When two separate shipments of spoiled Indian meat were detected by inspectors at Beirut Port in June, the government was quick to claim that the successful police intervention proved the meat safety “system” in Lebanon worked well.

“Everything is under control. There is no bad meat in the country,” said Ali Hassan Khalil, the agriculture minister, in a statement to the press.

Critics, however, including fed-up members of the meat industry itself, were not as confident. For some, the 250 tons of spoiled meat that rotted away at the Port for several weeks before being shipped back to India was just one indication of a much larger problem. Lebanon, the critics said, still had a long way to go in meeting rigorous, international health and safety standards when it comes to meat.

By mid July, the government seemed to agree. After an intense press conference by the Cattle and Butchers Syndicate, and public scorn from the nascent public watchdog group Consumers Lebanon, both of which pointed to previous shipments of spoiled meat from India, the government issued a ban on all imports of Indian meat – which is to go into effect in mid September since some shipments from India were already en route when the decision was made.

In taking such sweeping action, the government grudgingly fell, at least partly, into line with the EU, which has for years banned meat imports from India because of health and safety concerns. Although the Lebanese government had long argued that the UN deemed Indian meat safe – claiming that the EU’s actions were more about protecting their own domestic meat industry – the twin incidents of spoiled meat seemed to raise enough concern about the costs of continuing to do business with the country, considering that Lebanon imported 75% of all frozen meat consumed last year (6,841 tons out of 9,124 tons in all).

Of course, the decision was not easy – frozen meat from India costs about $1.5 per kilogram, less than chilled meat from Brazil or Paraguay, which costs $3 per kilogram, and substantially less than fresh meat from live European cattle, which costs $5 per kilogram.

Since Lebanese SHAWARMA, as but one example, is primarily made from frozen Indian buffalo meat (cows are sacred in most Indian states), the inescapable political reality is that it’s only a matter of time before the Lebanese consumer feels the pinch. As one industry source explained, “The demand for cheaper and cheaper meat, like from India, has grown steadily, just as the old sources of meat have become more expensive.” Indeed, faced with growing price differentials, the composition of the Lebanese meat diet has changed considerably over the last decade. In fact, some observers now estimate that 15% of all meat consumed in Lebanon is frozen, 25% chilled, and about 50% fresh. Rewind to ten years ago and about 75% of all meat at the dinner table was fresh, derived from live cattle slaughtered locally. Frozen meat represented only a small part of the market.

Live cattle is still Lebanon’s number one commodity import, ahead of cigarettes, at a total value of $135 million last year, but imports of frozen meat from India have risen by 27% and 57% in 2002 and 2003, respectively. Added to this is the fact that nearly 95% of all meat needs are now being met by overseas sources. Gone are the days when Lebanon had a thriving domestic livestock system.

For some critics, the government’s decision to halt the increasing stream of Indian meat imports appeared to offer tacit acknowledgement that, even though inspectors ostensibly discovered the spoiled meat, some risk was present that the meat might have entered the marketplace – health and safety controls, these critics said, were not as strong as the government claimed.

According to one industry source, who, like most wished to remain anonymous for fear of reprisal, the spoiled Indian meat caught at the Port had actually been turned away from Jordan the previous week. When it arrived in Beirut, it was actually a competitor who tipped off ministry of agriculture inspectors that the meat was bad. A top official close to the issue disputed this notion though, saying that international sampling procedures were used on all meat imports, which includes taking a piece from the front, middle and back of each 22 ton container of frozen or chilled meat that arrives in Lebanon and testing it for bacteriological and viral contaminants. The government official was confident that the three inspectors assigned to test meat and monitor livestock at the Syrian borders, the airport and the Port would have caught the spoiled meat. However, according to the industry source, the government does not have enough inspectors to check the multitude of shipments that arrive each day in Lebanon, some of which, the Cattle Syndicate argued publicly, bear false or misleading certificates of origin, validity, and composition, further complicating the process. As the industry source put it tersely, “I don’t let my children eat meat unless I have seen the cow myself.”

Indeed, according to several industry sources as well as top government officials and at least one international expert, the government’s action against Indian meat really should be seen as a kind of surface maneuver, one that deferred, or anticipates (depending on how you look at it), the more difficult kinds of systematic reforms that are needed throughout the meat sector in order to ensure that Lebanese consumers are adequately protected. The reason for this sentiment is threefold: first, Lebanon currently has no food safety law protecting consumers, nor does it have an integrated system for measuring outbreaks of food borne illnesses or problems that occur at meat facilities. One can only wonder if this lack of statistics is why even critics of government food safety practices are also usually quick to assert that the Lebanese don’t really get sick from meat. (Of course, the 60 people recently sickened by a meat borne E-Coli outbreak at two separate wedding banquets in Lebanon would probably disagree.)

