOCs) would stand to lose out during a conflict, with operations curtailed and production affected, they would in fact reap profits. “IOCs are happy to have war,” said Anna Abrahamian, an independent energy lawyer. “Certainly insurance fees would go up, but the profits they would make would exceed the risk. That is why when the US pushed for sanctions on Iran no IOCs objected, and there are some companies that have scenarios for making money during sanctions or if a pipeline is blown up somewhere.” She added: “IOCs are praying to go into Iran.”

No shelter from the storm

Assessing the far-ranging economic effects of a conflict in the Gulf

Executive Special Report

An attack on Iran that blocks the Strait of Hormuz would clearly have an impact on the Gulf economies. But when it comes to the possibility of a Gulf conflict, companies are extremely reluctant to talk about whether they have contingencies in place.

American technology firm Emerson, which works with the energy industry, replied to interview requests with the following: “Unfortunately since there’s insinuation about Iran in the feature we will not be able to take part whatsoever in this. We have very strict laws regarding this topic.” Royal Dutch Shell gave the incredulous reply: “We are not involved in politics so will not comment.”

Even without comment from companies, it is hard to imagine that they or governments in the Gulf Cooperation Council have not given some thought to contingencies if conflict does erupt. “GCC governments have been thinking about this for quite some time; it is not as if a conflict occurring would come as a surprise,” said a high-ranking economist at a leading Gulf bank, who wanted to remain anonymous. “That said, GCC governments are not known for advance forward planning.”

While the temporary loss of oil revenues would be a major blow to GCC states (see story page 42), certainly in the immediate term, non-oil sectors would also be negatively affected, such as the service sectors, aviation and tourism, all of which have grown over the past years.

“The Gulf economies are dependent on stability… so an attack on Iran would be a disaster, not just in terms of all the oil that would be locked in,” said the head of a European oil company off-the-record due to company policy. If a conflict happens, Gulf countries would be within missile range of Iran, and a possible target, particularly countries hosting United States forces: Qatar, Kuwait, Bahrain, the UAE and Oman.

Soft spots

The ports are a clear weakness given the region’s import dependence, while desalinization plants are a further weak point. According to Shahin Shamsabadi, a senior associate at consultants The Risk Advisory Group in Dubai, if the Fujairah desalinization plant was targeted, the UAE would only have enough water to last out the week.

Indeed, the Gulf’s 30 ports handle 30 million TEU (20 foot equivalent units) containers per year, and just under 250 million tons of general and bulk cargo. The shutting in of the UAE’s ports would be particularly damaging, accounting for 61 percent of the Gulf’s trade volumes, and Dubai Port with 13 million TEU per year a major re-export hub for the region as well as the wider Middle East and Africa, according to DP World. The UAE’s re-export trade was worth $205 billion in 2010-2011 fiscal year ending in April, according to the Abu Dhabi-based Arab Monetary Fund (AMF).

“It is a doomsday scenario for the Gulf,” said Shamsabadi. “A war right now… would prompt new discussions about [Qatar hosting] the World Cup [in 2022], and affect expansion plans of foreign companies and international oil companies. Only Saudi Arabia would be all right because it is so big.”

A massive personnel outflow from the Gulf may ensue, although it is likely that not all nationalities would react in the same way. “If you take the example of the Gulf War (in 1990), a lot of expatriate Arabs and expats from the Indian sub-continent are more likely to stay and Western expats to leave,” said Shamsabadi. There are an estimated 10 million expatriates in the GCC; from the West, British citizens are the dominant group, estimated at 100,000 in the Emirates alone.

The Gulf bank economist disagreed, at least in the short-term. “I think people would stick around initially. If the conflict lasted more than two or three weeks, and was looking like a long running affair, people could start to re-assess their options. But for a lot of expats it is not easy to leave as most are here for economic reasons. As long as economies remain strong, I don’t think the impulse to leave would be there,” he said.

Furthermore, a conflict now would likely not economically hurt the Gulf to the same degree as if a war had occurred prior to the financial crisis.

“Certainly the stock markets would take a hit, but the markets have been going nowhere for the last few years. There is not a lot of trading go on and not a lot of liquidity,” said the economist. “It is not like 2008. If a conflict happened then, it would have hit the region like a steam train as everyone was very bullish. Now the situation is not the same, the private sector has been weak since the financial crisis and confidence is fairly weak, so the scope for a sharp response in reaction to some geopolitical event like this is limited. Most growth is (currently) due to government spending, and following a conflict, they would increase or maintain spending."

