Executive Magazine

The Islamic divide

by Moe Ali Nayel December 3, 2012

written by Moe Ali Nayel

It has been a year of dreaming dangerously for some Lebanese Sunnis who see the perpetually impending downfall of Syrian President Bashar al-Assad as an opportunity to reassert their historical dominance over the country’s Shia.

February’s escalation of the long-running feud between pro-Assad Alawites and anti-Assad Sunnis in Tripoli set a polarizing tone for 2012; tensions spilled south with anti-Hezbollah Salafis protesting in Saida. This came almost concurrently with former Prime Minister Saad Hariri’s self-imposed exile from Lebanon. Hariri, leader of the country’s largest Sunni political party, the Future Movement, first announced his departure was for personal safety; later he tweeted that he was busy managing his overseas businesses.

Hariri’s departure left a vacuum and a new Sunni personality soon emerged: Sheikh Ahmad al-Assir, whose posters have been slowly replacing Hariri’s in Sunni strongholds across Lebanon. A Salafist preacher, Assir first garnered widespread media coverage in March by staging a rally in Downtown Beirut, giving him a national platform for his extremist, anti-Shia sectarian rhetoric — a stark contrast to Hariri’s more ‘moderate’ line.

Militant Sunni anger then erupted again on May 20, when Sheikh Ahmad Abdel Wahed, a prominent anti-Assad Sunni cleric, was shot dead after an altercation at a Lebanese army checkpoint in North Lebanon. That night masked gunmen in Beirut’s Sunni enclave of Tariq El Jdeideh opened fire on Lebanese Army soldiers, and clashes elsewhere in the country, spurred by enraged Sunni partisans, left two people dead and 18 wounded.

Two days later, a Syrian opposition group kidnapped 11 Lebanese Shia pilgrims in Aleppo. Family members and friends protested in Beirut’s streets, with widespread retaliatory attacks reported against predominantly Sunni Syrian laborers.

Assir’s vitriolic attacks against Lebanon’s two most prominent Shia leaders — Hezbollah Secretary General Sayyed Hassan Nasrallah and Amal leader Nabil Berri — on Al Jadeed TV provoked Shia thugs to assault the station’s offices on June 25. After burning tires out front and firing shots at the building, they were arrested, setting off protests in Shia neighborhoods.

In August the Free Syrian Army posted a video of a beaten Hassan Salim al-Meqdad, who they had captured in Damascus and accused of being a Hezbollah member working for the Assad regime. In response, the Meqdad clan began a wave of kidnappings targeting Syrians in Lebanon, specifically Sunnis.

The Syrian conflict’s impact on sectarian identity in Lebanon is profound. Many Lebanese Sunnis view the revolt, especially since it became an armed conflict, as the uprising of their Syrian brethren against an oppressive Alawite regime allied with Shia interests. On the other side, many Lebanese Shia see the Syrian conflict as a foreign-backed conspiracy and, should Assad fall, they worry about being regionally isolated in a sea of Sunni vengeance. The Saudi, Qatari and Kuwaiti funding that has poured in to the Syrian opposition since it took up weapons has only entrenched these sectarian characterizations.

When Sunni intelligence chief Wissam al-Hassan was assassinated in a car bomb in Beirut on October 19, sectarian animosities hit fever pitch across Lebanon. Angry Sunni protesters accused Hezbollah and Syria of the killing, demonstrators attempted to rush the Grand Serail (the administrative headquarters of the Lebanese cabinet), road blocks isolated Beirut from the rest of the country, masked Sunni gunmen manned checkpoints and demanded identification cards to identify Shia motorists, while belligerents in Tariq El Jdeideh fired rounds toward Shia neighborhoods in Beirut’s southern suburbs.

This aggression saw little response from the Shia side, however — a show of remarkable restraint that may have saved the country from a slide back into civil war.

In November, clashes erupted again in Saida, when Assir issued an ultimatum to Hezbollah to take down posters commemorating the Shia holiday of Ashoura. Attempting to follow through on the threat, Assir and supporters confronted Hezbollah members in the neighborhood of Ta’amir; the ensuing clashes left three dead. In response to the incident, Hezbollah’s Nasrallah called for patience and restraint, urging Sunnis and Shia to remain vigilant of sectarian incitement, while Assir announced the formation of an armed “resistance brigade” in Saida, then later reneged.

Thus, 2012 nears a close with the gulf between Lebanon’s Shia and Sunni communities only widening. This hate between communities has been stoked by the likes of Assir, who has ridden its wave to take himself from obscurity to prominence. Unfortunately, this terrible tide shows no sign of receding as we move into 2013.

