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COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 28 July 2005

From: JKC de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: US FEAR OF CHINA COMING THROUGH LOUD AND CLEAR

Considerable publicity has been given to the publication last week of the annual report to Congress by the US Secretary of Defence on “The military power of the People’s Republic of China”. Less has been given to the equally interesting hearings of the US-China Economic and Security Commission.

The hearings covered the following topics: China’s Future Energy Development and Acquisition Strategies; Factors Driving China’s Global Strategy and US Policy Responses; China’s Approach to Africa; China’s Approach to Latin America; China’s Approach to Europe; China’s Approach to Northeast and Southeast Asia; China’s Approach to South Asia and Former Soviet States.

We reproduce below the agenda for the 21-22 July hearings, links to the key speeches, and short summaries of each testimony.

Of all the testimonies, the one that most struck us was that concerning China’s approach to Southeast Asia given by Dr Marvin C Ott, Professor of National Security Policy at The National War College. This testimony reads particularly interestingly alongside the main briefing in this week's Courcy's Intelligence Review ("US sends uncertain signal to Asia"), and it reinforces the main thrust of that briefing even though, in the event, China's Foreign Minister Li Zhaoxing pulled out of the ASEAN Regional Forum meeting at the last moment.

Dr Ott claims in his testimony that China ’s geopolitical ambitions “focus on Southeast Asia , where Beijing is intent upon establishing a pre-eminent sphere of influence”. According to Ott, China has pursued this ambition “with a very skilled diplomatic campaign designed to ultimately bind the region to China – politically, economically, and militarily”. He says: “In effect, a contest for the future of Southeast Asia and the peripheral seas is already underway.”

Ott is in no doubt as to the motive forces driving China ’s foreign policy, they are “geopolitical ambition and nationalism”. He says that Maoism/Marxism is dead and has been replaced by a strident nationalism that is reminiscent of late-19th century Europe and is being given added edge by “ China ’s acute sense of historic grievance against the West and Japan ”.

Ott concludes: “There is a strategic contest (a Great Game) underway and one player has developed a sophisticated strategy and has already collected a number of chips; the other player does not have a strategy and acts like it is unaware the game has started. So far, the US is losing the game.” 

Taken altogether, and with very few individual exceptions, if we had to use one word to sum up the testimony before the US-China Economic and Security Commission it would be fear.

Details of the hearings follow:

Hearing on China ’s Growing Global Influence: Objectives and Strategies 

Hearing Cochairs: Commissioners Carolyn Bartholomew, June Teufel Dreyer and Michael R Wessel 

July 21-22, 2005, 124 Dirksen Senate Office Building, 1st Street and Constitution Avenue, NE, Washington , DC 



OPENING STATEMENTS

* Opening Statement by Chairman RICHARD D'AMATO

EXTRACT:

“China ’s influence - diplomatic, economic, and military - is growing on nearly every continent. China’s quest for energy and commodities is a central reason for that country’s increasing activities and presence around the globe, and a part of this Commission’s mandate is to assess how China’s growing economy is affecting the world’s energy supplies and demand driven behaviour...It is imperative for Washington to understand China’s global objectives, the resulting implications for the U.S., and how, as a nation, we should respond. In particular, it is vital for Congress to make knowledgeable, informed decisions. Our purpose here is to collect and help Congress evaluate the information it needs in this respect.”

FULL TEXT: 

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/damato_richard_open.pdf 


* Opening Statement by Vice Chairman ROGER W ROBINSON, Jr.

EXTRACT:

“Like the Chairman, I am also concerned about some of the downside risks for U.S. interests associated with a rising China . China ’s presence is growing in many parts of the world, and at a high velocity. China is strengthening ties with traditional U.S. allies – such as Germany , Israel and Australia . Such ties could in the future require those who have been our friends and supporters to choose sides between the US and China on certain issues. We must gain a better understanding of China ’s global economic and security strategy and, at the same time, persuade our allies not to sacrifice long-term security interests for short-term economic and financial gain.”

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/robinson_roger_open.pdf 


* Opening Statement by Hearing Co-Chair JUNE TEUFEL DREYER

EXTRACT:

“China’s large purchases of weapons systems and arms from Russia have strategic implications not only for the US but for other nations in close proximity to China as well. Some of these are part of America’s alliance system; all are important for the maintenance of Asian stability.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/dreyer_june_open.pdf 


* Opening Statement by Hearing Co-Chair MICHAEL R WESSEL

EXTRACT:

“China is pursuing an entirely different strategy on energy acquisition than the US, or its major allies are pursuing. Our actions are market based – no one questions that our major oil companies intend to sell their products to the highest bidder. The major oil companies are engaging in a free market approach.

“China, on the other hand, wants to own oil and other energy assets, at the wellhead. Their energy acquisition strategy is mirrored in their efforts to acquire other resources such as iron ore, nickel and other commodities. They are willing to pay a premium for these assets now to ensure captive supplies for the future.

“China views this as a national security issue and has linked its military, diplomatic and political efforts in the world to their energy acquisition strategy. They have entered into energy acquisition deals with Iran, Sudan and other nations to ensure their access to energy. In return, they have transferred military equipment, technology, and cash and have agreed to support the political aims of those and other countries. Their efforts extend to blocking action at the United Nations for the call for action against the genocide in Sudan. They have transferred, and been sanctioned for, their shipments of advanced missile technology to Iran. They are reaching out to countries across the globe – many of which have serious implications for US security interests.”

FULL TEXT: 

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/wessel_michael_open.pdf 


PARTICIPANTS and TESTIMONY:

Thursday, July 21- Location: Senate Dirksen 

9:00–9:45 am Panel I: CONGRESSIONAL PERSPECTIVES 

* Senator RUSSEL FEINGOLD

N/A


* Senator JAMES INHOFE

EXTRACT:

“I have outlined in my earlier speeches how China is a threat. I believe it is. But this is a threat that can be addressed and enable a healthy, mutual growth for both our countries. A primary step toward this end is addressing the shortcomings of the CFIUS [Committee on Foreign Investment in the United States] review process.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/inhofe_james_wrts.pdf 


* Congressman J RANDY FORBES

EXTRACT:

“If I could summarize our greatest concerns at this time, they would be the following:

1. There is an enormous void in our knowledge of China which must be filled. We have few analysts who read or speak Chinese or fully understand their culture. On the contrary, many of their leaders including their generals speak English and many were educated in America.

2. At every briefing we attend, no matter how high ranking the participants, we are told that there is no coordinated approach to analysing the multi-faceted complex nature of the China problem and the communication between agencies is inadequate at best. This must be remedied as soon as possible.”

FULLTEXT: 

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/forbes_randy_wrts.pdf 


9:45-11:30 am Panel II: CHINA'S FUTURE ENERGY DEVELOPMENT AND ACQUISITION STRATEGIES

* Dr GAL LUFT, Executive Director, The Institute for the Analysis of Global Security

EXTRACT:

“Though there is always a chance that China’s pursuit of energy could present an opportunity to enhance cooperation, integration and interdependence with the US, I believe that it is more likely that aggressive competition over access to energy sources will ensue. With global reserves of cheaply recoverable oil and gas being depleted China is already competing with the U.S. over the same oil reserves in some of the world’s most unstable areas. Former Secretary of State Henry Kissinger warned recently that the global battle for control of energy resources could become the modern equivalent of the colonial disputes of the 19th century."

FULL TEXT: 

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/luft_gal_wrts.pdf 


* Mr FAREED MOHAMEDI, Chief Economist, PFC Energy

N/A

11:30 am–1:00 pm Panel III: FACTORS DRIVING CHINA'S GLOBAL STRATEGY AND US POLICY RESPONSES

* Mr RANDALL SCHRIVER, Armitage International

N/A 


* Dr STEVEN TSANG, Director, Asia Studies Center , St. Anthony’s College, Oxford 

EXTRACT:

“In general terms while China is building up its ‘comprehensive national strength’ it needs a stable and peaceful international environment to ensure rapid growth under the leadership of the Communist Party.

“In national security terms, China’s main focus is Taiwan, and until this ‘principal contradiction’ has been resolved to its satisfaction, it is China’s policy to reassure the rest of the world that China has no territorial or aggressive ambitions.

“In the long term and when China is ready it will assert its ‘rightful place’ in the world, which may require appropriate changes being made to the international system...

“If the nature and disposition of the Communist Party leadership and the political system remain essentially unchanged when China reaches a state of development that it can afford to assert its ‘rightful place’ in the world, such a turn of events will almost certainly not be as peaceful as Chinese propaganda today portrays. It will involve a contest of strength and diplomacy between the established superpower and the new emerging one.”

FULL TEXT: 

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/tsang_steve_wrts.pdf 


* Dr AVERY GOLDSTEIN, Professor of Political Science, University of Pennsylvania 

EXTRACT:

“China’s strategy reflects its attempt to play a weak hand well. The US, by contrast, holds most of the high cards; we need only be sure that we don’t play our strong hand poorly. A rush to judgment about the nature of the China we are likely to face several decades from now is not only unwise, it is also unnecessary.”