Scenarios for a war with Iran - Mapping a tinderbox of possibilities

An exploration of conceivable developments in an increasingly tense region

Executive Special Report

Attempting to predict whether a war between Iran, Israel and the West will occur is an exercise in speculation akin to asserting that the uprisings in the Arab world will lead to real freedom and democracy in the Middle East — obviously no one has either answer yet; Executive does not pretend to either, not does it advocate conflict in the region. However, based on interviews with a vast array of experts and in-depth research conducted as part of this Special Report on Energy Wars, Executive has compiled a list of possible scenarios that could pan out in the region’s near future.

1: Persian powder keg

Tehran has repeatedly stated it would close the 30-kilometer wide Strait of Hormuz if the United States sends more war ships through the channel. The US bolsters the two carrier groups already in the Gulf, with the massive naval build up prompting an embattled Iran to block the Strait with mines, ships and submarines in an attempt to call the US’ bluff. With a blockade an act of war under international law unless authorized by the UN Security Council, US warships attempt to re-open the Strait, and conflict occurs when the Iranian navy fires anti-ship missiles at the US Navy. With the US busy countering missile attacks, mines, torpedoes and submarines, Iranian speed boats swarm US ships, sinking several. The US Air Force (USAF) uses the opportunity to take out Iranian nuclear facilities, first targeting air-defense systems, coastal anti-ship missile positions and naval facilities. All-out war ensues — see Scenario five or six.

2: Misery from mishap

The US claims the Iranian navy fired upon it during war games in the Strait of Hormuz. Amid the fog of war and limited diplomatic means to diffuse the situation, the US instantly counter-attacks. With an attack on a NATO member considered an act of war against all members, the US and NATO target Iranian military and nuclear facilities. All-out war ensues in the Gulf and the Levant — see Scenario five or six.

3: Eagle landing

The Iranians withdraw from the Non-Proliferation Treaty (NPT) and kick out International Atomic Energy Agency (IAEA) inspectors after Western intelligence reports indicate Iran has moved forward with its nuclear weapons program. The US considers this a red line and begins destroying Iranian air defense capabilities, radar facilities and missile silos before moving on to specific nuclear facilities. Leads to Scenario five or six.

4: Zionist surprise

The Israelis consider the multilateral sanctions on Iran to not have had the desired effect of bringing Tehran to heel, and believe the nuclear program to have moved beyond the point of no return — nuclear weapon capability. Using an alleged Iranian covert operation to assassinate a senior Israeli as an excuse, Tel Aviv launches air strikes. Iran retaliates with long-range missiles against Israel. Israel launches strikes against Iran’s Lebanese ally Hezbollah and invades Southern Lebanon. Hezbollah fires rockets into northern Israel. With Tehran believing Israel has acted with the green light from Washington, the Iranian navy blocks the Strait of Hormuz. The US moves to open the Strait, and Iran and the US clash in the Gulf, the war either peters out — see Scenario five — or heats up into a regional war — see Scenario six.

5: Cooler heads prevail... or not

The US and Israel suspect Iran has moved forward with its nuclear program, with the International Atomic Energy Agency providing “smoking gun evidence.” Bilateral, targeted air strikes and bunker buster bombs are used against nuclear facilities spread throughout Iran, in the process destroying air defense capabilities, radar facilities and missile silos. Iran responds through naval attacks and launching what missiles are left against Gulf and military targets. But after a month, with neither side wanting an escalation of the conflict, oil prices above $200 and the money markets negatively affected, international negotiations bring about a truce. The attackers have achieved their aims of setting back Iran's nuclear aspirations, and the Iranian regime, while weakened, remains in power. End of scenario, or conflict re-opens following a further incident, see Scenario six.