Moe Ali Nayel is a freelance journalist based in Beirut

December 3, 2012 0 comments

Economics & Policy

A cold, harsh year

by Zak Brophy December 3, 2012

written by Zak Brophy

It was never going to be an easy year for Lebanon. The economy entered 2012 with the International Monetary Fund pegging growth at only 1.5 percent for the previous year, war and economic crisis flanked the country, and among the only indicators rising in the face of falling growth was inflation.

Now as the year draws to a close and we survey the prospect for 2013 there is little reason to cheer; the economy is most likely slumped in stagflation, Syria boils more violently than ever and Lebanon’s politicians have effectively squashed hopes of meaningful reform and leadership from parliament.
One event that was lauded as a success was the cabinet’s passing of a new budget. Admittedly, in most countries this is considered a bare minimum the citizens can expect from their elected leaders, but in Lebanon is has become something of an exceptional occurrence.

Since the political crisis that descended in 2006, the government has not passed a budget and as such the nation is suspended in a state of “continual illegality”, according to legal attorney and lecturer in constitutional law, Wassim Manssouri. Of course this government and its predecessors haven’t stopped spending, far from it, but rather they have racked up more than $20 billion (over LL30 trillion) in extra-budgetary expenses.

When the cabinet actually managed to agree on a budget there was a fair amount of backslapping and self-congratulation. However, the felicitations were premature and unjustified. The budget had been sheared of any of the meaningful reforms or progressive initiatives that had been included in a previous draft, and what is more, although the cabinet agreed on the budget and passed it on to Parliament, it has since been stuck in the legislative mud.

Debating and agreeing upon a fiscal plan for the nation is not a priority, it would seem. For those among us that actually want to analyze the details, as that is surely where the devil lies, the budget is too vague and opaque. “The structure of the budget does not have the transparency we need in order to see how the budget for each sector is outlined,” explains Yahya Hakim, member of the Lebanese Transparency Association. “Even in the commissions they don’t discuss the individual chapters of the budget and the deputies have no clue how it is prepared.”

The ludicrous failings of Lebanon’s lawmakers to enact a budget for more than six years leaves little room for hope that they will enact the comprehensive reforms that the economy actually needs. “We need to go through a complete administrative and financial reform,” argues Hakim. “If we don’t we will never get anywhere and we will continue to just turn in circles.”

The last real effort to enact such reforms was under the leadership of President Fouad Chehab from 1958 to 1964, which bought him into conflict with the traditional feudal, confessional and clan-based politicians. These same forces have ensured that while some politicians may pay lip service to such reforms, they never see the light of day.

“In Lebanon structural reforms would harm narrow political interests and on top of that, politicians view reforms as a zero-sum game,” explains Nassib Ghobril, head of economic research at Byblos Bank. “If a politician implements reforms then he can score points against his opponent or even his nominal ally so they will do what they can to put barriers in his way.”

And so it is that the public administration remains a hemorrhaging body, rife with clientelism that inefficiently manages a crippled and antiquated national infrastructure.

Paying the public

The changes to the public-sector pay scale, agreed by the cabinet in September, has perhaps been the defining economic debate within Lebanon in 2012. It is also a fine example of how an issue of critical economic importance to the nation can be reduced to the ignominious status of a political football.

Under the proposed scale, ‘category one’ employees will receive a hike of LL2.9 million ($1,933), with monthy scaled increases of LL1.7 million ($1,133) for ‘category two’ employees, LL940,000 ($626) for ‘category three’ employees and LL210,000 ($140) for the state’s lowest-level clerks. In addition to this, public high school teachers, the main advocates behind the new scale, will receive around LL1 million ($667) in raises, while public elementary school teachers will receive LL789,000 ($526).

While the government reached a consensus on the pay scale it did so without reconciling how they would actually pay for it, and herein lies the foil that has scuppered the implementation of the policy. The specter of tax increases to fund the multi-billion dollar increase in expenditures has drawn cries of impending economic catastrophe from the private sector, and the government has tussled between different proposals without offering anything suitable.

“There are other sources such as fighting tax evasion and improving tax collection, which by my conservative estimates could raise an additional $1 billion in revenues,” argues Ghobril. “Then of course, long overdue reforms reducing waste and inefficiency could go a long way to cutting the government’s expenditures.”

The need to increase the purchasing power of Lebanon’s low-income households is a necessity in the face of high inflation, which is both internally and externally driven; while there are currently no reliable or comprehensive official statistics to precisely gauge inflation in Lebanon, FFA Private Bank reported that the country’s consumer price index rose 11.1 percent in October year-on-year. Rising prices for nearly all tradable goods are imported, as Lebanon is such a small player on the global stage, both in terms of consumption and production. However for any non-tradable goods or services the spiraling costs can to a large degree be explained by a structural imbalance in the economy.

Lebanon enjoys huge inflows of capital, such as remittances from expatriate Lebanese and oil money from the Gulf, which, along with easy credit from the banks, boost the local money supply. It is these large inflows of capital that drive up prices for anything that is non-tradable on international markets, such as real estate or a meal at your favorite restaurant. This phenomenon is further compounded by Lebanon’s ruinous disregard for its productive sectors.