FULL TEXT: 

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/goldstein_avery_wrts.pdf 


* Dr CHARLES MCMILLION, President and Chief Economist, MBG Information Services

N/A


2:00–3:30 pm Panel IV: CHINA'S APPROACH TO AFRICA 

* Ambassador PRINCETON LYMAN, The Ralph Bunche Senior Fellow in Africa Policy Studies, The Council on Foreign Relations

EXTRACT:

“It is not only protecting its clients from strong punitive measures by which China’s investments are attractive to Africans, but also because they come with no conditionality related to governance, fiscal probity or other of the concerns that now drive western donors.”

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/lyman_princeton_wrts.pdf 


* Ambassador DAVID SHINN, Adjunct Professor of International Affairs, The George Washington University 

EXTRACT:

“There will inevitably be an element of competition between China and the US in Africa over access to natural resources, winning of commercial tenders, and even African support for occasional different positions on political, economic, and social issues in international forums. There will be disagreements, for example, on human rights issues in certain African countries, the priority and pace of democratization and the sale of military equipment to African countries engaged in conflict.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/shinn_david_wrts.pdf 


3:30-4:30 pm Panel V: CHINA'S APPROACH TO LATIN AMERICA 

* Dr CYNTHIA WATSON, Professor, The National War College 

EXTRACT:

“While I do not believe that Chinese involvement [in Latin America] currently indicates a serious threat to the security of the United States, I believe that Beijing seeks to establish networks which will benefit its interests for the long term, possibly to the detriment of US security.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/watson_cynthia_wrts.pdf 


* Dr CLAUDIO LOSER, Senior Fellow, The Inter-American Dialogue

EXTRACT:

“Trade between China and Latin America will continue to grow at a rapid pace over the coming years. Despite that, China’s share in Latin American trade will remain relatively small, compared to the share of the United States and European Union. Taking into account China’s economic bottlenecks and uncertain investment promises, Latin America probably cannot rely on China, as the source of trade expansion.” 

FULL TEXT: www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/loser_claudio_wrts.pdf 


* Mr AL SANTOLI, President, The Asia-America Initiative

EXTRACT:

“Chinese geo-strategic practices of asymmetrical warfare, using both ancient techniques and modern 'war by other means' targeting the 'weak exposed sides' of the United States have been steadily and effectively growing during the past decade in Latin America . Chinese tactics are being used to gain political and economic influence, as well as military alliances and bases for cyber-electronic warfare. These developments are a critical challenge to the United States in a vulnerable resource-rich area on our doorstep that we have too often taken for granted.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/santoli_albert_wrts.pdf 


Friday, July 22 - Location: Senate Dirksen 106 

9:00-10:15 am Panel VI: CHINA'S APPROACH TO EUROPE 

* Dr ROBIN NIBLETT, Executive Vice President and Director of the Europe Program, The Center for Strategic and International Studies

EXTRACT:

“There is little doubt that China’s current leaders would like to draw Europe and the EU into a multi-polar world order in which the transatlantic alliance would be weakened and in which China’s ability to manoeuvre between Washington, Brussels, and EU member state capitals (as well as between Moscow, Delhi, and other key capitals) on its policy priorities would be maximized. From a zero-sum perspective, a weakening of the transatlantic bond would be a net plus in terms of the Chinese government’s freedom of action domestically and on the world stage.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/niblett_robin_wrts.pdf 


* Dr CHRISTOPHER DENT, Professor, University of Leeds 

EXTRACT:

“The ‘China threat’ does not resonate in Europe in the same way that it does in the United States.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/dent_christopher_wrts.pdf 


10:15 – 11:45 am Panel VII: CHINA'S APPROACH TO NORTHEAST AND SOUTHEAST ASIA 

* Mr DANIEL BLUMENTHAL, Resident Fellow, The American Enterprise Institute

EXTRACT:

“There are three elements to China’s strategy: First is to build up what it calls ‘comprehensive national power’; second is to reassure the region that it does not have revisionist or aggressive aspirations; third, by necessity, is to displace the United States as the pre-eminent power, hopefully, in their minds, peacefully.”

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/blumenthal.pdf 


* Dr MICHAEL CHINWORTH, Director of The Center for US-Japan Studies and Cooperation, Vanderbilt University 

EXTRACT:

“With China’s economy assuming greater importance to Japan, I wonder if some in Japan fear the possibility that they will be forced essentially to make a choice between China and the United States to assure its own economic and perhaps territorial security. For a country that often views its own security in economic terms, the question is whether the value of Japan’s economic ties with China - or its economic dependence on China - will some day outweigh the benefits of its economic and military relationship with the United States.”

FULL TEXT: www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/chinworth_michael_wrts.pdf 


* Dr MARVIN C OTT, Professor of National Security Policy, The National War College 

EXTRACT:

“There is a strategic contest (a Great Game) underway [in Southeast Asia] and one player has developed a sophisticated strategy and has already collected a number of chips; the other player does not have a strategy and acts like it is unaware the game has started. So far, the US is losing the game.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/ott_marvin_wrts.pdf 


* Mr BRONSON PERCIVAL, Senior Advisor, The C.N.A. Corporation

EXTRACT:

“Although Washington has appropriately focused on countering terrorism, the ‘rise of China’ may eventually prove to be a second challenge for the United States in the region. Washington’s current response has been ambivalent and ambiguous. Southeast Asia tends to be treated as a footnote to larger issues in the US-Chinese relationship. Most experts agree that an American attempt to portray Southeast Asia as a battleground in a zero-sum contest with China is misleading and could turn into a self-fulfilling prophecy. But the United States has so long seen itself as the unchallenged, benign superpower in the region, that there is a whiff of complacency in the air.”

FULL TEXT: www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/percival_bronson_wrts.pdf 



11:45 am-1:00 pm Panel VIII: CHINA'S APPROACH TO SOUTH ASIA AND FORMER SOVIET STATES


* Dr JOHN GARVER, Professor, The Sam Nunn School of International Affairs, The Georgia Institute of Technology

EXTRACT:

“China’s broad strategic objective is to persuade India to look benevolently on an open-ended and expanding Chinese economic, political, and military presence in South Asia and the Indian Ocean, to eliminate suspicion in Sino-Indian relations, and to transform India into China’s partner. In this way the rise of China in Asia will not lead to Indian efforts to countervail China in coalition with the United States. But the conversion of India to friendship with China is to be done without making concessions to India on the status of Tibet, the Sino-Pakistan strategic link, or by restricting China’s expanding military, security, and transportation ties with other South Asian nations.” 

FULL TEXT: www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/garver_john_wrts.pdf 


* Dr MADHAV NALAPAT, Professor, Manipal Academy 

EXTRACT:

“Although China has taken a strident tone against US ‘unipolarity’, the reality is that the objective of the CCP is itself to create a unipolar Asia with the PRC at its core. This would in time enable the PRC to displace the US as the global unipolar power. In Asia, early on, the CCP saw Japan and India as the two major obstacles towards primacy in the continent, thus setting in train a series of policies - including strategic assistance to North Korea and Pakistan - designed to weaken the ability of the two Asian democracies to reach a level where they could overwhelm the 'Comprehensive National Power’ (CNP) of China.” 

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/nalapat_md_wrts.pdf 


* Dr PAUL GOBLE, Professor, University of Tartu 

EXTRACT:

“The underlying interests of the Russian government and the underlying interests of the Chinese government will both push them together toward cooperation in certain areas and drive them apart in others, a situation which means that we must be prepared to navigate between them rather than concluding as we have sometimes sought to do in the past all that we should back one of these countries against the other once and for all.”

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/globe.pdf 


* Mr HERMAN PIRCHNER, Jr, Founding President, The American Foreign Policy Council

EXTRACT:

“Far more than any discomfort caused by American bases in Central Asia , or American support of the new government in Georgia, the successful and correct American support in the election of a Western-leaning Ukrainian president over his Kremlin backed-opponent has had a profound effect in Moscow. Ongoing cooperation in the War on Terror and nuclear issues non-withstanding, a consequence of the most recent Ukraine election will be to increase Russian cooperation with China - especially through efforts that are, at least partially, aimed at reducing American involvement in the territory of the former Soviet Union…

“What is the future of this relationship? In the short term it may grow - especially if anti-democratic forces continue to be ascendant in Russia. But there are many reasons to believe that Russian-Chinese cooperation may lack durability.”

FULL TEXT:

www.uscc.gov/hearings/2005hearings/written_testimonies/05_07_21_22wrts/pirchner_herman_wrts.pdf



END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 13 July 2005

From: JKC de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: The London bombings

A week on from the London terror bombings of 7 July a number of key points are becoming clearer.  They include:

1.  Al-Qaida still has the capacity to launch major operations in even the most sophisticatedly policed cities that have long expected such an attack.  There was nothing remotely surprising about bomb attacks on London's transport network, yet the combined resources of the Metropolitan Police, MI5, and Britain's Secret Intelligence Service (SIS) were unable to prevent the attacks.