6: All-out war

Following the outbreak of war from scenarios one to five, or the truce in scenario five breaks down, the conflict rapidly spreads. The US bombs all major military facilities in Iran, crippling its conventional capabilities. Iran unleashes non-state actors and sleeper agents against US facilities in the Gulf, as well as against NATO forces in Afghanistan. Gulf militaries respond to being targeted, joining the US-led war machine. Hezbollah fires rockets against Israel. Israel responds with a devastating air campaign against Hezbollah positions in the South of Lebanon and Beirut's southern suburbs, in addition to targeting key Lebanese infrastructure. The Lebanese Army is forced to get involved. Neighboring Syria is dragged into the conflict, while the West/NATO and Israel use the opportunity to annihilate the Syrian army and prompt regime change in Damascus. Russia considers this a red line and provides military support to Syria. The conflict takes on a truly international dimension. Talks at the UN fail to diffuse the crisis. War lasts for months, and the fallout prompts uprisings, demonstrations and conflict throughout the Middle East and North Africa. The US puts “boots on the ground” in Iran to force regime change, and there is a repeat of Iraq and Afghanistan for the next decade.

7: The anticlimax

Despite the sanctions, the saber rattling and the naval build up in the Gulf, cooler heads prevail. Lacking evidence that Iran is moving towards nuclear weapons capability, US intelligence says there is no casus belli for a war, and manages to rein in Israel. With no “smoking gun,” and the US aware of the economic fallout from an attack on Iran, war plans are put on the back burner. Tensions rise once again in 2013.

The scenarios above have been reviewed by Michael Elleman, senior fellow for regional security cooperation at The International Institute for Strategic Studies – Middle East.

Treasure Islands

Tax Havens and the Men Who Stole the World - A book by Nicholas Shaxson

Book review - Executive magazine

There is only a passing mention of one of the Middle East’s tax havens, Dubai, and no mention of the other two contenders, Bahrain and Lebanon, in Nicholas Shaxson's book “Treasure Islands: Tax Havens and the Men Who Stole the World.”

This is a shame as there are plenty of juicy tales to tell about shell companies, dodgy accounting and suitcases crammed with petrodollars, but there is a good reason for the lack of coverage. The Middle East three are small fry in this business, with more than half of world trade passing through tax havens, while in 2010 the balance sheets of small island financial centers alone were conservatively estimated by the International Monetary Fund to be worth a staggering $18 trillion — just less than a third of the world’s gross domestic product.

Compare the Cayman Islands — population 56,000 — with Lebanon and Bahrain; in 2008, the Caymans had $2.2 trillion in equity liabilities (deposits and other obligations) and $750 billion in portfolio assets, while in 2010 Lebanese bank assets were $133 billion and Bahrain’s $210 billion. Likewise, the Dubai International Finance Center is a featherweight compared to the Dublin International Financial Services Center, which hosts 8,000 funds with $1.5 trillion in assets. So, while the reader will find nothing about the 2008 law that enabled Lebanon to become an offshore center (there were 5,983 registered companies in 2010), “Treasure Islands” gives a full account of how tax havens developed worldwide, the back-room deals that prompted legislative change, and the problems that tax havens cause.

At this point, a definition of “tax haven” is worth making, for as Shaxson notes, there is little agreement. Shaxson’s definition is a broad but salient one, with a tax haven a “place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.” This can refer to the obvious, evading tax, to more complex financial dealings such as repackaging capital and trade miss pricing, to usury specialties and lax corporate governance laws. What all havens, onshore and offshore, have in common is “secrecy in various forms,” while a giveaway is whether “the financial services industry is very large compared to the size of the local economy.” A further common marker is very low or zero taxation rates, which are typically offered to non-residents, whereas residents are taxed.

But these jurisdictions are not just obscure tropical islands, they are the renowned financial centers of the world: the United States, Luxembourg, Switzerland and Britain. Cumulatively, the biggest player is Britain, with its Crown Dependencies and overseas territories (Guernsey, Jersey, Cayman Islands, the British Virgin Islands etcetera), plus the former empire (Hong Kong, Singapore etcetera) accounting for 37 percent of all banking liabilities and 35 percent of all banking assets on the planet. If the City of London is added in, at 11 percent, the British group has almost half of the world’s banking assets. Like the rest of the globe, the Middle East is linked to these tax haven networks, as a cursory glance through company registries will highlight a listing of places such as Panama, Cyprus, the Bahamas and so on. According to research published in 2011 by Global Financial Integrity (GFI), four Arab states were in the list of the top 10 countries worldwide with the highest illicit financial outflows between 2000 and 2009: Saudi Arabia with $380 billion, the United Arab Emirates with $296 billion, Kuwait with $271 billion and Qatar with $130 billion. The GFI notes that the prominent destinations of this capital flight were fiscal paradises and the interconnected global financial centers.