Second, the central government has little control over the 40 or so slaughterhouses and meat processing facilities in the country – nearly half of which are essentially unlicensed, despite handling nearly half of the 40,000 tons of meat consumed in Lebanon each year. Since municipalities control and monitor the slaughterhouses that lie within their own jurisdictions, a patchwork of irregular standards and procedures has emerged that inhibits industry wide surveillance and early warning measures. This chaotic situation has even led the Cattle and Butchers Syndicate to call for the closing of the main slaughterhouse serving Beirut, the Quarantine, saying that only a completely new facility could meet modern health and safety standards. As one top official closely involved with the issue put it bluntly, “The slaughterhouses present a serious problem.”

Such a conclusion is not altogether surprising, especially when considering that, as one representative from the ministry of economy and trade – the agency charged with inspecting slaughterhouses, processing plants and meat products – acknowledged, “We do not have enough inspectors.” Add to this the fact that the agency acts primarily as a “complaint driven” institution and what you have is a situation where the Lebanese consumer is left to trust an industry with little in the way of uniform, transparent standards and practices, not to mention vigorous oversight separate from local interests. Third, in banning meat imports from India, the government avoided dealing with the issue of Paraguayan meat, which the EU bans on similar grounds as Indian meat (10% of all chilled meat imports are from Paraguay, with the other 90% from Brazil). This concern may not be a factor for much longer though, as several sources closely involved in the issue predicted that it would only be a matter of weeks before meat from Paraguay was also banned. Despite the problems and late-inning measures, it appears that Lebanon is finally moving ahead with reforms in the meat sector. Both the ministries of agriculture and economy, in addition to the United Nations Industrial Development Organization, are pushing forward a food safety law that will help Lebanon gain World Trade Organization membership, as well as better protection for consumers. Significantly, the draft law, which is expected to be taken up by parliament during the next session, aims to centralize authority over the various elements in the meat industry through a Lebanese Food Safety Agency. That body will, hopefully, put in place the law’s new standards and guidelines as well as serve as a proactive monitoring and enforcement regime for all levels of the meat industry. While stressing that the proposal was “excellent” and met the highest international standards, one non-governmental expert involved in the effort acknowledged that centralizing authority over what is now a sprawling web of interests involving butchers, supermarkets, slaughterhouses, ports and processing plants would be a “big challenge.” Either way, it’s a challenge that has clearly been made less daunting in the wake of the spoiled meat flap. According to Zuheir Berro, Consumers Lebanon’s executive director, the momentum couldn’t have come any sooner. In mid July, barely one month after the Indian meat seizures, the ministry of agriculture announced that 25 tons of spoiled fish had been detected and seized at Beirut Port. In one published report, a ministry source said that the importer of the fish was the same one who had tried to bring the spoiled Indian meat into the country in June. “There is an international mafia with connections inside Lebanon” facilitating the entry of spoiled meat, said Berro. “And we have no food safety law. Enough is enough. We need reform now.”

In the wake of criticism from a wide array of religious and political leaders, threats of an outright ban, and the very public defacement of certain controversial images from Tyre to Tripoli, the outdoor advertising industry appears ready to engage in a bit of belated self-regulation. To understand exactly what this will mean, EXECUTIVE sat down with Antonio Vincenti, CEO of the billboard giant Pikasso, who has been at the forefront of efforts to repair the industry’s own image.

Q: Describe Pikasso’s current role in the regional advertising marketplace.

A: We are in Lebanon, Jordan and Iraq – Iraq since January. We have forty competitors, more or less, in Lebanon and forty in Jordan and we are the largest company in Lebanon. What we do is rent locations from municipalities or from landlords, we install the boarding and then we rent it by creating networks.

Q: What is at the center of the controversy over outdoor advertising in Lebanon?

A: In a country where you have 17 communities living together, I think we must, if we want to preserve civil peace, respect the beliefs of all of the 17 communities. Now, where does the border stand between what is permitted and what is not permitted? Thank God, general security has a very open minded attitude. Since the beginning of the year (when they became the official censor), we have never had any problem with general security. And I can tell you that they are very liberal in their way of guarding permits. What does this mean? It means we should be very responsible toward this open-minded attitude of the censor. If we say, yes we have had a problem with religious authorities, but we have the permit from general security, then the attitude of general security the next day is to refuse all visuals or half of them, whenever they feel as though they will have the smallest problem – which is a pity. That is why we need to have self-censorship, self regulation – a logical attitude. You know you have visuals you should not accept and you should not accept them nor you should post them.

Q: What will self-regulation entail exactly?

A: After the Association for the Defense of Moral Values in Lebanon asked the justice minister to [crack down] on certain billboards. I advised my colleagues and competitors to take care and be very cautious. We also attempted to create a dialogue among companies. We are all working in the same sector but each one has different values and ethics. So, we suggested, and we will create, groups composed of the president of a municipality, three or four billboard companies, the local association of traders, a representative from the ad agencies and a representative of the ministry for the interior. Our industry objective now is to reduce the number of billboards by 25% in crowded areas. We will start this with the municipality of Antelias. The president there said he would like to be the first one to try this.

Q: Where, from within the industry, have most of the problems with visuals come from?