2.  The pattern of about 15-24 months between major attacks continues (the last major attack was on 11 March 2004 in Madrid).  Whether this is a consequence of a deliberate al-Qaida policy to induce a false sense of complacency or a reflection of its natural "reload" capacity, the end result is one of reduced vigilance (see the main briefing in 7 July Courcy's Intelligence Review: "Security experts battling complacency" - http://www.courcyint.com/crl/crl6620.asp).

3.  The invasion of Iraq is NOT the cause of the anti-Western jihadist terror campaign, as clearly the campaign pre-dates the invasion of Iraq.  Nevertheless, the invasion of Iraq has had an effect that is analogous to poking a wasps' nest with a stick.  For the moment the consequences are mostly being felt in Iraq, but increasingly two adverse consequences of the invasion will be felt elsewhere.  Recruitment to the Islamist cause has been and will continue to be boosted, and, eventually, veterans of the Iraqi resistance, like the Afghan veterans before them, will return to cause difficulties in their homelands or in other jihadist theatres of war (see item in our 30 June issue: "Italian intelligence chief on changing face of Islamic terrorism" - http://www.courcyint.com/crl/crl6584.asp).  It is still an open question as to whether the benefits of ridding the world of Saddam Hussein outweigh these clear disadvantages.

4.  Our analysis of the cause of Islamist terrorism remains that it is rooted in the failure of the Islamic world to match the political and economic advances of the rival civilizations of Europe, Europe-abroad, and (more recently) Asia.  The frustrations bred of this failure have been festering and accumulating since at least the collapse of the Ottoman empire and cannot easily be removed or neutralized.  Even the Arab-Israeli conflict (seen by many as the principal cause of Islamist radicalism) is a symptom not the source of Islamic failure - and hence of Islamic terrorism.

We highlighted the difficulties of reversing the relative economic failure of the Arab world in the main briefing in our 21 April issue: "Mideast & North Africa still lagging on reform" - http://www.courcyint.com/crl/crl5962.asp.

5.  One of the most pernicious aspects of jihadist terrorism is the fact that a low-cost sporadic campaign can force the Western world into such colossal expenditure, changes in behaviour, and other defensive measures that curtail traditional freedoms.  We have often pointed out how relatively small scale the direct impact of terrorism actually is - certainly when compared with natural disasters and health crises.  Nevertheless, the reaction to the jihadist threat is not irrational because the possibility that the jihadists could one day resort to weapons of mass destruction is not one that can be ignored - even if that means that the jihadists can gain as much from maintaining the threat of using such weapons as from actually using them.

6.  We have in the past taken comfort from the fact that the Islamist cause, unlike the earlier threat to the Western democracies posed by communism, has almost no resonance beyond its core constituency.  The children of the white Western middle classes are not potential recruits to jihadism in the way that some of their parents were to the communist cause.  The London bombings, however, have shown that seemingly well-adjusted children of Asian immigrants in Britain can be recruited as suicide bombers - and if that is the case in Britain then it is likely to be the case in other Western countries with substantial Muslim immigrant communities.  Post-London, the fact that jihadism appeals only to Muslims is less comforting than it was if the type of Muslim who can be induced to carry out suicide attacks includes Western-educated youths.

7.  If the causes of anti-Western jihadism are as deep-rooted and intractable as we believe them to be, it is logical to assume that this is going to be a long war.  In the meantime, President Bush has put much emphasis on bringing democracy to the Middle East as the long-term antidote to jihadism.  It has to be acknowledged, however, that the London bombers lived in a democracy, and that did not prevent them becoming terrorists.

For us, however desirable bringing democracy to the Middle East might be, there is a danger that this is putting the cart before the horse.  We have already stated how crucial economic advancement is in the fight against extremism, but even before that the primary target of Western pressure on Middle Eastern governments should be on reforming ignorance-reinforcing education systems.  As we pointed out last week, compared with India’s 4.3% and the US’s 5.0%, Pakistan spends just 1.7% of its GDP on education. The slack is taken up by an estimated 15,000 religious schools, which educate about 700,000 Pakistani boys between the ages of six and sixteen in little but Urdu, Arabic, and the Koran and indoctrinate them in the creed of jihad.  Parallel with the need to reform education is the need to muzzle the hatred-inducing mullahs - and not just in the Middle East, but in London and elsewhere.

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 21 April 2005

From: JKC de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: Pointers to Mideast radicalism

DEVELOPMENT:

On Sunday (17 April), the World Bank published what is to be the first in an annual series of reports on "Economic Developments and Prospects" in the Middle East and North Africa (MENA).

ANALYSIS:

We reviewed the World Bank's 2005 Economic Developments and Prospects for the MENA region in the 21 April issue of Courcy's Intelligence Review.  We highlighted some of the positive aspects of the report (such as average economic growth of 5.6% in 2003 and 2004), but we also drew attention to some serious negatives.

Most seriously, 100m new jobs will be needed over the next 20 years to keep pace with new entrants to the job market and to absorb the current unemployed, and to achieve this target MENA will need average annual growth rates of 6%-7%.  This will not be achieved without reforms (the current boom is almost entirely attributable to the high price of oil), yet the World Bank reports that MENA has been "the weakest [region] in the world" with regard to reforming the business environment.

We concluded that the World Bank's new annual series on economic developments and prospects in the Middle East and North Africa could, amongst other things, provide an important pointer to the future of radicalism in the region.  In view of this, subscribers might like to read the whole report in full.  The report can be accessed via the following link:

http://siteresources.worldbank.org/INTMENA/Publications/20451730/MENA%20Economic%20Developments%20and%20Prospects%202005.pdf

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 14 January 2005

From: JKC de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: China preparing for death of Zhao Ziyang

DEVELOPMENT:

On Wednesday (12 January), the Chinese authorities introduced new regulations under which visitors to Beijing's Tiananmen Square now have to be escorted by police to watch the daily flag-raising ceremony.  The move has been widely interpreted as an attempt to pre-empt any major protest in the square on the death of the former Communist Party chief Zhao Ziyang, now 85 and in hospital with - it is thought - a serious respiratory illness.

ANALYSIS:

Zhao was removed from public view on 19 May 1989 when he urged students to end their protest in Tiananmen Square.  Martial law was declared the next day, and on 3-4 June the army crushed the student protests in Tiananmen Square.  Beijing now fears that Zhao's death could spark mass demonstrations - as happened with the deaths of premier Zhou Enlai in 1976 and party chief Hu Yaobang in April 1989.

In addition to the increased security measures in Tiananmen Square, sources say that the reports in the Hong Kong media on Tuesday that Zhao had died on 8 January could have been deliberately placed by the Beijing authorities, first as a trial balloon in order to gauge the reaction, and secondly in order to diminish the effect of Zhao's death when it does eventually take pace.  A similar exercise took place in 2003 when reports of Zhao's death appeared in the Japanese media.

Beijing's evident nervousness over the forthcoming death of Zhao needs to be seen against the background of growing civil unrest in the form of riots, protests, and demonstrations.  Last year it was revealed that in 2003 some 3m people took part in 58,000 mass protests, almost 160 every day, and the number of high-profile disturbances in the last three months shows that civil unrest continues to be geographically widespread and regularly involves tens of thousands of people.

CourcyInt's sister service - the Asia Intelligence Service (http://www.asiaint.com) - published a special report on "The growing threat of civil unrest" in China in the January edition of the AsiaInt Political and Strategic Review.  In view of the present situation in China I am pleased to enclose a complimentary copy of this report.  Please just click on the following link for access:

China: The growing threat of civil unrest - http://www.asiaint.com/arl/arl5262.asp

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 23 July 2004

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: The threat of terrorist attacks on nuclear facilities

SUMMARY

The threat from radiological and nuclear terrorism can be divided into three main categories:

* Terrorists detonating nuclear weapons, either by stealing weapons or by stealing nuclear material and constructing their own device.

* Terrorists dispersing radioactive material by means of a 'dirty bomb'.

* Terrorists dispersing radioactive material by means of sabotage of a nuclear installation or a shipment of radioactive materials.

Following the House of Commons Defence Select Committee's July 2002 report on Defence and Security in the UK, it was determined that not enough was known about the last category - that is "sabotage of a nuclear installation or a shipment of radioactive materials", and the Parliamentary Office of Science and Technology (POST) was asked to investigate further.  It has just issued its report.

Although the report - Assessing the risk of terrorist attacks on nuclear facilities - is largely based on already published material, it is helpful for three reasons:

First, the authors of the study have done a thorough job of bringing together all the relevant information currently in the public domain.