Neighbor from hell

Throughout 2012 the shadows cast by the Syrian crisis across Lebanon have only grown more menacing. So much so that it could perhaps be considered a success that the nation has, in the main, stayed aloft from the violence ripping its neighbor apart. However, while violence has been confined to sporadic and localized clashes or targeted assassinations the economy has taken a battering, with no sectors passing unscathed.

Tourism spending in the third quarter of 2012 was down 24 percent on the same period in 2011 and deposit growth in the banking sector has been on a downward trend recently; growth of 7.6 percent annually in August 2012 is off from an annual increase of 10 percent in August 2011 and pales compared 18 percent in 2010.

In many regards the effects on the economy from the turmoil in Syria are beyond the control of Lebanon’s business leaders and politicians, but nonetheless there has been a woeful lack of leadership. Stepping back from the picture it also makes sense for Lebanon to have prepared itself for any disturbances and shocks to its economy when times were good. Had Lebanon made hay while the sun was shining then it would not be so vulnerable to the current instability.

“We live in a rough neighborhood that is in one way or another unstable and has been for decades,” explains Ghobril. “We had opportunity in 2008 to put up buffers and increase our strength and to improve the immunity of the economy.”

Indeed, those were very different days in 2008. The Doha Accords had reinstated security in the country, Lebanon’s banking sector emerged as a safe haven from the global financial crisis attracting a huge inflow of capital, the central bank increased its foreign currency reserves to unprecedented levels, growth rates were comparable to China and global interest rates were near zero.

Had Lebanon reduced its public finance vulnerabilities, cut public expenditure and the borrowing needs of the government, improved tax collection and implemented reforms then, the nation’s house would have been standing on much stronger foundations now. However, content to persevere with a dysfunctional status quo the government missed the boat. “They did absolutely nothing,” says Ghobril.

Looking at this missed window of opportunity through the lens of Lebanon’s public debt burden, which is the third highest in the world when viewed as a proportion of gross domestic product, is particularly illuminating. The public debt to GDP ratio dropped from 180 percent in 2006 to 135 percent by the end of 2010. While this was a welcome move in the right direction, it was on account of bullish growth in the nation’s economy as opposed to any effort to reduce the borrowing needs of the government.

Now it is a very different scenario. Lebanon’s real GDP growth throughout 2012 has struggled along between zero and 2 percent and the government is still spending well beyond its means; the total fiscal balance registered a deficit of LL1,708 billion ($1.13 billion) in the first half of 2012 compared to a lower deficit of LL1,304 billion ($865 million) over the same period in 2011. What’s more, the gross public debt increased by LL2,436 billion ($1.62 billion) in the first half of 2012 to reach LL83,313 billion ($55.28 billion) against LL80,887 billion ($53.67 billion) at the end of 2011.

The global investment bank JP Morgan observes that bank deposit growth is likely to remain below the 5 to 6 percent necessary to finance both the private and public sectors this year. The central bank will therefore likely have to intervene with its large stock of foreign exchange reserves — hardly a sustainable long-term solution. As Charles Arbid, president of the Lebanese Franchise Association, states, “This current system is not working anymore. We need the support of politicians and everyone needs to be involved. We need to work and produce more and spend less. We need to move away from a culture of debt.”

But alas, it is likely to be a long wait before any of the necessary policy changes or reforms are implemented. It is going to be a bleak winter for Lebanon’s economy. With the elected leaders locked in a battle of attrition, the nation’s business owners, workers and traders are going to have to navigate the treacherous landscape of 2013 alone.

December 3, 2012 0 comments

Comment

A bitter pill to swallow

by Gareth Smith December 1, 2012

written by Gareth Smith

The death last month of Manouchehr Esmaili-Liousi, a 15-year-old boy suffering from hemophilia, has been reported in the Iranian media as the first fatality caused by the latest financial sanctions imposed by the United States and European Union.

While sanctions do not directly target Iranian pharmacies or the wider medical sector, 75 percent of the medicines for treating hemophilia are made in the US and the EU, and supplies have dropped by two-thirds. Drugs are also in short supply for patients suffering from cancer and multiple sclerosis.

The problem is that Iran’s central bank, the only official channel for transferring money abroad, is a major target of sanctions. Many international private banks are increasingly loath to handle transactions or accounts in any way linked to Iran, given the risk of attracting attention from the US Treasury Department.

Without a doubt, 2012 has seen an unprecedented tightening of the noose around Iran. US and EU measures against third-party buyers have halved Iran’s crude oil exports to between 1.1 million and 1.3 million barrels per day, undermining government revenues and helping send the rial into a decline that has seen its international value halved in a year. What’s more, the US congress is intent on legislation that would further reduce President Barack Obama’s room for maneuver in loosening sanctions as a quid pro quo in any negotiations.