A: The problem comes from a lot of small agencies – they don’t care, they [produce] vulgar creations and post it everywhere. This is what disturbed and created this problem from all the religious authorities. Now, I would defend to hell pure creativity and the body of a woman on a billboard, if it is done with class, with creativity by a big agency, for a big brand with class. I do not want to be associated with a cheap product, cheap creativity and a vulgar thing.

Q: Some tiles have been taken out of less vulgar billboard visuals though, like one example along the highway to Sidon where Haifa Wehbe’s shoulders were removed.

A: This I am not aware of. A shoulder would never be a problem. Look billboard posters have abused the usage of their billboards, putting images that hurt the feelings of certain people. But if I have a big brand like Aïshti, who wants to put a half naked woman or L’Oreal, I will do it, but I won’t put it in a sensitive area. I would put it in Jounieh for example.

Q: Pikasso has never had a problem with its 3,000 plus billboards?

A: No, thank God. I just had two unipoles for a brand of underwear. I asked them to change the visual and they refused so I stopped the contract. It is not worth it. We want to be responsible. We don’t want to be used by some product or agency in order to sell some products with those provocative visuals.

Q: Has Pikasso ever had to bend the rules in order to compete in the market?

A: We respect the law as much as we can and we only stop respecting the law when our survival is at stake in a city or town. What does this mean? That we would exclude ourselves if we tell a president of a certain municipality, look we don’t install here because it does not respect the law [regarding the spacing of billboards]? Sometimes, I have no choice, or I would exclude the company from the market. If I am in a city where I have installed some billboards and then the council decides to give a competitor space at 50 meters away from me, what should I do? Dismount the billboard and exclude Pikasso from the city?

Q: Since the main advertising law stipulates that billboards should be kept 100 meters apart in all public areas, considering that 60% of the country’s 10,000 billboards are concentrated between Khaldeh and Jounieh, a stretch that only accounts for 10% of the country’s total area, won’t a 25% reduction significantly hurt revenues in these overcrowded, but profitable locations?

A: With the clutter prices are going down. Now, after the industry changes, it will be even better. It will make billboards more attractive and the sector more organized.

Q: Does Pikasso hold any of the billboards where the visual is repeated over and over again ad naseum?

A: No. I think this is not very smart, although there is a saying in Arabic: “Repetition is a good lesson for donkeys.” They believe that, but it is totally wrong.

Q: What’s to say that your 40 or so competitors will do a better job of self-regulating their visuals and, on top of this, agree to voluntarily reduce the number of billboards, especially if some are already apparently willing to push the borders of the industry.

A: Now, I think that general security will be much more rigorous on the permits they will grant and, therefore, you will see that we have less and less of those problematic visuals. I think that our competitors understand that we are all seriously under threat and that we are playing with fire.

Q: According to one published report, Jounieh recently estimated that it should be generating as much as $666,000 per year from taxes on billboards. But, last year, it only saw $26,000 (LL39 million). What accounts for this discrepancy?

A: I will tell you that the figure is wrong in Jounieh. We alone pay the amount of LL40 million annually. I have a colleague who pays LL40 million. I said to myself maybe this is for political reasons, they are attacking the old municipal council. What I have heard though is that a lot of companies have not paid their taxes elsewhere and what I think we should do is haul them in front of the courts and not let them get away with that. We at Pikasso pay rigorously all of our municipal taxes, even during the war, and this is a point of honor for me because it is an obligation.

Q: Although general security has censorship power over billboards, why have you opposed the formation of a specialized body, such as a bureau for the verification of advertising, such as has been recently proposed?

A: In Lebanon, when you create a new authority or council, you will put people together that will argue and fight with each other. We know the people now, and we know that they are good people. We think that one control from general security is more than enough. We have the law, we have to respect the law – we have to be responsible and mature. I think that maneuvering smartly among all those things will be enough.

While, economists tend to measure tourism in visitor numbers, employment and/or contribution to GDP, an equally important gauge is the level of infrastructure development and the intensity of tourism “hotspots” (full of enthusiastic tour guides corralling tours through the nation’s must see sites). Theses abound at the pyramids, the Acropolis, St. Mark’s Square, the Louvre and the Eiffel Tower, but apart from a few weary public servants pointing to Roman columns at Baalbek, this level of tourist development has yet to be seen in Lebanon.

The BCD may be crowded night after night, but the continued total administrative indifference to emergency access needs and non-implementation of regulatory codes (which the ministry of tourism proclaimed only a few months ago would “absolutely be enforced before the summer”) in itself tells a story about the current art of managing tourism development.

But even the BCD still doesn’t radiate the air of a conventional tourism hotspot. Neither do Lebanon’s shores bear the mark of highly developed tourism displayed around the Mediterranean by sun-and-fun coastal villages, which rival their countries’ world-famous tourism landmarks as crowd magnets.

In this light, Lebanon’s tourism development is entering virgin territory. While the role of Beirut as Jet Set playground and entertainment attraction in the 60s has been touted ad nauseam, one local expert believes Lebanon never was a tourism destination, at least in the sense it would have us believe.