Second, while they have ostensibly confined themselves to reviewing already publicly available information, the report makes clear that "the UK nuclear operators, regulators, and other official bodies have assisted POST by providing staff with access to sensitive inner areas at Sellafield and with classified background briefings".  In other words, while this report does not provide any information that is not already in the public domain, it is informed throughout by "classified background briefings" and it can be taken as read that the report's assumptions and conclusions reflect those briefings.

Third, most of what is currently in the public domain has been generated (and placed in the media) by groups that either have a pro-nuclear or anti-nuclear stance and their conclusions are therefore often driven by these biases rather than by the desire to provide an objective assessment.  This report, on the other hand, does provide an objective assessment of the risks.

Although the report concentrates on nuclear facilities in the UK and nearby in Europe, its conclusions have relevance beyond the UK.  As of March 2004, there were 440 commercial nuclear power reactors in operation in 31 countries worldwide, with 166 in Europe.  There are additionally 284 research reactors in operation in 56 countries, and some of these research reactors use highly enriched uranium (HEU) which may be suitable for use in nuclear weapons.

Transport of radioactive material is an additional point of vulnerability, and the report has a section dealing with this.

The full 148-page report can be downloaded using the following link: http://www.parliament.uk/documents/upload/POSTpr222.pdf

A four-page summary is available at: http://www.parliament.uk/documents/upload/POSTpn222.pdf

KEY POINTS:

The following are some of the key points in the POST report:

* The Safety Assessment Principles for nuclear plants are not specifically designed to address security threats such as terrorism.  However, many of the measures taken to enhance safety also provide defence against terrorist attack.  For example, because of the "defence in depth" principle on which modern nuclear plants are based, terrorists would have to damage several systems or components in order to bring about a significant release of radioactive material.  Damage to any individual system would not be enough to cause a release.

* Although some commercial reactors have been designed to withstand the accidental impact of light aircraft, no reactors have been designed specifically to withstand the impact of a large commercial aircraft.  Structural damage could be caused not only by the impact of the aircraft itself, but also as a result of the blast and fire from burning aviation fuel and by parts of the aircraft acting as projectiles.

* Some analyses suggest that although newer plants are much less vulnerable than older plants, the risk of radiological risk cannot be ruled out in either case.

* Some of the UK's older Magnox plants have design characteristics which may make them more vulnerable to terrorist attacks.  However, the report adds, "POST has been requested not to discuss these to avoid highlighting sensitive information which might be of use to terrorists".

* Gas-cooled reactors (the UK is the only country where this design in prevalent) might be more likely to sustain physical damage in the event of an aircraft impact because they are not housed in external containment buildings.  The only protection surrounding the reactor core is the concrete pressure vessel/biological shield, which is not fully hermetic, and the reactor building is a normal industrial building and not comparable with a PWR containment.  The UK has 12 first generation Magnox gas-cooled reactors operating in five power plants, and it has 14 second-generation Advanced Gas Cooled Reactors at seven plants.

* It is not possible to retrofit existing power plants to withstand attacks such as large aircraft impact.

* The only detailed study on the potential impact of a truck bomb attack in the public domain was carried out almost 20 years ago by Sandia National Laboratory in the US.  This concluded that a truck bomb attack could cause "unacceptable damage to vital reactor components" even if the truck bomb were detonated offsite.

* A ground-based attack could be mounted with a view to damaging parts of the plant or gaining access to the plant controls.  However, such an attack would have to overcome security guards and physical security barriers to reach vital areas of the plant - and British Energy states that even if intruders gained access to a plant control room "its reactors are designed such that it is not possible to override safety systems and to intentionally disable enough critical systems to cause a large release".

* Research reactors are not as well protected as power plants and therefore might make attractive targets.

* Many research reactors use highly enriched uranium (HRE) as fuel, which could potentially be used to construct crude nuclear weapons as well as dirty bombs.

* Reprocessing plants extract re-usable uranium and plutonium from used reactor fuel and handle a range of radioactive material.  High level liquid radioactive waste (HLLW) is the focus of most public attention.  The largest inventories are at Sellafield, with smaller quantities in storage at Dounreay in Scotland and Cap de la Hague in France.  As of July 2004, there are between 1,000 and 1,500 cubic metres of HLLW in storage at Sellafield.  Certain radioactive isotopes are present in quantities several hundred times greater than in a typical reactor core, and a worst-case scenario release of 10% of the total inventory (following for instance the impact of an aircraft or internal explosion) could result in hundreds of thousands of long term cancers.

It should be noted, however, that British Nuclear Fuels (BNFL) has disputed the above, issuing a statement saying: "We are concerned that POST has referred to public-domain reports that predict very serious consequences for the public if High Level Liquid Waste Tanks at Sellafield were to be targeted by a hijacked aircraft.  None of the authors of these reports have access to the current engineering and construction information that is necessary to undertake a credible study of the likely consequences.  For that reason BNFL considers that their conclusions are unsubstantiated, entirely speculative, and significantly exaggerate the consequences."

MAIN CONCLUSIONS

The report's main conclusions are:

1.  Nuclear power plants are not designed to withstand attacks such as large aircraft impact, however existing safety and security regimes do provide some defence.

2.  An assault on a nuclear facility would not be guaranteed to cause a large release of radioactive material, and even if it did there would not be a large number of instant fatalities, partly because nuclear facilities are generally located away from major population centres.  However, such an event could lead to significant numbers of long term cancers - and even an unsuccessful attack could have economic and social repercussions and affect public confidence in nuclear activities such as power generation.

3.  Despite the difficulties of launching a successful attack on a nuclear facility, the high symbolic value of such a target could be attractive to a terrorist group trying to heighten its profile.

4.  Notwithstanding the above, the detonation of 'dirty bombs' is seen to be an easier and therefore potentially more likely mode of radiological attack.

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 1 July 2004

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: INFLATION

SUMMARY

The Fed's decision to increase interest rates to 1.25% marks a key turning point in the world economic cycle.  Since June 1981, when US interest rates came down from their peak of 19%, each successive cyclical peak in interest rates, and each successive trough, has been lower than the one before.  That cycle has now ended.

ANALYSIS

Since its inception in 1934, Courcy's Intelligence Service has been identifying, tracking, and analysing risks to the free flow of international commerce.  For the most part our principal concern has been with non-economic risk factors, and we have generally left economic crystal-ball gazing to others; but the turning point signalled by the increase in US interest rates is so significant that it warrants special attention.

As attentive subscribers will know, the international economist we follow most closely is Anatole Kaletsky of The Times of London, and his analysis in today's edition cannot be bettered.  He says:

* The Fed should have begun raising interest rates earlier - cutting rates to 1% last June when the economy was already booming was a mistake.

* US interest rates, notwithstanding yesterday's increase, are far below the appropriate level for this stage of the economic cycle and will need to rise much farther and faster than financial markets currently assume.

* Now that the Fed has started raising interest rates, this upward trend has a long way to go.

* The combination of ultra-lax monetary policy with a rapidly falling dollar is reminiscent of the great inflation that started with the expansionary Keynesian and "guns-and-butter" policy in the mid-1960s when the Vietnam war was getting into its stride.

* There are seven trends in the US all pointing to higher inflation: lax monetary policy with a central bank concentrating on job creation rather than stable money; ballooning budget deficits; a depreciating currency; an expensive war paid for by printing money; protectionism; rising oil prices; and a big-spending administration.

* To counter these inflationary pressures, the Fed needs to raise interest rates quickly to at least 5%, but there is no sign that Alan Greenspan has any intention of doing so.  He has already misjudged the inflation outlook by declaring in his annual report to Congress that it would average between 1% and 1.25% this year.  It is now running at 2.5%.

* The problems will be compounded by the costs of caring for an ageing population (the equivalent of the growth in the welfare state in the 1960s) - and, Kaletsky concludes, "if history is any guide, politicians and voters will decide that inflation is the only way to spread the burden of these ever-growing social costs".  This in turn means that interest rates and inflation "will continue to point upwards for years, or even decades".

END

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 19 February 2004

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: SHIA-KURDISH RELATIONS IN IRAQ

SUMMARY

The leader of the Patriotic Union of Kurdistan (PUK), Jalal Talabani, is putting a positive spin on his meeting with Shia leader Ayatollah Ali al-Sistani in Najaf last weekend.

ANALYSIS

In this week's Courcy's Intelligence Review we underlined the importance of Kurdish-Shia relations in the manoeuvrings for control of post-Saddam Iraq.  Since that report was published late yesterday, we have received the reactions of Kurdish leader Jalal Talabani to his meeting last weekend with Shia leader Ayatollah Sistani.

According to Talabani, the meeting was a great success.  In Talabani's own words "Sistani has promised me his support for all Kurdish claims".  Asked specifically if that meant that Sistani, who until now has been considered to be an opponent of Kurdish ambitions, supports "far-reaching autonomy for the Kurds", Talabani replied: "Indeed.  Al-Sistani is no Ayatollah Khomeini, he is moderate, he wants no Islamic regime, and he wants no clerics in ministerial posts..."