Curbing tax havens is a pressing concern, as they deprive countries of billions of dollars in tax revenues as well as the capital available for lending, and played a major role in triggering the financial crisis. Shaxson offers some solutions, but taking on tax havens and their clientele incurs serious opposition. Some two-thirds of global cross-border trade happens within multinational companies — the majority of which utilize tax havens — while 99 of Europe’s 100 largest companies use offshore subsidiaries, with the largest users being banks.

While the reader is left with a degree of despondency given how intrinsically important tax havens are to the global financial system, Shaxson has done an invaluable service by making the public aware how rotten to the core it truly is.

Al-Qaeda – lethal splinters and financial fractures

www.moneylaunderingbulletin.com

DESPITE the killing of Osama bin Laden in Pakistan last May, Al Qaeda and its affiliated groups remain a global money laundering and terrorist financing concern. Yet a decade on from the September 11 attacks, counterterrorism specialists say there has been too much focus on Al Qaeda itself (it means The Base in Arabic) but not enough on associated and other militant groups that pose significant threats, reports Paul Cochrane in Beirut.

The sustained and multi-pronged US-led campaign against Al Qaeda has resulted in a major weakening of the group, from finances to a dwindling membership of around 300 cadres. “Al Qaeda has suffered massive degradation,” said Rohan Kumar Gunaratna, director of the International Centre for Political Violence and Terrorism Research in Singapore.

The killing of bin Laden by US special forces in Abbottabad, Pakistan last May put a further nail in Al Qaeda's coffin, with no leader surfacing with the same charisma or support that the notorious Saudi had internationally. Al Qaeda core, as it is known, has, as a result, shifted its modus operandi from being an operational organisation to providing training and ideology for associated groups, said Gunaratna. It is these groups, operating in the Indian subcontinent, south east Asia, Africa and the Middle East, that should garner greater attention from governments, the intelligence communities and compliance officers, he advised.

“If you ask the Brits or Americans what group poses a greater threat they will share with you Al Qaeda in the Arabian Peninsula (AQAP) rather than Al Qaeda core,” said Gunaratna. “Government efforts and partners in finance should shift from an over emphasis on Al Qaeda core to associated groups.”

His perspective is shared by Paul Pillar, a professor of security studies at Georgetown University, in Washington DC, and former deputy chief of the CIA's counterterrorist centre. “Whenever there is an incident the first thing you hear is, were there links to Al Qaeda? And the implication is if there are links you should worry more and if not, don't worry, but that is not sensible at all. This whole concept of links is something that is used incredibly loosely as a link can mean anything, from command and control to a casual crossing of paths,” said Pillar. “And there is a failure to clarify what Al Qaeda is. The term here in the US is used loosely to apply to the specific group that Ayman Al Zawahiri leads, but is also used to refer to other groups of radical Sunni Islamists. So, I think part of the problem is a reification of a group with this name and throughout the last 10 years that has been a major drawback on how terrorism is viewed.”

Jay Jhaveri, head of Asia at risk intelligence specialists World-Check in Singapore, also agrees with this analysis. “Al Qaeda has not been wiped out but has been seriously weakened as the focus over the last 10 years has been Al Qaeda, Al Qaeda, but not on [the Pakistani] Lashkar e-Taiba (LET) or other resurgent terrorist groups.”

Indeed, within Pakistan alone there are 12 domestic groups and over 30 transnational organisations operating, according to the South Asia Intelligence Review, including Jaish e-Mohammad Mujaihideen e-Tanzeem (JeM), the Haqqani network, the Islamic Movement of Uzbekistan, Islamic Jihad, the Libyan Islamic Fighting Group and the Eastern Turkistan Islamic Movement. Such groups are particularly active within Pakistan, Afghanistan, India (notably in Kashmir), and Bangladesh.

When it comes to international ‘franchises’ inspired by or linked to Al Qaeda, there is AQAP in Yemen and the Gulf, and Al Qaeda in the Islamic Maghreb (AQIM), an amalgamation of groups that have operated across North Africa and most notably in Libya last year during the war to depose Muammar Gaddafi.

And indeed, the political instability and regime change in the Middle East and North Africa wrought by the Arab Spring over the past year present new challenges in curbing terrorist financing. While there is the assumption that the populist uprisings signal a rejection of the ideas of Al Qaeda and radical Islam, there is also greater room for militant groups to operate given the power vacuum as well as the possibility that if democratic reforms do not happen there could be a resultant uptick in support for militant Islam.