“Lebanon doesn’t belong to the classic scheme of tourism development of the type you find in catalogues, with hotels by the seaside, buffets, one tennis court per each 15 or 18 hotel rooms, and so forth,” said Guy Gay-Para, holder of a doctorate in tourism and owner of a café at Byblos Port. “This kind of tourism has been developed years ago in countries with dozens of kilometers of undeveloped seashores, such as Morocco, Tunisia, the Spain of Franco, the Portugal of Salazar. Recent history has shown that there never was Lebanese tourism in the classic sense. Lebanon was merely a convenient and convivial location that fused business and pleasure.”

However historical reflection is, it can be argued, irrelevant. The world of leisure travels today is very different from what it was 30 years ago and it is not enough to simply reproduce the past. Consumer behavior is diversifying and maturing. Providers and destinations have to increasingly deliver tourism products and services that are not only price competitive and high in quality but also satisfy social and environmental criteria.

This has not escaped the ministry of tourism (which, incidentally still has to demonstrate that it has a firm grasp of what is expected of it). “Our goal is really sustainable tourism,” said the ministry’s director general, Nada Sardouk. “We are working to develop the ‘Hidden Lebanon’, the many beautiful areas of the country that are not yet on the map. What we want for tourism is to achieve is social and economic development.”

What the ministry still has to demonstrate is a full grasp of what is expected of it. In a measure under its authority, it is currently completing the country-wide installation of sign posts and plans to issue comprehensive visitor maps. Although tourism conservation and development issues are spread over numerous institutions other than the ministry, and budget restraints hamper its operation, Sardouk said the shortage of funds did not present an insurmountable problem for the ministry’s role in tourism promotion, thanks (rather surprisingly) to inter-ministerial collaboration and (not surprisingly) barter deals with the private sector.

A good tourism infrastructure relies to a great portion on general infrastructure, road and transportation networks, water and electricity supply, waste collection and waste treatment. According to Sardouk, major highways and access roads to key tourist areas are in a good working order, but she agreed that general infrastructure needs more work. “The council of ministers has taken the decision to review roads and electricity supply to all mountain villages during the summer,” she said, and optimistically, “We still need a two to three year action plan for infrastructure development on water and electricity.”

While most of its aspects are public sector, a significant portion of tourism infrastructure is created by the private sector, from hotels and car rental companies to tour operators and visitor attractions. Here, the Lebanese state has instituted some support mechanism for the creation of this tourism infrastructure under the stipulations of the IDAL investment law 360, which since 2002 has benefited several large projects.

Although many operators say that they nonetheless do not see enough effective government support for development and usually rely on their own devices to plan and execute tourism ventures in absence of clear-cut communal or national strategy framework, the private sector does credit the ministry of tourism with making efforts in favor of their development.

Sardouk on her part described the partnership between private sector and ministry as “very good.” She added that the ministry is quietly “cleaning the house” of the tourism sector from defunct operators and that the quality of tour guide services is being upgraded under a new law, which, (rather bizarrely) mandates new guides to graduate from a specialized four-year university course. As far as being able to accommodate growing visitor numbers over the coming five years, she said she did not expect any bottlenecks in the supply of hotel rooms and facilities, tour buses, or any other aspect of the sector.

An essential operative aspect for securing functional tourism infrastructure, where private and public sector may find difficulties, is in understanding demand and matching it to what the country can supply or is willing to develop. Here Lebanon is facing an interesting challenge, because even at today’s relatively low inflows, the “typical” Lebanon tourist cannot be easily defined.

The guest from the Gulf region, whether he arrives by private jet, in economy class, or by car, is commonly viewed as a long-term guest, seeking a summer base, shopping and entertainment. Around Beirut and in the traditional mountain resort communities, ample evidence shows that many providers made a priority of developing facilities that appeal to this category of tourist.

Visitors from the Levant countries represent a different category, yet, with Syrian and Jordanian guests ranking third and fourth (after Saudi and Lebanese clients) for total hotel nights booked last year, this group represents a market potential that one hears little about. Tourists from outside the region comprise two distinct major groups: Lebanese expatriates and non-Arab (largely cultural and religious travelers with no discernable ancestral ties to the Eastern Mediterranean).

For the time being, data of arrivals and hotel stays (of over 160 nationalities by number of persons, total nights and average length of stay) by the ministry of tourism are quantitative. Because research hasn’t been more specific, the ministry for instance broadly assumes that holders of foreign passports are genuinely foreign as many expatriates enter the country using Lebanese identification. However, in case of second and third generation foreign-born Lebanese, this may not be the case (the number of Brazilian, Mexican and Argentinean hotel clients in 2003, all countries where persons of Lebanese descent make a good share of the population, were comparatively high).

The composition of anticipated future visitor streams, thought to include more and younger individual travelers from out of region, complicates the picture further. Behavior patterns in some of the main origin countries of international tourists digress seriously from public moral standards that apply in the Middle East and many western tourists today expect to be able to openly pursue activities that are not accepted under local behavior codes.