On the subject of Kirkuk and de-Arabization, however, Talabani is more evasive.  Asked specifically about the differences over Kirkuk, he just reiterates the Kurdish position, saying: "The Arabs, settled there under Saddam, must leave again, and the Kurds who were driven out at that time must  return."  Talabani also continues to dismiss the idea of an "Iraq identity", saying that there is no such thing "and there will be none".  However, according to Talabani, there can still be a united Iraq "in which the different peoples live".

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 12 February 2004

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: DOES AL-QAIDA HAVE A NUCLEAR CAPABILITY?

SUMMARY

The London-based Arabic-language al-Hayat newspaper is continuing to assert that al-Qaida acquired a nuclear capability from the Ukraine in the late 1990s.

ANALYSIS

In this week's Courcy's Intelligence Review we alerted subscribers to reports alleging that al-Qaida had acquired one or more tactical nuclear weapons from Ukraine.

On Sunday, al-Hayat quoted sources close to al-Qaida as saying the group bought the weapons in suitcases in a deal arranged when Ukrainian scientists visited the Afghan city of Kandahar in 1998.  The report was linked to claims made by the former Russian National Security Adviser Alexander Lebed that up to 100 portable suitcase-sized nuclear bombs had gone missing following the break-up of the Soviet Union in 1991.

The Lebed claim was denied at the time, with Russia saying that no such weapons had ever existed; and the present claim that such weapons have been sold to al-Qaida by Ukrainian scientists have been dismissed by the Ukrainian foreign ministry as "totally groundless".

Yesterday, however, al-Hayat returned to the story.  Reporting from Islamabad in Pakistan, the paper's correspondent Ahmad Muwaffaq Zaydan wrote:

"Reliable sources in Islamabad yesterday confirmed to al-Hayat the information that a Ukrainian national had sold nuclear technology to the al-Qaida organization.  The sources said that a Ukrainian nuclear scientist - whose name is believed to be Viktor - visited the former Taleban stronghold of Kandahar in 1998 and played the role of intermediary in this deal.  The same sources said that the Americans learned about the affair and were able to immediately track the deal all the way to the Ukraine.  The sources added [that] the matter remained secret and its details were not revealed.  The sources were referring to the purchase by al-Qaida of briefcases containing nuclear weapons which it stored in safe places when it was a guest of the Taleban movement..."

As to how al-Qaida might use such a capability, in its earlier report al-Hayat quoted its source as saying that the group would use the weapons only inside the United States or if it faced a "crushing blow" which threatened its existence, such as the use of nuclear or chemical weapons against its fighters.

We are unable to verify the truth or otherwise of this report, and we do not have access to al-Hayat's source.  Nevertheless, we would make five points:

1.  Alexander Lebed was in a position to know about missing nuclear weapons, if there were any.

2.  Al-Qaida has certainly sought such a capability.

3.  The alleged method of acquisition is reasonably plausible.

However,

4.  Al-Qaida clearly has an interest in talking up its capabilities, and

5.  Pakistan itself might have an interest in diverting attention from its proliferation misdeeds with such a smokescreen.

Our conclusion?  We verge towards the view that this is a fabrication, and, besides, to mount such an attack in the US (which is the declared target) looks to be beyond the group's capability at present given that it has been unable to mount another spectacular attack within the United States since September 2001.

But anything is possible, and on the negative side there can be no questioning the fact that al-Qaida has survived the post-9/11 onslaught; that it or its affiliates have successfully attacked targets in Indonesia, Morocco, Turkey, Kenya, Pakistan, and Saudi Arabia since 9/11; that the group has begun to have an impact within Iraq; that it clearly has no qualms about inflicting mass deaths; that the post-9/11 generation of al-Qaida militants has a desire to surpass the "achievements" of their predecessors; and, as the head of Germany’s BND foreign intelligence agency Rudolf Adam said earlier this week, that "pressure is mounting on al-Qaida to reassert its effectiveness and its ability to strike another really high-value target".

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 21 November 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: AL-QAIDA MAKES STRATEGIC GAIN

SUMMARY

On Thursday 20 November, al-Qaida inspired (and a local affiliate carried out) twin bomb attacks on the British consulate and the London-based HSBC bank in Istanbul.

ANALYSIS

The twin attacks in Istanbul have confirmed a trend in post-9/11 al-Qaida tactics that has been apparent for some time, namely the launching of attacks on Western and Israeli interests mostly in Muslim countries and with the help of local affiliates.

Major al-Qaida-inspired attacks since 9/11 which conform to this pattern include the following:

* 11 April 2002. A truck bombing in Djerba, Tunisia, near a synagogue, killing 20.

* 8 May 2002. A car bomb attack on a bus carrying French defence technicians in Karachi, Pakistan, killing 14.

* 14 June 2002. A car bomb attack on the US consulate in Karachi, Pakistan, killing 11 and wounding 45.

* 12 October 2002. Bomb attacks on a nightclub district and outside the US consulate in Bali, Indonesia, killing 202.

* 28 November 2002. A failed missile attack on an Israeli airliner and a car bomb attack on a hotel frequented by Israelis in Mombassa, Kenya, killing 15.

* 12 May 2003. Four suicide bombs detonated in an expatriate residential area in Riyadh, Saudi Arabia, killing 35.

* 16 May 2003. Five bomb attacks on Jewish and Western targets in Casablanca, Morocco, killing 45 and wounding 60.

* 7 June 2003. A car bomb attack on a busload of German peacekeepers in Kabul, Afghanistan, killing five.

* 5 August 2003. A car bomb attack on the Marriot Hotel in Jakarta, Indonesia, killing 10 and wounding 150.

* 19 August 2003. A truck bomb attack on the UN headquarters in Baghdad, Iraq, killing 22.

* 9 November 2003. A suicide bomb attack on a residential compound in Riyadh, Saudi Arabia, killing 17.

* 15 November 2003. Car bomb attacks on two synagogues in Istanbul, Turkey, killing 24 and wounding 300.

The obvious conclusion to be drawn from the above is that the supposedly fatal setback suffered by al-Qaida in Afghanistan in November 2001, when the Taleban regime was driven from Kabul and the group’s bases were destroyed by US military power, was only temporary.

The group’s leaders and many key operatives survived and continue to find refuge in the border areas of Afghanistan and Pakistan. It has also re-established its network of affiliated groups throughout the Muslim world, while the US-led attack on Iraq has provided it with a potent new cause and a boost to recruitment. An additional bonus for al-Qaida has been the split in the Western alliance produced by the Iraq war.

On the other hand, it is still the case that since the Iranian revolution of 1979 only two countries (Sudan and Afghanistan) have succumbed to Islamic fundamentalism and that the position has now been reversed in both countries. Elsewhere, the Islamist assault on Algeria and Egypt has long since been seen off and has not been rekindled, while in Indonesia, the world's most-populous Muslim country, only this week Amien Rais, one-time leader of Indonesia’s 30m-strong Muhammadiyah Muslim group, declared: “Political Islam is not selling in this country. If I based my political support only on Muslims, there is a foregone conclusion that I would lose [next year’s presidential election].”

It might, therefore, be concluded that while al-Qaida has shown remarkable resilience over the past two years, it has not actually made any strategic advances - but for at least two good reasons we are not so sure.

First, the present al-Qaida assault on Turkey could set back Turkey’s drive to become a member of the European Union, either because it could reinforce the European view that Turkey is just too different from the rest of Europe to be allowed in as a full member and/or because it will spark a draconian crackdown by Turkey’s secularist army on the country’s Islamist tendency thus restoring to the EU its longstanding let-out on Turkey, namely Turkey’s less-than-pristine human-rights record. The effects of a final rejection of Turkey by the European Union should not be underestimated.

Second, there is the question of Israel. The one incontestable fact about Israel is that the Arab states are unable to defeat it militarily. But Israel is nevertheless vulnerable to external pressure from the West, and al-Qaida’s hope is that its terrorist campaign against Western interests will increase Western pressure on Israel to give up the fruits of its 1967 military victory.

This is an entirely rational strategy for al-Qaida to follow, and there is evidence that it is working. In Europe anti-Israeli sentiment is reaching heights unknown in recent times; in America the usually pro-Israel Bush administration is beginning to show its frustration with the Sharon government; and even in Israel itself influential calls for a unilateral retreat are increasing.

If al-Qaida's strategy is rational, and if it is working, then it stands to reason that there will be more of the same.

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 7 November 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: AN INSIGHT INTO IRAQI OPPOSITION RECRUITMENT TACTICS

SUMMARY

A report published this week by the London-based Arabaic newspaper al-Hayat provides a disturbing (albeit predictable) insight into how the Iraqi opposition is seeking to exploit youth unemployment in Iraq.  It was filed by the paper's correspondent in Baghdad Ali Abd-al-Amir on 4 November.