The military stand-off, especially in the Persian Gulf, has become an accepted day-to-day reality. Iran’s shooting at a US surveillance drone early in November reflects a trend that saw 2012 begin with extensive Iranian naval exercises in the Persian Gulf and threats from senior officials — including the first vice-president, Mohammed Reza Rahimi — to close the Strait of Hormuz if there were any move against Iran’s oil exports.

Talks between Iran and the permanent members of the UN Security Council plus Germany, which were revived in May after a lapse of over a year, failed to get beyond generalities. Real progress will not be made through such an unwieldy structure, and it is significant that Sergey Ryabkov, Russia’s deputy foreign minister and point-man on Iran, made it clear last month for the first time that Moscow accepts the need for direct contact between Washington and Tehran.

Reports that senior US and Iranian officials met quietly in Qatar in October may indicate the two sides accept this. The word in Washington is that a window of opportunity has opened with the re-election of Obama as president and will last until preparations begin for the Iranian new year, Nowruz, a festival that closes down the country for several days before March 21.

The window may close then because when Iran goes back to work after Nowruz, politics will be dominated by the presidential election scheduled for June 14, when voters choose a successor to Mahmoud Ahmadinejad on the expiry of his maximum second term. But the window could then re-open, especially if, as widely expected, the new president has a better relationship with the rahbar (‘leader’), Ayatollah Ali Khamenei, and a clearer unity of purpose replaces the current rivalries between the foreign ministry, the president’s office and the leader’s office.

Loud whispers in Washington refer to a ‘more for more’ process in which the US would seek verifiable nuclear curbs from Iran in exchange for US concessions, including sanctions relief. But where the US bottom line lies — would Iran have to ship out all its 20 percent-enriched uranium? — is unclear, and considerable political opposition exists on both sides to any kind of deal.

Another problem for US would-be peacemakers is the perception abroad that the Islamic Republic is vulnerable and even in danger of collapse. Despite sanctions, this is far from true. June’s presidential election will probably have a higher turnout than the 65 percent in the March 2012 parliamentary elections and will no doubt be hailed by the authorities as a victory over the scheming foreigners.

In fact, it may be that tighter sanctions, in ‘heating up’ politics, were partly responsible for March’s turnout being comfortably higher than parliamentary elections in 2004 and 2008, when it barely reached 50 percent.

Continuing coverage of Iranians dying for lack of medicines may help the authorities to motivate voters. With the US claiming ‘success’ with the sanctions and the Iranian leadership ‘victory’ in its defiance, 2013 is unlikely to make either side any keener on compromise.

Gareth Smyth has reported from around the Middle East for nearly two decades and is the former Financial Times correspondent in Tehran

December 1, 2012 0 comments

Finance

Private versus public exposure

by Maya Sioufi December 1, 2012

written by Maya Sioufi

With $42 billion tied up in loans to the private sector, accounting for 28 percent of commercial banks’ balance sheet, the dismal performance of the economy has banks reassessing their lending strategy.

“Banks are being flexible with some clients in terms of extending maturities,” says Ghassan Assaf, chairman of BBAC. Anwar Jammal, chairman of Jammal Trust Bank, notes that, given the dismal tourism season, “We scrutinized lending to projects involving hotels and restaurants as any feasibility or payback program they give you needs to be revisited.”

Loans in decline

For now, there has not been a significant rise in default rates, according to the chairmen of Lebanese banks that spoke with Executive, but if the deteriorating economic situation does not start improving soon, this scenario is bound to change. “Hopefully, we will have a smooth Christmas. It is important for tourism and for sectors linked to tourism,” says Saad Azhari, chairman of Blom Bank.

The fatigued economy has not prevented banks from continuing to extend their lending arm but the growth in lending has been declining in the past two years. “We are not lending to tourism and hospitality. We are lending to people who can export, unless it is something essential for the local market,” says Rami el-Nemr, chairman of First National Bank. For the first eight months of the year, banks lent an additional 6 percent to the private sector, down from an 11 percent increase in the same period last year and 17 percent in the same period in 2010. The private sector still swallows a larger share of banks’ lending capacity than the government — a strategy the banks have slowly been implementing in order to reduce their hefty exposure to the country’s sovereign.

While European banks knock on their governments’ doors for bailouts, in Lebanon the sovereign owes its local banks $30 billion as of August 2012, 20 percent of the banking sector’s balance sheet. But the growth in lending to the sovereign has been slowing — for the first eight months of the year it increased just 2 percent, following a 6 percent decrease in the same period of last year.