Under maturing trends in interests of European and other international travelers on the other hand, Lebanese tourism can expect to encounter strong and increasing demand for tourism products that they cannot readily supply. Beirut, for instance, lacks a museum that would guide visitors through the country’s cultural and communal diversity or explain the aspects of Lebanese history that people from around the world associate with the country – its exposure to the Middle East conflict. Health, eco- and agro-tourism are vacation growth areas that public and private sector have only recently awakened to and where soft and hard infrastructures need yet to be defined.

With tourism acting as the globalization force in culture, intensification of visitor arrivals would oblige operators and authorities here to embark on a steep learning and action curve in avoiding mistakes made elsewhere during the rise of mass tourism, evolve the tourism infrastructure in a multitude of features, and secure development that can enrich the national existence frame on environmental, cultural, social, and economic terms. In all that, the human element is the combining factor at the core of all tourism infrastructures. “The tourist will know if you lie to him,” said experienced tour guide Francoise Hobeika. “You have to make the tourists see the country through your eyes, let them feel the place and sense the beauty of the land so that they enjoy their visit.”

Besides nine main historic and natural attractions that could all be real tourism hotspots, Lebanon according to Sardouk holds about 190 sites of archeological and cultural interest, many of which are not yet incorporated into the tourism infrastructure. Add to that the country’s human capital and you maximize the power of the destination that might even open up even more untapped niche sectors.

“Among European cultural tourists, many are old and lonely,” said Hobeika. “I have seen seniors who left Lebanon with tears in their eyes and said they would never forget us. They didn’t feel lonely here.” Surely that is incentive enough.
 

Car drivers around the world usually agree on one opinion: gas prices at the pump rapidly shoot up when world crude prices increase but slip much less eagerly when crude rates head back south. In the period immediately after the world oil market relaxed from its $42/barrel (bbl) peak in late May, the reality in Western Europe and the US fit that view, as pump prices after one week relaxed only by about $0.04/ liter, or 2%, in Europe’s largest market, Germany, and rates in the US took until June 14 to drop back below $2/gallon. One can credit both stronger market confidence and improved balance of the supply-demand logic for allowing international crude oil prices to dip back below $40/bbl last month, following the June 3 Beirut OPEC meeting to increase production quotas by 2.5 million barrels per day (bpd) and legalize already existing overproduction, and subsequent physical increases in production from Saudi Arabia and the UAE (total around 1 million bpd) that brought a corrective factor onto record high prices. But although prices at the gas pump eased slightly in the second half of June also in Lebanon, vital concerns over the cost of fuel to both the Lebanese economy and the individual consumer remain.

In Lebanon, gasoline prices are government mandated, with weekly reviews of price ceilings that in all practical terms translate into the effective sales price that the consumer pays at the gas station. As the state thus exerts double influence on gasoline prices through taxation and price determination, the demand to lower retail prices for fuel became a central rallying point in the country’s May 27 general strike. However, while economic hardships make them more than understandable, demands for capping the maximum amount that Lebanese consumers have to pay at the fuel pump must in the end remain wishful thinking. The reasons behind high gasoline prices are too complex and the implications of reduced revenue from gasoline taxes are too vast to allow for such a “simple solution.” One may never forget that the first driver of the consumer gas bill is the supply situation. All mineral fuels are refined from crude oil and so the price of a gallon of gasoline derives directly from the price of crude oil. It has been well established that a number of reasons have influenced the high prices of crude oil, which soared as high as $42/bbl in trading on the New York Mercantile Exchange by late May 2004. Such a high price of oil will inevitably be passed along the refinery chain to gasoline prices and thus affect the end user. What then were the causes behind the recent oil price rally? It was spurred on by a combination of angst over potential supply shortages, strong demand, and aggressive speculative buying. Looking at the details, most analysts agree that the following main factors influenced the market in the first half of 2004:

· Instability in Iraq

· Terrorist threats to producer nations in the Middle East (including Saudi Arabia)

· Increased global demand, particularly from China

· Lower-than-expected non-OPEC production

· Shortages in spare refining capacity available to OPEC (and non-OPEC) producers

· Aggressive fund buying (more significant in the early stages of rally).

The large extent to which the war in Iraq added instability to the markets must not be underestimated. Attacks and acts of sabotage have hampered reconstruction efforts designed to rebuild the country’s archaic oil industry. At the time this article went to print, an attack on the Northern Kirkuk pipeline to the Turkish Mediterranean port of Ceyhan, and two separate attacks on the southern export terminal of Basra completely halted Iraq’s 1.8 million bpd of crude exports; repairs are expected to be completed around the second week of July. Kidnappings of foreign nationals hindered progress and prompted some foreign organizations to withdraw their employees, including construction companies who are in need of valuable experience for the reconstruction job at hand.