ANALYSIS

Back in June, the newly appointed US administrator in Iraq Paul Bremer said that the country's "staggering unemployment rate" may exceed 50% and that finding jobs was his number one task.  He said:  "We're facing an unemployment problem that is certainly without precedent in my life, and that, of course, creates real hardship for the Iraqi men and women out there,"

However, four months on the problem remains severe, partly because of a reluctance by US sub-contractors to employ Iraqis for security reasons.  As Colonel Damon Walsh, head of the Coalition Provisional Authority's procurement office, admits:  "We don't want to overlook Iraqis, but we want to protect ourselves.  From a force protection standpoint, Iraqis are more vulnerable to a bad guy influence."  Backing this up, a recent report London's Financial Times quoted a Pakistani manager in Baghdad for the Tamimi Company, which is based in the Saudi city of Dammam and is contracted to cater for 60,000 soldiers in Iraq, as saying: "Iraqis are a security threat.  We cannot depend on them."  So instead of employing locals, companies are turning to south Asian labour to implement contracts, from prison-building to catering for US troops, and as a consequence recent weeks have seen unemployment-inspired unrest in several major cities, including the capital Baghdad.

It is against this background that al-Hayat's 4 November despatch from Baghdad should be read.  According to al-Hayat's correspondent Ali Abd-al-Amir: "Iraqi youths suffering from unemployment, which is affecting half the working force of the country, can now find a drastic solution to their problem.  This solution is represented by a generous offer made by radical Islamist groups in several areas of Baghdad, Baqubah, Al-Ramadi, and Fallujah: 'a heroic attack' against the Iraqi police or the occupation forces in return for $1,000."

Ali Abd-al-Amir goes on to report: "These groups visit certain mosques where they watch youths and listen to their views on political and social issues.  At a later stage, they urge them to join jihad operations and make them this offer: $1,000 for every operation against the Iraqi police or the occupation forces.  The amount will be tripled in the event of the success of the operation."  The reward for hitting a US tank and killing its crew is said to be $5,000.

But there is stick as well as carrot.  Ali Abd-al-Amir reports: "Radical Islamists...kill anyone who does not accept their offer.  This was what actually happened to Ihsan al-Fallahi, a young man who refused to join the 'jihad work'."

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 1 August 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: RUSSIA: THE REGIONS v THE CENTRE

SUMMARY

In this week's Courcy's Intelligence Review (CIR), we focused on the power struggle between the Kremlin and the "oligarchs" - that is those who control federal-level business in Russia.

We quoted extensively from an analysis - admittedly self-interested - by exiled oligarch Boris Berezovsky in which he identified the five main elites in Russia today.  He listed these as being the bureaucracy, the special services, the regional elites, the army, and the oligarchs.

Although this week's CIR dealt principally with the contest between the Kremlin and the oligarchs, we concluded that the struggle with longer term significance was that between the centre and what Berezovsky terms "the aggregate of regional elites", that is the governors, regional politicians, and associated businesses, whose main strategic interest according to Berezovsky is "the retention and expansion of political and economic power in their own region".

ANALYSIS

The struggle between the centre and the regions has been going on since the collapse of the Soviet Union, and under President Putin it is the centre that has been making the gains.  Nevertheless, this power struggle has not yet fully worked itself out, and in this continuing contest between the regions and the centre, the position of the Russian Far East (RFE) has particular importance.

One of the key areas of difference between the Kremlin and the RFE concerns relations with China.  For larger geopolitical reasons, President Putin has sought very close relations with Beijing.  However, the further east you go in Russia the more suspicion there is of China, and the RFE has an interest in developing a much broader "foreign policy", seeking close economic relations with Japan, South Korea, and the west coast of the US to counter the threat of domination by China.

The attached Special Report - published last November by our associated service: the Asia Intelligence Service - looks in depth at the economic and political interaction between the Russian Far East and the rest of Asia.  It makes particularly interesting reading in the light of Berezovsky's comments about the role the regional elites in Russia today.

To access this report (which is normally available to Asia Intelligence Service members only), just click on the following link:

http://www.asiaint.com/special/secure/AsiaRFE-DEI.pdf

END

COURCYINT SPECIAL BULLETIN

To: All Courcy's Intelligence Service members

Date: 24 July 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: IRAQ AFTER UDAY AND QUSAY

SUMMARY:

The elimination of Uday and Qusay Hussein on Tuesday was a welcome development that has given a much-needed boost to the morale of both the US and British governments. However, the success was a purely tactical one with no long-term strategic significance. There are forces at work in Iraq that are of far greater importance.

ANALYSIS:

Although Uday and Qusay undoubtedly continued to control huge financial resources and theoretically continued to control significant military forces that survived the fall of Baghdad (because they melted away rather than fought), the regime was finished from the moment the coalition forces invaded Iraq regardless of the particular fates of Uday, Qusay, or even Saddam himself.

In other words, rejoicing at the deaths of Uday and Qusay, while fully understandable, is a bit like a salesman celebrating every stage of a single order with equal enthusiasm, from the first indication of interest through the written order to the final payment. The end of Saddam Hussein's regime was a "done deal", and the deaths of Uday and Qusay have added little more than a written acknowledgement.

The problems that the United States and Britain face in Iraq are to do with the future not the past, and what resistance there has been so far is more a reflection of Arab Sunni fears about the future than a desire to see the return of Saddam Hussein. The minority Arab Sunnis understand all too well that, having brutally suppressed the majority Shias and Kurds for more than three decades, their future is extremely precarious.

The key point to keep in mind is that because of the ethnic/religious divisions of Iraq, the country is as unsuited to a democratic solution as was post-communist Yugoslavia.

In view of this, the coalition's options appear to be limited to the following:

1. An indefinite occupation by coalition forces with a marginal spreading of the burden among willing allies. The advantage of this would be to delay other unwelcome developments (see below) while putting off any admission that the coalition's stated objective of turning Iraq into a beacon of free-market democracy for the whole Middle East is unobtainable.

However such a policy would face increasing resistance within Iraq (spreading in time to the Shia as well as Sunni communities) and would feed opposition in America and Britain at a progressively delicate time in the electoral cycle for both George Bush and Tony Blair.

2. A relatively quick withdrawal, preferably by way of a handover to an interim administration by the United Nations. The advantage of this approach is that it would reduce the risk to American/British lives and reduce costs. However, as India has just made clear, no one is particularly keen to pick up the baton (poisoned chalice?) - and the risk of premature withdrawal without an alternative force to hold the ring is that Iraq would rapidly dissolve into civil war.

3. A decisive shift in policy about the future of Iraq, moving away from any hope of establishing a free-market democracy in a unified Iraq towards the division of Iraq into Shia, Arab Sunni, and Kurdish entities.

The advantages of such a policy shift could include the establishment of a pro-US administration in the Kurdish region and (if subtly played) a relatively pro-US regime in the Sunni region as well. The disadvantages would include a major split with Turkey (possibly even to the level of military confrontation) over Kurdish independence and the spreading of Iranian influence into the Shia areas of Iraq, thus effectively conceding a pro-Iranian sphere of influence from the borders of Pakistan to the Mediterranean coast of Lebanon.

CONCLUSION:

The problem is that all of the above entail significant disadvantages that appear to outweigh their respective benefits, and as a consequence the most likely outcome is one of drift.

At the moment, the US and Britain are still hoping that they can establish a respectable semi-democratic government for a united Iraq (option 1), and this will continue for the time being.  But as domestic electoral imperatives progressively intrude on policy (and as the difficulties within Iraq mount), so the necessary will and staying power to impose such a solution will fade, and the desire to share the responsibility more widely will increase.

However, if events push the US and Britain towards a desire to share their responsibilities more widely, so the enthusiasm within the international community to participate in the rebuilding of Iraq (option 2) will almost certainly recede in direct proportion. In other words, this is likely to prove a zero-sum game.

But if we are right about that, then the end result could yet be option 3, albeit by an unstructured degeneration rather than by any carefully planned progression.

END

To: All Courcy's Intelligence Service subscribers

Date: 4 April 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: SYRIAN MISJUDGEMENTS OVER IRAQ

DEVELOPMENT:

There has been a barrage of reports in recent days, many originating in Israel, about Syrian support for Saddam Hussein's regime.

ANALYSIS:

In our analysis of the likely shape of the world after Saddam Hussein published in the 12 February issue of Courcy's Intelligence Review - http://www.courcyint.com/crl/crl1700.asp - we talked in particular about the emergence of a strong Iran/Syria-Lebanon axis, linked by the strengthened Iraqi Shi'ites and in all likelihood backed by a Russia no longer having to juggle its support for Iran with its support for Iraq.

Nothing that has happened since has altered this analysis.  However, particularly given the recent reports about Syrian support for Saddam Hussein, it is now important to elaborate a bit further on the position of Syria.