As Executive went to print, Lebanon was still in the process of raising $2 billion in Eurobonds to refinance $1.5 billion worth of debt maturing in 2013, while using the rest for treasury expenditures. In June, the country issued Eurobonds worth another $2 billion for the early redemption of Lebanese lira treasury bills and two months prior to that, in April, $950 million worth of Eurobonds were issued. So if the latest issue goes according to plan, Lebanon would have raised a total of $5 billion in 2012, as it had originally planned at the beginning of the year.

Balance the budget

Due to attractive interest rates, the government has been able to depend on the country’s banks to fund its expenses year after year — a situation that becomes less tenable as growth rates of deposits flowing into the banking sector drop (see overview page 88).

Lebanon’s debt-to-gross domestic product ratio has been consistently falling: from a jaw dropping 180 percent in 2006 to around 130 percent today. With GDP no longer growing at the high single digit rates that were enjoyed in the past — as the year ends the IMF expects a 2 percent growth for 2012 — the debt component needs to come down for the ratio to continue on falling.

“I believe banks will exert pressure on the government to balance the budget,” says Assaf. With deposits unlikely to start flowing back into the banks’ vaults at supersonic rates any time soon, the sector will likely continue conservatively allocating its resources favoring the fatigued, yet more lucrative, private sector over the heavily indebted public sector; unless the well overdue reforms are implemented.

“If reforms which should have started years ago are implemented, it will create opportunities; they have to happen one day,” says FNB’s Nemr.

December 1, 2012 0 comments

Comment

After Ahmadinejad

by Gareth Smith November 30, 2012

written by Gareth Smith

As president of Iran, Mahmoud Ahmadinejad has been nothing if not controversial. Internationally, he has goaded the Israelis and their American allies with his views about the Jewish holocaust, while his government’s populist economic policies have stirred domestic controversy unknown since the 1979 Islamic Revolution.

But with a presidential election due next June, Ahmadinejad is well into his last year in office, given the two-term constitutional limit. The change will be welcomed by most of Iran’s establishment, including senior clerics and close associates of Ayatollah Ali Khamenei, the rahbar (leader).

The election comes at a crucial time, with tightening Western sanctions that have halved Iran’s oil exports to around 1.1 million barrels a day and have helped spark depreciation of the nation’s currency, the rial, that accelerated dramatically last month.

Khamenei will be keen to see the poll pass off peacefully and won by a less volatile figure than Ahmadinejad. But recent Iranian presidential elections have been unpredictable — Ahmadinejad’s victory in 2005 was a surprise, and his re-election in 2009 produced the largest street protests since the Revolution.

Iranian presidential elections are partly managed, firstly because the Guardian Council, a constitutional watchdog body, vets candidates. But Iran has weak political parties, and the voting system is almost haphazard; if no one wins 50 percent, the two best-placed candidates enter a run-off, and with many contenders — there were seven in 2005 — 20 percent or so of votes can take a candidate through.

For Khamenei, one priority will be to avoid a repeat of 2009, when reformist candidates alleged the poll was rigged and the suppression of street protests sent Iran into a period of tightened political control.

The Guardian Council may well bar reformist candidates, as it did in 2005 before Khamenei intervened to reinstate Mustafa Moein and Mohsen Mehrali-Zadeh. But it may concern the leader that blocking reformists, who might then call a boycott, would hardly restore the legitimacy the system lost in 2009.

It is widely expected, however, that the Guardian Council will bar Esfandiar Rahim Mashaei, or any other associate of Ahmadinejad. Mashaei has been at the center of Ahmadinejad’s tension with Khamenei — indeed the leader overruled the president in 2009 when he appointed Mashaei as first vice-president, instead appointing him chief of staff. Later spats over Ahmadinejad’s removal of the intelligence minister originated in the maneuvering of Mashaei, whom one senior cleric accused of sorcery. In any case, Ahmadinejad and Mashaei have failed to create a sustainable political current that could propel an Ahmadinejad ally into the president’s office. Their efforts to sponsor lists for local and parliamentary elections have fared poorly.

That suits Khamenei, whose priorities are a quiet election and a president with a safe pair of hands. The leader would like a new president to calm Iranian politics by mending relations with parliament, the leader’s office, senior clerics and the central bank. This might also improve economic management in the face of sanctions. It could also tighten co-ordination over the nuclear program between the presidency, the Supreme National Security Council and the leader’s office. Iran is open to compromise but has red lines over its ‘right’ to enrich uranium, and any agreement will require skillful negotiating, as well as carrying domestic opinion. Given the election’s importance, the media is already weighing up potential candidates. Ali Larijani, parliamentary speaker and establishment insider, is liked by Khamenei, but lacks charisma and won only 5.9 percent of the 2005 vote.

Mohsen Rezaie, Islamic Revolutionary Guards Corps (IRGC) commander from 1981 to 1997, has also been suggested. But he appeared in 2005 even less appealing than Larijani, and withdrew shortly before polling.