Iraqi exports had averaged 1.8 million bpd, around 1.6 million bpd of which is from the Basra oil terminal, while the remainder came from the northern Kirkuk pipeline that leads to the Turkish Mediterranean port of Ceyhan. Resistance to the US occupation and terrorist attacks against the country’s political and security infrastructure have been stiff, dimming the prospects for a successful performance of the Iraqi Interim Government in the second half of 2004. Numerous local leaders have openly opposed US plans for the handover of power in local elections, thus making additional violence and continued instability very likely. Terrorist threats to other Middle East producers have also pushed markets higher and are adding a premium to crude prices. An attack by gunmen against a Saudi Arabian refinery complex in Yanbu that killed six workers in May and further terror strikes against foreign oil workers in June underscored the threat against the security infrastructure in the world’s largest producer. If attempts to restore security at Saudi oil facilities and ward off terrorist groups are not successful, future supply fears could grow to levels that would make crude oil prices of $35 to $40/bbl seem cheap. In trade developments over the past year, crude markets have become increasingly affected by heavy speculative non-commercial buying, primarily by investment funds. Large speculative net long positions have pushed markets higher as well as raising the possibility of a massive sell-off when investors decide the market has topped off. NYMEX WTI net non-commercial longs hit a 15-year high of 87,000 lots in February, although this has now fallen back to 40,000 lots. Estimates of the impact of the funds on the market vary greatly but on average, traders see the impact as comprising around $4/bbl in the composition of current prices. However, it is important to note that the last $4 rise in the market (from $37 to $41 on WTI) has not been driven by fund buying. This reduces the likelihood of a large fund sell off as the funds are all heavily in the money. It also means that demand from buyers does not seem to have been significantly impacted by current high prices.

As for the demand outlook, figures are also not in favor of significantly lower oil prices. In its monthly OIL MARKET REPORT, the International Energy Agency (IEA) raised its forecast for global oil demand in 2004 by 360,000 bpd to 81.1 million bpd, reflecting the largest absolute increase in global oil demand in 24 years. The report cited stronger than expected energy consumption among industrialized nations, which was bolstered by explosive demand growth in China, as the main cause of the increase. The IEA forecasts world consumption will rise 3.8 million bpd from the second quarter’s 78.7 million bpd to 82.5 million bpd in the fourth quarter of this year. The upward revision adds to worries that increased demand will continue to prevent inventories from accumulating and cause disruptions in the supply of products such as gasoline. The IEA also said that non-OPEC producers are failing to pump as much as expected this year, increasing reliance on OPEC for extra crude. The IEA raised its forecast on the call of OPEC crude by 500,000 bpd to 26.4 million bpd for this year. However, numerous producing nations are currently producing at maximum levels leaving little room for any additional output to help ease prices. While predicting oil price developments is a fickle business, the combination of the above elements makes it seem unlikely that dropping crude oil prices could drive gasoline prices down to levels global consumers enjoyed in the late 90s. Here, it is also important to remember that as high as they are, nominal (inflation adjusted) crude oil prices today are far below their highest levels, reached in 1980 (see table).

But this fact cannot be a total comfort to Lebanese consumers. Apart from global market developments, end prices for gasoline are determined to a very significant portion on the domestic front. As stated unmistakably by a survey on global gasoline prices (undertaken in May by research firm AirInc for CNN Money), “the main driver of price disparities between countries is government policy.” In one word: taxes.

Different tax burdens contribute greatly to the fact that gasoline prices for a 20 liter tank filling in May 2004 could range up to $35 in the United Kingdom, Hong Kong, and Germany, while US drivers would have paid not much over $10 and motorists in some countries – try Azerbaijan –

could get away with filling up for as little as $6 to $8 per 20 liters. In Lebanon, the tax burden on motorists has increased substantially over the past four years, first through a hike in gasoline tax and then through addition of Value-Added Tax. The sum of tax levies on each 20-liter filling thus today easily exceeds 50%. The ratios fluctuate somewhat according to the rate decisions taken at the ministry of water and electricity (at the beginning of June, for instance, the ministry reportedly reduced the excise tax on gasoline by LL2,000 to curb pump prices at LL23,000 but in subsequent weeks it re-raised the rates by LL800 when supply costs dropped). But in essence, fuel tax rates in Lebanon are the highest they ever were and extremely unlikely to drop by any significant percentage.

In addition, under the regime of Saddam Hussein, Lebanon had import/ export agreements with Iraq that offered it crude oil at significantly below the market price. Although the legality of the Iraqi exports, and alleged related provisions to political leaders, has yet to be analyzed by a reliable source, the deliveries of Iraqi oil were relieving the Lebanese consumer of paying the true price of crude and helped in protecting him from abrupt price shocks as we see today. One can always question whether these levies were instituted with sufficient foresight on their macroeconomic and socioeconomic effects, which were exacerbated greatly by the rise in crude prices. Under a principle that applies equally to mature and developing economies, transportation-related taxes and fees are means to steer development, avoid wastage of fuel resources and limit pollution. Due to contradictory impulses, the Lebanese system of car registration fees and fuel taxes gives grounds for questions also in this context. But there can be no doubt that the fragile Lebanese fiscal situation today would be very negatively impacted by a massive contraction in revenue from fuel taxes.

The third force in determination of fuel prices are distributors. Local importers and distributors of gasoline are frequently accused of acting as cartel and bearing responsibility for the high gasoline prices. But although they are licensed to trade mineral products for profit, Lebanese importers and distributors of fuel oil play a much smaller role than the state in the setting of prices for end consumers.