The first point to make is that Syria, since the death of Hafez al-Assad and the succession of his son Bashar, has in recent years become even closer to Iran than was previously the case.  Assad senior might have backed Iran in the Iran-Iraq war of the 1980s, but he was careful to limit the extent of Iranian influence within Syria (in particular keeping Iranian Shi'ite clerics out of the country).  Assad junior on the other hand, who amongst other things reportedly views Iranian-backed Hassan Nasrallah of Hezbollah as something of a guru, has allowed Iran to increase its influence within Syria.  For instance, there are now said to be some 30 or more Iranian-influenced religious schools within the country.

When put alongside intelligence about the possible transfer of Iraqi weapons of mass destruction to Syria, this supports our projections about the likely potency of the post-Saddam Iran-Syria alliance - a potency that will increase in proportion to the amount of influence secured by the Shi'ites in post-Saddam Iraq.

However, Assad appears to be misjudging the situation and jeopardising the potential gains.  Syria's best interests would be served by accepting whatever weapons Iraq wishes to transfer to safe keeping (like Iran did with the Iraqi fighters during the first Gulf War) and paying lip service to Arab solidarity with the Iraqi people while providing as little as possible by way of direct help or succour to the beleaguered and sure-to-be-defeated Saddam regime.  Instead Damascus has supported the dying regime too openly, giving Israel the evidence it needs to ensure that the Syrian danger looms large on America's radar screen.  And in this Israel has clearly been successful judging by the recent warnings issued to Damascus by Secretary of Defence Donald Rumsfeld and Secretary of State Colin Powell.

So while the threat of a much strengthened (and radicalized) post-Saddam Iran-Iraq-Syria-Lebanon axis clearly exists and is likely to grow (particularly if the Shi'ites gain the ascendancy in Iraq), a combination of Israeli lobbying and Syrian misjudgement is combining to ensure full American recognition of the threat.

Interestingly, this habit of misjudging crucial moments appears to be an Assad family trait.  Assad senior had a reputation in the West as being a cunning leader of exceptional guile, but his record never supported such an assessment.  It is worth recalling, for instance, that:

- he failed to regain the Golan Heights by war in 1973

- he failed to stop Egypt making separate peace with Israel in 1979

- he failed to prevent Israel’s invasion of Lebanon in 1982

- he failed to adjust to the collapse of the Soviet Union

- he failed to turn the post-Gulf War Damascus Declaration into a genuine tool for influence over Saudi Arabia and the other Gulf Arab states

- he failed to see that Shimon Peres really wanted to return the Golan Heights

- he failed to prevent the Palestinians and Jordan from making separate peace with Israel, and

- he failed to stand up to Turkey over water and over Syrian support for the Kurdish PKK guerrilla group

The one genuine success that can be attributed to Assad senior was keeping Islamist militancy at bay, but this was achieved only by dint of extreme brutality and ruthlessness - and, as noted above, that success is being jeopardised by his son.

Now, following in the solid tradition of his father, it seems that Bashar is misjudging how to act at another crucial historical turning point, and this misjudgement must surely limit to one degree or another the considerable gains that Syria looked certain to make from Saddam's demise.

END

To: All Courcy's Intelligence Service subscribers

Date: 25 April 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: TERRORISM - A CURRENT THREAT ASSESSMENT

DEVELOPMENT:

There has been surprise in some quarters that the US-led attack on Iraq has not produced a major terrorist response.

ANALYSIS:

The lack of a major terrorist response to the US-led attack on Iraq in fact mirrors the experience of 1991, and the following points are germane:

1. Islamist-inspired terrorism is fuelled by grievances that long pre-date the US-led attack on Iraq and that will long survive the restoration of Iraqi rule in Baghdad. The perpetration of major acts of anti-Western terrorism, therefore, is dependent on the capacity of the terrorists to act rather than the immediate result of any specific policy (such as the invasion of Iraq).

2. The downward trend in international terrorism since 9/11 indicates that the capacity of al-Qaida to strike against Western targets has been significantly diminished - and commonsense suggests this must be so for the following reasons:

* The group's bases in Afghanistan have been destroyed and significant leaders have been killed or captured.

* International intelligence agencies have been collaborating in a far more systematic way since 9/11. The positive effect that this can have was demonstrated at the time of the last Gulf War in 1991 when very few attacks on Western targets were successful. What attacks there were tended to be minor and on the periphery. That has been the case this time as well.

* One major consequence of the Iraq war is that it has demonstrated to anyone who doubted that the current United States administration is not to be fooled with. This has had a salutary effect on all would-be state-sponsors of terrorism, and a severely degraded al-Qaida is now operating in a much less accommodating environment than was previously the case. No state wants to be found with an al-Qaida smoking gun in its hand.

* Saudi Arabia, in particular, will have been frightened by the tone of last year's Rand Corporation report that stigmatised it as the "kernel of evil". The fact that the author of the report was subsequently released by Rand would not have diminished the impact of the report in Riyadh.

* Likewise in Pakistan, President Musharraf is under no illusions as to what would happen if he were to go soft on al-Qaida. It is true that he is maintaining (even increasing) his support for Kashmiri militancy, but worrying though this is it remains a local issue.

3. Although the capacity of al-Qaida has been greatly reduced for the reasons given above, it could still strike at the periphery without too much trouble. But there are problems with this. The Bali bombing (committed by an affiliate organization) achieved little for the cause while producing widespread revulsion among Indonesia's moderate Muslims.

The huge success of the 9/11 attacks adds to the problem for al-Qaida. It would take something extraordinarily spectacular to top the impact of 9/11, whereas a thwarted attack or one that lacked the emotional significance of 9/11 would be seen as a failure.

CONCLUSIONS

The danger posed by non-state terrorism has always been the limitation of deterrence. States can be deterred, but groups of fanatics cannot be. However, they can be harried and hounded and spied upon - and their bases can be destroyed. Furthermore, mounting a major terrorist outrage is more difficult than it might at first sight be thought, and without the tacit support of rogue states al-Qaida's task has become more difficult still.

This is not, for a moment, to say that there is no danger, but it explains the current quiescence and why less has been heard from al-Qaida in the present circumstances than some thought likely.

It goes almost without saying that there remain great dangers ahead, and the negatives include:

* The Islamic world has an inexhaustible supply of grievances and therefore of potential recruits to the terrorist cause.

* There are still many places where terrorist cells and networks can flourish - from the teeming cities of Indonesia, Pakistan, and even Europe to the remote places of South-East Asia, Central Asia, and the Horn of Africa. The expatriate Arab communities as far afield as South America (in the tri-border area for instance and in Venezuela's Margarita island) provide funds and places of refuge.

* Fanatics can now acquire the means to kill on an unprecedented scale.

The key to future security will be continuing international cooperation and relentless pressure on any states showing signs of renewed support for al-Qaida or similar groups. All the indications are that the Bush Administration will continue to insist on the former and will not shy away from the latter (except possibly - and dangerously - in Pakistan).  However, there is no such thing as an impregnable defence.

END

To: All Courcy's Intelligence Service subscribers

Date: 24 March 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: THE BATTLE FOR BAGHDAD

Four days into the war against Iraq, optimism about a sudden capitulation of the Iraqi regime is fading, and consequently fears about the possibility of a fierce fight for Baghdad are increasing. If it does come down to a fight for Baghdad, the following extracts from an article in last Wednesday's Jerusalem Post provide as good a description as we have seen of the difficulties of urban warfare. Israeli military researcher Yigal Henkin wrote:

“Human disaster in warfare is nothing new, but urban warfare is worse, particularly for civilians caught in the crossfire, and, as was made clear in the World War II battles of Stalingrad, Aachen, and Saint-Lo, to name just a few, they are a nightmare for advancing armies. Urban theatres necessitate intense fighting at close range, neutralize attacking forces’ greater numbers and technological superiority, and the presence of civilians makes targeting enemy combatants, or even finding them, very difficult. This is why political scientist Michael Desch called urban battles ‘the great equalizer’. Analysts predict that the coming war in Iraq will not be fought in sterile deserts but rather in heavily-populated cities like Baghdad. If American forces are to be successful in their fight against Iraq, they have to learn the lessons of the past.

All war may be hell, but city battles are that much worse: Defending troops not only possess greater familiarity with the terrain, but often have had ample time to plant mines, position snipers, and set up ambushes. The advancing army has to rely on ground troops, supported by tanks and armoured personnel carriers, while the defending army traditionally prevents substantial air or artillery support by ‘hugging’ the advancing troops: engaging them at close range so that any air or artillery support risks hitting the advancing army’s own soldiers, that is, even if the attacking force doesn’t limit its fire supply because of civilian presence in the area.