Other names bandied about are Gholam-Ali Haddad-Adel, former parliamentary speaker; Manuchehr Mottaki, former foreign minister, and Saeed Jalili, the security official who has led Iranian negotiators in talks over the nuclear program.

A more effective candidate could be the charismatic Mohammad-Bagher Ghalibaf, Tehran’s mayor since 2005 and a former senior IRGC officer, though he received only 13.9 percent of the vote in 2005. In an interview in September with the Italian newspaper Corriere della Sera, Ghalibaf spoke of “moderation” in foreign policy while keeping “firm lines” on “fundamental questions”; as well as diverting oil revenue from current spending into productive investment.

This is exactly what Khamenei needs. This far out from June 2013, Ghalibaf looks like the man to beat.

Gareth Smyth has reported from around the Middle East for almost two decades and is the former Financial Times correspondent for Tehran

November 30, 2012 0 comments

Comment

The Kurds quietly ascend

by Josh Wood November 30, 2012

written by Josh Wood

Past the sand berm marking the border between northern Iraq and northeastern Syria, a small military outpost sits amid the oil derricks that dot the parched landscape of this country at war. A few months ago, the flag of the Syrian regime flew here. Today, it is replaced with a green, yellow and red tricolor banner, flying above a few Kurdish fighters and a pickup truck with a mounted DShK machinegun.

This is Kurdish land now, mostly.

While the eyes of the world and the Assad regime turned to Aleppo this summer as fighting engulfed the city, Kurdish groups moved aggressively to wrest control of parts of their northeastern heartland in Syria’s Hassake province from the government, corralling the regime’s presence to a few towns and checkpoints along the highways.

The endgame here for many is autonomy. Under Syria’s Baath Party, Arabization policies alienated the Kurds by limiting the use of their language, stripping many of citizenship and for the most part refusing to acknowledge that the ethnic group existed. Chronically mistreated, ignored and sitting on top of much of Syria’s oil (which generated some $4 billion in annual exports before the uprising and subsequent war), most feel entitled to a post-conflict deal that at least matches that of the Kurdistan Regional Government in Iraq, if not better.

And so they are getting ready: Signs are being changed from Arabic to Kurdish, local governments are being set up, armed forces are being trained. In Derek, which the regime called Al Malikiyah as part of its Arabization policies, there is a certain afterglow of liberation. One evening in late September, scores of youth gathered downtown cleaning the city’s streets, smiles on their faces as previously banned nationalistic Kurdish music blared through truck-mounted loudspeakers.

There is exuberance and hope here, but also danger.

The Kurdish experience in Syria made many distrustful of those outside the community and there is a strong aversion to again submitting to Arab authority. The militias being readied here — most notably the Popular Protection Units or YPG — seem to be preparing themselves as much for a fight against President Bashar al-Assad’s forces as they are for a possible fight with the rebel Free Syrian Army, should it try to enter their territory.

While Kurdish groups are currently trying to stay on the sidelines of the conflict and are not attacking the remaining Assad forces, continued government occupation of the major oil fields in the Rmeilan area could bring the war to their doorsteps eventually.

There are also sharp internal divisions in Syrian-Kurdish politics. The Democratic Union Party — known by its Kurdish-language acronym PYD — is the most dominant party in Hassake. Despite publicly denying links to the militant Kurdistan Workers Party (PKK) in Turkey, offices of the Syrian group often feature portraits of PKK founder Abdullah Ocalan and Kurds martyred in battles against Ankara’s authority.

Opponents of the PYD — primarily those Syrian Kurds who identify with Massoud Barzani, president of Iraqi Kurdistan — accuse the group of working with the Assad regime, cracking down on dissent and ensuring PYD control of the area through its near monopoly on weapons. The PYD responds to its detractors — some of them not as hostile to the Free Syrian Army as they are — by calling them traitors.

In northeastern Syria, the PYD is currently able to keep dissenters confined to grumbling under their breath. But in Kurdish areas elsewhere in the country closer to the conflict — such as Aleppo’s Sheikh Maksoud neighborhood, the nearby town of Efrin and Kobane in Al Raqqa province — guns are easier to get a hold of and limited battles between Kurdish groups have already occurred.

The PYD’s alleged links to, and ideological inspiration from, the PKK also land the group in a tough spot regarding Turkey. The country’s prime minister, Tayyip Erdogan, has threatened to take action in Kurdish areas of Syria if Turkey deems that groups which have risen up there are a threat. Calls for autonomy on some level or another are also likely to be frowned upon by Turkey, a key supporter of Syria’s rebels, as it faces rising Kurdish dissent at home and increased fighting with the PKK in northern Iraq and southeastern Turkey this year.

For Kurdish groups in Syria to retain or expand the autonomy they have gained, it will likely entail a good deal of diplomatic brinkmanship and horse-trading — fail that, they will be at war.