Lebanon’s fuel importers and distributors say they are not benefiting from the high fuel prices and even claim that they put them at a disadvantage for several reasons. Regardless of the pump price, their government mandated dealer margins are fixed (at $0.20 per 20 liters) and remain unchanged. Costs in importing, such as obtaining letters of credit and pre-paying customs, and distribution-related costs, namely extension of credit lines to their buyers, are on the other hand being driven up by higher product prices. In addition, higher prices impact consumption and importers predominantly describe motorists as monitoring their consumption more than before. Some see mitigating effects in new cars and increasing tourism but overall, the sector speaks of stable to slightly negative developments in sales. Moreover, fuel distributors can only compete in very limited fashion, mostly through discounting in times of falling supplier prices. The limited leverage to set prices coincides with the limited buying power of Lebanese oil importers, restraining their ability to obtain good prices in international markets.

On the other hand, it appears undeniable that the Lebanese scenery of a few local and no multinational operators has reduced pressures that would normally give incentive to firms to develop, rationalize and become more competitive. Some traders admit that abolition of government fuel price mandates would most likely be immediately followed by a practice of price-fixing among distributors, since cartel structures already exist in several respects. Local refining capacities for oil remain theoretical and the small market – which lacks transparency in governmental pricing policies as well as in industry structures – seems not able to attract multinational firms to come in and develop local product chains to the end consumer. All these factors can be attributed with contributing to the very sluggish development of Lebanon’s domestic gas station culture, which is currently characterized by high service levels but a scarcity of modern efficient filling stations with associated retail marts. In conclusion, the issue of whether or not increases in global crude prices are affordable to the Lebanese consumers should not be a case for the treasury and its meager reserve but rather a case for alternative modes of transport, increased investment in public transport facilities, and perhaps a reduction in the number of cars the average household chooses to have. As inexpensive individual transportation (with emphasis on individual car ownership) does not qualify as either civil right or absolute economic necessity, the consequence is inescapable: if you want to drive it, you need to pay for it. Whether or not one can afford a private car is not a case for a depleted treasury to address, but rather a case of re-evaluating options. Said Ghusayni is the Energy Derivatives trader at Mitsui Bussan Commodities LTD in London.

The frightening rise in the number of terror attacks in Saudi Arabia appears to be aimed primarily at the expatriate community. This seems like a clear attempt to strike at the soft underbelly of the kingdom – its economy. Initially, it might seem the attacks are aimed at causing panic and claiming as many lives as possible. Or perhaps this is al-Qaeda’s promise to follow up on earlier threats to kill as many “crusaders” as they can. Closer analysis, however, reveals a more sinister motivation is driving the recent terror campaign. Its aim is to hit the kingdom where it would hurt the most.

Yes, it’s still very much about the economy. The terrorists, said Marc Sageman, a forensic psychiatrist and author of UNDERSTANDING TERROR NETWORKS, are applying the old communist logic, that “you wither away the state,” in order to have it fall. Sagemam is also a former CIA case officer for Afghanistan.

For the record, Saudi Arabia earns nearly $500 million a day, allowing the kingdom’s 7,000 princes and their assorted consorts – a total of some 24,000 royal household members – a healthy yearly stipend of $500,000 each. The grand total of that budget hovers around the $3 billion mark. Money that critics of the House of Saud say is wasted on luxury items, extravagant villas and apartments strewn across the Mediterranean.(A recent report circulating around Beirut these days has the crown prince reserving about 1,000 hotel rooms for him and his entourage in Lebanese hotels for the summer. If true, this would certainly give a boost to Lebanon’s economy.) But let’s return to the Saudi economy, which terrorists hope to disrupt. And this they can accomplish by targeting the petrochemical industry. There are basically three possible ways in which to obstruct the flow of oil. The first is to target the installations – the rigs that pump the oil from the ground, the refineries that process the crude, storage facilities and shipping terminals. But, all those locations are extremely well protected and hard to approach.

“The oil facilities are very well defended,” said Roger Diwan, managing director of the Petroleum Finance Co., a Washington, DC, firm specializing in analysis of oil industry trends. “There are armed troops, cameras, multiple levels of defenses, etc., that make it very difficult.”

The second option is targeting the oil pipelines, which carry the oil from the fields to the refineries and from there to shipping facilities. While also protected, these offer easier targets given the vast distances they cover. It is practically impossible to secure every mile of pipeline across the desert. In Iraq, for example, pipelines have become a favorite target of insurgents over the last year.

In Saudi Arabia the situation is far different, and security is far more stringent than in war-torn Iraq. Secondly, sensors, cameras and other devices closely monitor the pipeline network. Any interruption in the flow caused by an act of terror can be rapidly rectified. The oil flow can be quickly stopped from a remote monitoring station, the damage quickly assessed, minimized and repaired. And finally, the pipelines traverse remote desert regions where attacks carry little or no fear effect on the population. They have no propaganda effect.