Instability in Yemen, the Middle East's poorest country, is an area of particular concern. “In the whole larger network or universe of radical Sunnis there is general consensus that AQAP is worth worrying about right now, as with the chaos in Yemen there is not much chance of help from local government,” said Pillar.

In Libya, there are reports of AQIM getting hold of stockpiles of weapons as well as some of the 20,000 surface to air missiles that went missing during the conflict. This has caused concern in North Africa as well as Sub-Saharan Africa, with Idriss Déby, the President of Chad, warning last year that “AQIM is poised to become the best equipped army in the region.”

There are also concerns that in post-revolutionary countries, anti-money laundering and combatting the financing of terrorism (AML/CFT) initiatives will need to be bolstered by new governments to address regional threats. “On the CFT side, our own view is that the new governments that have emerged will have to rebuild their capabilities,” said Gunaratna. “Also, a totally new group of actors has emerged, for instance links between (Somalia's) Al Shabaab and AQIM, and AQIM links with Boko Haram (Jama`at ahl al-sunna li-da`wa wa-l-qital) in Nigeria. There are a lot of new weapons and sources of money, so threat finance, AML and CFT operators will need to do a lot of work to identify groups emerging in that area.”

The success of multilateral AML and CFT initiatives against Al Qaeda and the Taliban in Afghanistan and Pakistan have forced militant groups to avoid official banking channels. Further weakening financing has been NATO and Pakistani army operations that have killed or sidelined middle and top level commanders that had links to the Gulf countries, notably Saudi Arabia, the United Arab Emirates, Qatar and Kuwait, which were flagged by the US government in 2009 as prominent financiers for Sunni terrorist groups worldwide.

As a result of such pressure, “the militants have issued an internal order telling followers to look for funds from internal sources,” said a counterterrorism official to Pakistan's Dawn newspaper last year. This has led to the Taliban resorting to bank robberies, extortion and kidnappings. In October, 2011, four Taliban militants stole USD138,000 from a Pakistani bank although were intercepted by the police, and in Karachi, the Taliban were suspected in three out of four bank robberies last year that netted USD2.3 million.

Extortion is another common method. “Goods transported around Afghanistan are taxed and tolled by the Taliban, from trucks to even those on mules paying a little tax,” said Jhaveri.

Narcotics are a further source of funds for the Taliban and other groups, with the United Nations estimating that about 10% of opium profits within Afghanistan's USD4 billion-a-year poppy industry go to the insurgents. What is troubling is that opium cultivation rose by 7% last year on 2010, and yields were up 61% to 5,800 tonnes compared to 3,600 tonnes in 2010, according to the 2011 Afghan Opium Survey, by the UN Office on Drugs and Crime (UNODC). As the US State Department's International Narcotics Control Strategy Report (INCSR) 2011 on Afghanistan notes, “the illicit narcotics trade, corruption and contract fraud are major sources of laundered funds.”

With less than 5% of Afghanis using the formal banking system, cash is the most common means of funding the Taliban and other groups.

“I believe funds are working their way through the cash system rather than any official remittance system or banking system. When crossing borders it gets trickier as involves wire transfers and so on, and it is difficult to transport cash on airlines now, especially large amounts. But if it is done physically across borders, over the mountains between Pakistan and Afghanistan, no one can intercept that,” said Jhaveri.

The outlook for curbing money laundering and terror finance in Afghanistan is not promising given weak governance and low confidence in the security forces. A report by Human Rights Watch found that “one in seven Afghan soldiers, a total of 24,000, deserted in the first six months of 2011, twice as many as in 2010,” while a UN Development Programme (UNDP) survey released in January found that only “two in 10 Afghans think the Afghan National Police is ready to take over all policing responsibilities from international forces.”

Of further concern in the immediate future were the findings of a leaked NATO report that surfaced in February, ‘The State of the Taliban’, which was based on 27,000 interrogations of more than 4,000 Taliban and Al Qaeda detainees. The report implies that the Taliban are a lot stronger than NATO had previously made out. “Though the Taliban suffered severely in 2011, its strength, motivation, funding and tactical proficiency remains intact,” the report said. “Many Afghans are already bracing themselves for an eventual return of the Taliban.”