Josh Wood is a regular contributor to The International Herald Tribune and Esquire Middle East

November 30, 2012 0 comments

The Buzz

Morning briefing: 30 Nov 2012

by Executive Staff November 30, 2012

written by Executive Staff

Economics

Oil prices are expected to fall slightly over the next year as high production feeds softening demand at a time of slowing global economic growth, a Reuters poll shows.

More from Arabian Business

Gulf Air's CEO, brought in to restructure the airline's operations in 2009, has resigned, the struggling Bahrain-based carrier has said.

More from Arabian Business

Abu Dhabi tourism chiefs have said hotels in the UAE capital posted their best ever October in terms of the number of guests.

More from Arabian Business

Politics

The UN General Assembly has voted overwhelmingly to recognize Palestine as a non-member observer state – a move strongly opposed by Israel and the US.

Offshore ineptitude

by Zak Brophy November 30, 2012

written by Zak Brophy

Lebanon entered 2012 with the resolute promise to tap “huge wealth” from offshore hydrocarbons. Determined to ride in the new year on a wave of applauding headlines, the Minister of Energy and Water Gebran Bassil announced the creation of the Petroleum Administration, paving the way for the sector’s evolution.

In January the ministry announced that the board of the Petroleum Administration would be made public by the end of the month, the first licensing round for exploration launched within three months and the first contracts inked on paper by the end of the year. The bulk of the nation’s press obliged the minister, lauding a new page in Lebanon’s history, drunk on the promise of energy independence and untold wealth. However, as 2012 draws to a close the rhetoric rings hollow and the lofty plans remain stuck in the starting blocks.

The initial clamor was not without some justification. The odds are stacked in favor of the prospect that Lebanon is sitting on a tidy offshore treasure trove. A 2010 report by the United States Geological Survey estimated an average of 1.7 billion barrels of recoverable oil and 3.5 trillion cubic meters of recoverable gas in the Levant Basin Province, a geological formation in the Eastern Mediterranean extending from Syria to the Sinai.

What’s more, Israel and Cyprus have made impressive discoveries in recent years, which will have considerably whetted the appetite of international oil companies to tap into Lebanon’s seabed. In 2009, Tamar, a 237 billion-cubic-meter (BCM) gross natural gas field, was successfully drilled off the coast of Israel, and an additional 453 BCM of natural gas were discovered in the Leviathan field in late 2010 — the world’s largest deep water gas discovery in the last 10 years. In December 2011, the Cypriots tapped into what could amount to 226 BCM of natural gas in the Aphrodite field.

Sitting idle

Lebanon, meanwhile, has been left on the sidelines. “Israel’s and Cyprus’ relationship has been developing well, to the detriment of Lebanon,” says Malek Takieddine, a Lebanese lawyer specializing in the oil and gas industry. “The Ministry of Energy and Water wanted to pick up on the relationship with Cyprus but you need to have much more practical steps for that to happen, especially with regards to the appointment of the Petroleum [Administration] and the launching of the licensing round.”

In early July, industry bigwigs from around the globe came to the Lebanon International Petroleum Exploration Forum & Exhibition to see what the nation had to offer. The answer was sadly, not much. “Triggered by the success in Israel and Cyprus we cannot afford to idly sit by,” remarked Fadi Nader, advisor to the energy minister. Yet the impression was exactly that once the attendees had wafted through the hot air. Minister Bassil promised the Petroleum Administration within a few weeks and then the Ministry of Finance gave a 45-minute presentation revealing pretty much nothing about the tax scheme to which prospective companies would have to adhere to.

While several International Oil Company representatives expressed a skeptical caution to Executive about the ability of Lebanon’s politicians to actually get moving, others have thrown in their lot and aligned themselves with local partners (only consortiums of three or more companies in an unincorporated joint venture can actually bid for tenders). For example the Scotland-based firm Cairn Energy has joined Cove Energy and Consolidated Contractors in anticipation of the race to the ocean floor.

The eleventh hour

Minister Bassil took the opportunity to score some local cheers by maintaining, “we will not compromise on our right to the full 860 square kilometers.” However, such grandstanding did little to inspire investor confidence and seriously irked the Americans, who had been working behind the scenes to negotiate a settlement to Lebanon and Israel’s disputed Exclusive Economic Zones (EEZs); Lebanon has since dismissed the proposal.

Having stumbled and tripped at every step of the way, there was little reason to anticipate the creation of the Petroleum Administration before the year was out. And then in true theatrical style Minister Bassil pulled the rabbit out of the hat at the 11th hour — actually the 11th month, with the government agreeing upon the six appointees in mid-November.

“The [Petroleum Administration] must now start preparing the acreage pre-qualifications and tenders and lay the groundwork for the production sharing agreements once the companies and the consortiums are short listed,” says independent energy consultant Roudi Baroudi. In short: Now the real work begins.