If so, as most likely will be the case in Iraq, the task becomes even more complicated. Cities’ electrical grids and ‘urban canyons’ render most combat communications systems worthless; short-wave radios and cell phones will work, but army radios may be jammed. Each soldier has to maintain an extra level of awareness: Snipers and other attackers can engage them not only from the front, back or side, but may be hiding on the upper floors or roofs of buildings filled with civilians, or in sewers below. Meanwhile, identifying enemy combatants from non-combatants is difficult. Smoke and fire make targeting that much harder; every soldier knows that each shot might hit a civilian and any mortar shell might destroy someone’s home...

In keeping with the habits of dictatorial regimes, Iraq has no compunctions about using civilians for shelter and cover. They are equally likely to use civilians as provocations: to shoot from behind civilians and wait for American troops to return fire, then showboat the corpses and damage for the press and decry ‘American aggression.’ Saddam might even resort to shooting his own citizens and blaming it on American forces. As much as possible, American army officials must try to encourage civilian populations to clear out of areas where there is fighting...

Once the battle begins in Baghdad, targeting, shelling, and D9 bulldozers can help encourage stalwarts to clear out or, at the least, stay out of sight. American soldiers would also be well served by staying out of sight. Both recent Marine Corps studies and Israeli experience show that most casualties in urban fighting are suffered while soldiers are moving in the streets. Israelis themselves applied this lesson when they took the casbah in Nablus about the same time as the battle in Jenin. Rather than expose themselves in the streets, soldiers cut holes in the walls between houses and moved through them. Additionally, Israeli snipers positioned themselves in tall buildings to prevent Palestinian fighters from operating in the streets while the Israeli forces operated in ways specifically designed to confound their enemies’ expectations. One Palestinian fighter told Amnesty International that ‘the Israelis were everywhere, behind, on the sides, on the right and on the left. How can you fight that way?’

One major attribute of the Israeli advance was its unpredictability, according to Col Aviv Kochavi, commander of the paratrooper brigade that took the casbah. Using the technique known as ‘swarming,’ where many small units move without obvious logic, they infiltrated and attacked from the inside out, in zigzag patterns, and otherwise unexpected movements.

New American combat doctrines, which call these sorts of tactics ‘nonlinear warfare,’ will try to take advantage of urban chaos. The success of these new tactics is dependent largely on intelligence gathering. Not only do ground troops need to know the city map well, they need to know who lives in it, who has interests and where, who is a follower of whom, and who has it in for whom. Troops need to target battle command and communication centres, the hubs that permit the enemy to fight, and break the fighting will and spirit of the other side.

To gather the information necessary, American forces need translators fluent in Arabic and in all the dialects spoken in the combat theatre. (For any successful psychological operations, they also need cultural translators: the now-legendary attempt to intimidate American soldiers in the first Gulf War by warning them that, back home, their wives and girlfriends were being seduced by Bart Simpson was, suffice to say, less than effective.) Enemy troops, along with civilians, need to know that prisoners will be treated fairly and that American forces do not have any intention of destroying their homes or killing their families, contrary to Iraqi propaganda. Needless to say, psy-ops will succeed only if American actions are consistent with these claims.

Avoiding unnecessary collateral damage is not only moral, but tactically savvy. Americans should go in with every means necessary to complete the mission in accordance with the rules of engagement. They should not wait until soldiers start dying before unleashing the complete arsenal. Decisiveness does not mean being brutish without limits. If Americans want to enable Iraqis to not stand with Saddam, they must avoid giving them more reasons to do so. In the words of the late Russian general Alexander Lebed, nothing makes a more determined fighter than a man who goes to work in the morning and returns in the evening to find his neighbourhood destroyed and his family killed.

Ultimately, American troops must hope for the best, but plan for the worst. After all, city combat was hell, is hell, and probably will continue to be hell for the foreseeable future. The job of American military planners is to get it over as quickly as they can.”

END

To: All Courcy's Intelligence Service subscribers

Date: 20 February 2003

From: Joe de Courcy, Chief Executive, Courcy's Intelligence Service

Subject: KEEP ONE EYE ON CHINA

SUMMARY:

There have been two main pillars to world confidence since the end of the Cold War: the underlying stability of the global security environment and the rapid economic transformation of China, the world's most-populous country.

Everyone recognizes that the first pillar is being put under the most intense strain by the Iraqi crisis, however judging by the vast amounts of foreign direct investment (FDI) still flowing into China there are few concerns about the second pillar. We would like to issue a note of caution.

ANALYSIS:

China remains the pre-eminent magnet for foreign direct investment, absorbing around $53bn in 2002, more even that the United States and at least 10 times more than the only other comparable developing economy: India.

The attraction is cheap labour, a huge domestic market, and growth of around 8% per annum. Our concerns are fivefold:

1. Unreliable figures. The economic figures that underlie much of the enthusiasm for China are unreliable. Work done by Thomas Rawski of the University of Pittsburgh, for instance, suggests that while figures up until 1997 are more or less reliable, that "confidence in official GDP measures ends abruptly in 1998" - the year in which the government launched a series of policy measures aimed at sustaining rapid growth.

According to Rawski's work, the Chinese economy grew by no more than 2% in each of 1998 and 1999 when official figures recorded growth of 8% and 7%. Some economists even believe there might have been a contraction in those years given that aggregate energy use fell by 4.3% in 1998 and by 7.7% in 1999. And even though performance has improved since 2000, there are good reasons for believing that growth could still be only about half the reported figure.

Rawski points out: "A persistent pattern of declining commodity prices, near-zero employment growth, sluggish consumer demand, low expectations on the part of Chinese households, slow growth of private investment, repeated postponement of plans to wind down fiscal pump-priming, and widespread excess supply of both commodities and production capacity…[are all real] phenomena… None is in dispute. And none is consistent with the historic experience of high-speed growth in Japan, Taiwan, Korea, Hong Kong, Singapore, South-East Asia, and, prior to 1998, in China."

Of course Rawski has his opponents, but the uncertainty about China's true economic performance is real, and this on its own must be a reason for a high degree of caution.

2. Public finances. If there is uncertainty over the performance of the Chinese economy, the problem is compounded by concerns over the degree to which performance (whatever it might be) has become dependent on huge government deficit spending on unproductive projects. The deficit was a record $37bn in the fiscal year ending March 2002, up 19% on the previous year.

Although the deficit is only 3% of GDP, and while the cumulative burden might officially amount to only 17% of GDP, when pension liabilities and bad loans of state-controlled banks are included, the real burden is more like 100%-150%. Bad bank loans are now estimated to total $400bn-$600bn, or about half of annual economic output. Unfunded pension liabilities from defunct state companies also total some $600bn.

3. Unemployment crisis. The desperate need for further reform of state-owned enterprises and the banking sector (under China's WTO-entry agreement, the banking sector should be fully liberalized by 2006) will further exacerbate an already serious unemployment crisis.

It is estimated that there are 36m unemployed Chinese in urban areas, and it is thought that 35% of the 140m workers employed in the state sector are surplus to requirements. In addition, there are thought to be 100m surplus rural labourers (the same number as the entire population of Bangladesh), with WTO accession threatening a further 20m rural jobs.

4. Weak leadership. All the above and other problems will be compounded by the transitional nature of China's present leadership following the changes in November - a transition that could take as much as five years to work its way through.

5. The military. Finally, one positive about China over the years has been that (unlike the Soviet Union) it has not over-burdened itself with military expenditure. But with the leadership in flux, the military has been reasserting its position within the Chinese power structure, winning double-digit budget increases.

Given growing fears over American military power (certain to be exacerbated by an attack on Iraq), continuing concerns over Taiwan, and the fact that the only position of power that former leader Jiang Zemin is likely to retain is chairman of the Central Military Commission, it seems highly likely that the burden imposed by the military on the Chinese economy will increase.

CONCLUSION

We are currently witnessing a major upheaval in the global security environment, with the fissure between America and Europe, a loss of faith in the United Nations, the further radicalization of the Islamic world, uncertainty over how to deal with North Korea, and the likely coalescence of countries fearful of American power around China and Russia.

A simultaneous crisis over China's economic advancement would be a further major blow to confidence and stability. It is not certain, but it is possible - and subscribers need to factor it into their calculations.

FURTHER READING

The following reports produced by CourcyInt's sister organization - the Asia Intelligence Service - are relevant and should be of interest. Just click on the links below to access these reports:

* China's banks face competition deadline - AsiaInt Economic Intelligence Review, (EIR) February 2003, http://www.asiaint.com/arl/arl1708.asp

* China preparing for next stage of land reform - AsiaInt Economic Intelligence Review, January 2003, http://www.asiaint.com/arl/arl1563.asp

* The transitional appearance of China's new leadership - AsiaInt Political & Strategic Review, December 2002, http://www.asiaint.com/arl/arl1481.asp

* China begins to face unemployment crisis - AsiaInt Economic Intelligence Review, December 2002, http://www.asiaint.com/arl/arl1500.asp

* The struggle to modernize rural China - AsiaInt Economic Intelligence Review, October 2002, http://www.asiaint.com/arl/arl1354.asp

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