That leaves the third option – the so–called “soft targets” – otherwise known as the civilian workers. Because civilians are less defended than the oil installations, they make far easier targets, and are therefore the “soft underbelly” of the kingdom’s economy.

Those behind the spate of attacks know only too well that if they manage to scare away the expatriate workforce, they disrupt the production of oil and in the process succeed in crippling the economy. That, in turn will paralyze the country, therefore weakening the government, allowing them to come all that much closer to achieving their ultimate goal: overthrowing the House of Saud. In the last month alone, armed gunmen killed six employees working for an American company in the Red Sea port of Yanbu, they murdered 22 civilians in a housing complex in the Eastern province city of Khobar, killed an American, an Irish BBC cameraman and wounded Frank Gardner, the BBC’s security correspondent and kidnapped an American in the capital Riyadh.

Civilian employees – particularly Westerners – easily stand out and make easier targets than the oil installations. Diwan pointed out that unlike the installations, terminals and refineries, “for the civilians, it’s far more difficult. In Dhahran, for example,” he said, “you have an entire city to defend. It’s very hard.” And what is hard for the authorities naturally becomes all that much easier for the terrorists. There are about six million foreign workers in Saudi Arabia. Tens of thousands of them are employed in the country’s huge petrochemical industry. Saudi Aramco, the state-owned oil company that holds the world’s largest oil reserves, employs 56,000 people, of whom about 2,300 are US and Canadian citizens and about 1,200 Europeans. Striking them in their place of work, as in the Yanbu attack on the Houston-based ABB Lummus Global company on May 1, or in their homes, as in Khobar, is simple enough from a tactical point of view. Despite stepped-up security at all work and housing locations, there is, after all, a limited amount of security that can be implemented without making those places resemble maximum-security prisons. Additionally, with the use of Saudi military uniforms, as the terrorists were reported to be wearing in several of the attacks, fooling the real security personnel is even easier.

Following the latest attacks, a number of Americans have already stared to leave the kingdom, encouraged by their embassy in Riyadh who advised all US citizens to leave as soon as possible. The British issued a similar warning and the Foreign Office is warning of more attacks to come. In an e-mail made available to this reporter, an oil executive at Saudi Aramco voiced his fears that the “exodus of ex-pats has begun.”

The terrorists hope that carrying out additional attacks on foreign workers will eventually scare more away, thus creating a vacuum in the oil industry, crippling the economy, and in turn weakening the authorities’ grip on power. This, the terrorists hope will facilitate the overthrow of the regime. Alternatively, following a sudden exodus of expatriates, al-Qaeda and its affiliates could replace the vacuum with sympathizers, positioning themselves for an eventual “take-over” of the oil infrastructures in the country. While these scenarios may seem far-fetched, neither possibility should be brushed aside without considerable thought. Either way, the terrorists could seriously undermine the kingdom’s oil-based economy. To take a page from Robert Baer’s book, SLEEPING WITH THE DEVIL, where Islamic terrorists sabotage the oil installations, this situation could now become all too real. Baer, a former CIA Middle East operative, describes a hypothetical situation in which Islamic fundamentalist terrorists sabotage Saudi Arabia’s oil facilities in the country’s eastern province, severely hindering the flow of oil to the West. Although imaginary, the scenario is nevertheless worrisome and the threat now very real.

The one positive outcome that may emerge from these frightening developments is that they should serve as a rude wake-up call for many Saudi officials who, until just recently, refused to believe that their country could be on the verge of serious civil strife.

For a long while the leaders of the kingdom refused to take the terror threat seriously. Lately, they have begun to say they would fight terrorism and crush it with “an iron fist.” But so far, the fist has failed to come down very hard, and the terrorists continue to operate and become bolder in their deadly endeavors. Prince Turki al-Faisal, who for decades ran Saudi intelligence and who is now ambassador to Great Britain, told the BBC that all but one of six al-Qaeda cells operating in the kingdom had been “dismantled.” But judging from the brashness – and the rise in number of attacks – one could easily assume the opposite to be true. After the Khobar attacks Abdulaziz al-Murqrin, a Saudi leader of a terrorist group known to be affiliated to al-Qaeda, published a statement on the internet calling for urban warfare and the toppling of the royal family. He promised that the remainder of the year would be bloody for the kingdom. Some analysts believe that the terrorists might have already infiltrated the security services. “The fact that most of the arrests have resulted in open gun battles suggests either that the Saudis are remarkably inept at security operations or that the terrorists know that security forces are coming,” reported MJ Gohel and Sajjan M. Gohel, terrorist analysts with the London-based Asia-Pacific Foundation. “Riyadh’s ability and the loyalty of its security services, to break up the terror network now operating in Saudi territory is questionable,”

“Bizarrely, the Saudi Arabian government announced that the current three terrorists still on the loose after the Khobar attack are part of the last terrorist cell in the country,” said the Gohel brothers. “I am very worried,” said Sageman, who added that he feared Saudi Arabia could be in the midst of a “full-blown insurgency.”

Claude Salhani is the foreign editor of United Press International in Washington, DC.