November 30, 2012 0 comments

The Buzz

Morning briefing: 29 Nov 2012

by Executive Staff November 29, 2012

written by Executive Staff

Economics

Gold ticked higher on Thursday, after suffering its biggest daily decline in nearly four weeks in the previous session, as the looming deadline for averting a US fiscal crisis kept investors on their toes.

More from Arabian Business

Saudi Arabia and Sudan are seeking to start in 2014 deep-water mining of a Red Sea basin believed rich in gold and copper.

More from Arabian Business

Zain Saudi extended the maturity of a SAR9 billion ($2.40 billion) Islamic loan for another 21 days on Wednesday, the fifth time the loss-making telecom operator has deferred payment.

High stakes on the border

by Nicholas Blanford November 28, 2012

written by Nicholas Blanford

At the end of 2011, it was still unclear whether or not Hezbollah was playing a direct role in assisting the regime of President Bashar al-Assad. Syrian refugees streaming into Lebanon had insisted since nearly the beginning of the uprising in March 2011 that Hezbollah and Iranian Revolutionary Guards were among the Syrian troops sniping at protesters from rooftops. But there was little hard evidence.

Adding to the skepticism was Hezbollah Secretary General Sayyed Hassan Nasrallah’s toned-down rhetoric on Syria around February and March 2012. Earlier, he had lambasted the West for seeking to oust Assad. Now, he was calling for dialogue and warning that continued violence would resolve nothing. Some diplomats and commentators took this to mean that Hezbollah was beginning to distance itself from a regime that seemed doomed.

However, at the end of 2012, few would still cling to the notion that Hezbollah is uninvolved in the Syrian conflict. Throughout the summer, there were growing whispers within Shia circles about various Hezbollah units deployed across the border or of the bodies of dead combatants being repatriated for quiet burial. The death in early October of Ali Nassif, a veteran Hezbollah commander, finally spurred Nasrallah to admit that some Lebanese Shiites, including some Hezbollah men, were fighting to defend their homes just across the border which were coming under attack by armed opposition groups.

On a recent trip to the Hermel area in the northern Bekaa, there was little disguising Hezbollah’s activities. As shells exploded across the border and the crackle of small arms fire could be heard nearby, a column of what appeared to be Hezbollah vehicles (Sport Utility Vehicles, usually Grand Cherokees, with tinted windows and no license plates) and minibuses filled with young men thundered down a narrow road heading to the border 300 meters away. Other Hezbollah vehicles raced up and down the potholed roads of the area; fighters in uniform rode rally bikes while others stood on the roadside communicating with radios.

It appears that there is some unease within Hezbollah’s ranks, both at a leadership level and among the cadres, regarding their continued assistance to a regime that surely will founder at some point. However, the fate of the Assad regime is a strategic issue for Iran and as such Hezbollah does not have the latitude to make independent unilateral decisions.

Indeed, it is evident that siding with the Assad regime to the extent that Hezbollah has is actually detrimental to the party’s domestic political interests. Openly supporting Assad and battling Syrian Sunnis in the armed opposition is deepening the divide between Lebanese Shias and Sunnis. Many Lebanese Sunnis already harbor deep feelings of bitterness, resentment, humiliation and frustration toward Hezbollah, stemming from the May 2008 events to the collapse of the Saad Hariri government in January 2011.

For now, there appears to be little indication that Iran and Hezbollah intend to change their position on Syria. And a glance at the balance of power on the ground suggests that the Assad regime could continue to hold out for a while longer, even if a restoration of the pre-uprising status quo has become impossible. The Syrian army is being whittled down to a hard core of mainly Alawite troops replete with armor, artillery and air power. The army is supported by a Hezbollah-trained loyalist shabiha paramilitary force as well as Hezbollah combatants. The regime enjoys the continued logistical backing of Iran and diplomatic support of Russia and China. Collectively, that represents a fairly formidable front against a lightly-armed, ill-trained, poorly organized bunch of militias that lack strategic coordination. The recent signs of unity in Qatar among the external political opposition is an encouraging first step (if it lasts) but there remains a long uphill struggle before achieving a cohesive and effective political and military front against the Assad regime.

Even if the opposition can remove the Assad regime from Damascus, it does not necessarily signal the end of the conflict. Iran and its allies may still possess sufficient military might in Syria to perpetuate instability to ensure that no administration antithetical to Iranian interests can take over in Damascus. The Iranian plan (of which Hezbollah is a component) may not be geared so much to saving Assad, but looking to see what advantages can be accrued from a prolonged period of turmoil and civil strife.

Toppling the Assad regime may only be the end of the first gloomy chapter in a depressingly long book.

Nicholas Blanford is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

November 28, 2012 0 comments