The large majority of building stock in any modern society needs to consist of affordable, social, smart residential units, which means a massive presence of low cost apartments. This is an inescapable attribute of the highly populous and predominantly urban human existence that defines our world. Lebanon, with its very high degree of urbanization and population agglomeration, underprivileged masses and overall young citizenry, is at least as dependent as any developing country on improving and increasing its metropolitan living quality through provision of inexpensive but humane housing.

At the peak time of drafting great post-war reconstruction programs, this urgent necessity was recognized in one single key project for creation of urban living spaces – Elyssar. Under the patronage of the mythically enlarged figure of the Phoenician princess and founder of Carthage, Elyssar was initiated as a development project for the capital’s southwestern realm with a preliminary master plan in June 1995. In the area between Beirut International Airport and the new Sports City – both at the time two of the largest construction sites in a construction-happy city – Elyssar was to create a mixed environment with commercial and recreational qualities and at the very minimum, 2,500 units of quality housing for low and middle income families. Nine years later to the month, and well over half into the project’s “global estimated time frame of 14 years” for accomplishing this development, Elyssar in reality remains the forgotten twin-sister of Solidere that was lost in the slums. Not a single low-cost apartment, workshop and shop appropriate to the economic situation and needs of the poor has been built. The BHV-Monoprix shopping complex on the airport highway across from Sports City is the only element of the concept that stands accomplished. Today, outside of some references in highly academic but incompletely researched papers from international conferences on urban development, Elyssar doesn’t even exist. Or does it? Amazingly, the administrative offices of Elyssar are operating in 2004 and according to PR-responsible Fadi Moucharraf, do so with a staff of “around 40.” The entity has prepared a large amount of engineering studies and plans, said Moucharraf, but central management has put a moratorium blocking all media inquiries and interview requests due to the absence of new activities.

This leaves it anybody’s guess as to what the real status and future of the Elyssar project might be – a viable question of public concern not only because of the project’s theoretical importance but also because of its obligation to meet public scrutiny. Created explicitly for improving both the social and physical fabrics of Beirut’s suburban areas that had borne long-term damage from Lebanon’s internal conflict in form of illegal settlements and unacceptable living conditions, Elyssar is, by the decree that defined its legal status in 1996, “a public agency with administrative and financial autonomy.” As such, it ought to be directly accountable to the sovereign public and its political organs and representatives. Some reasons for the utter failure in implementing the Elyssar project to date are common knowledge. The realm under the agency’s responsibility has in critical aspects not been accessible to normal state authority. Sect-related influence spheres in the area and active resistance by people living in the concrete slums over years made it prohibitive for government representatives to instigate measures, such as the tearing down of illegal buildings that stood in the way of road and infrastructure construction. On occasion, government officials setting foot in the area, namely entering the Ouzai quarter, were confronted physically by outraged crowds. The financing formula for building the affordable housing units, which were to be offered to the displaced and underprivileged people living in the slums north of the airport, hinged on the plan to find commercial investors willing to pay large amounts for developing the neglected and run-down Elyssar seafront into chic resorts. But as Beirut reconstruction and commercial development activities began to slacken in 1997 and 1998, this concept fell victim to the less-favorable-than-expected circumstances. The worsening crisis stemming from the government’s overestimation of economic growth coupled with exploding reconstruction costs and rising public debt subsequently eliminated any rational possibility that sufficient government “allowances” would be available to increase the Elyssar project’s viability.

In addition to these immediate political and financial problems, the concept drew suspicions from an increasingly skeptical populace and became the target of opinion makers alleging that underneath the veneer of social development and promotion of economic opportunities for the masses, “dirty hands” were manipulating the project for corrupt self-enrichment. These allegations may not have been presented with full and verifiable evidence but they left large population groups with an image of Elyssar as a scam run by Prime Minister Rafik Hariri. Until today, and in the minds of some students at top Lebanese universities, Elyssar is nothing but another exploitation scheme by which the ruling clique wanted to amass more money, power and control over some of the most valuable real estate in metropolitan Beirut. All above factors played a role in turning a proposed grand Lebanese solution for an important socioeconomic challenge into a Lebanese problem exemplifying the national struggle with administrative inefficiency, distrust of politicians, internal disunity, and massive suspicions of corruption and squander of the people’s monies. Elyssar wanted “to set new precedents of the government will and dedication to promote balanced growth and to provide social equity to all Lebanese citizens,” stipulated the officious document that can be read on the agency’s website. “The success of Elyssar is also crucial for the future of Beirut. Its redevelopment should provide back to Capital [sic] its distinguished character along the waterfront while setting higher standards for quality of living,” it said.

In light of the unabated housing crisis in Beirut’s poorest suburbs and the danger of increasing social tensions among impoverished segments of society, such words constitute bitter and involuntary irony on part of a public agency that will not or cannot explain what options remain for rescuing its forgotten project, which it is managing PRO-FORMA at a cost to the public that must have accumulated to millions of dollars over many wasted years. As things stand today, it seems increasingly difficult to envision a new future for Elyssar under its original mission. Some real estate experts now expect the project to be reborn as an upscale commercial development venture, because they see the land between Beirut Airport and the city as prime real estate with potential per square meter values comparable to downtown. While the assuredly well-paid, seven-member board and general management of Elyssar and their superseding political decision makers are not available for comment, it is not possible to do anything but speculate about such possible fundamental changes in Elyssar’s orientation. The uncertainty is made worse by the fact that neither public nor commercial alternatives to the scheme are in sight, which would have the much needed capacity to serve as a model for low and middle income urban housing creation. Opinions among developers today differ whether such a project could be feasible. Some reasoned that all such projects require public subsidies and no investor would be able to venture into a socially responsible residential development of the required proportions, while others claimed that too much government involvement is the main obstacle to making social housing projects work.

There is also a growing argument for fundamental questions on orchestrated housing projects. Town planning specialists continue to discover from evidence in developed and developing societies that mega-projects in social housing run up an incessant bill of negative social and economic results, from growing crime rates to failure in motivating both job creation and job acceptance. The challenge resulting from the human limitation to centrally plan urban life and implement compatible schemes for mass-living places all deliberations on this important issue in a bind to come up with what modern marketing-speak likes to call “innovative solutions.” The progress of commercial developments of large real estate projects in Lebanon is slowly extending from top-end wealth communities down the income ladder. It may one day reach the point where social projects become satisfactory under both profit and humanitarian considerations. But the urgency in alleviating the plight of Lebanon’s slum inhabitants in the meantime gives a multitude of reasons to ask about the vision and weakness of Elyssar. On paper, the Elyssar mandate is concise and unchanged. The area under this public agency’s care is outlined in its official FINAL MASTER PLAN from May 9, 1997 as being bordered by the Mediterranean Sea to the west and the Beirut International Airport road to the east and stretching from Adnan Hakim Street (where BHV is located) in the north to the airport’s boundary. This rectangular area comprises 560 hectares of urban and waterfront properties, including three kilometers of sandy beaches.

The mandate stipulates that three sources of funding are to be used for developing the area: · Allowances from the fiscal budget

· Profits from real estate developments

· Loans or investments from public or private sources

The core development objectives of the mandate are, in order of presentation on the agency’s website:

· Creation of a vision

· Building affordable housing units

· Upgrading of infrastructure

· Creation of development opportunities

Last month, two shark-like super yachts sat in Solidere marina, the sun’s reflection glinting menacingly off their blacked-out windows. Inside, built-in swimming pools, jacuzzis, radar masts and other space age gadgets come as standard. But that’s what you get for $60 million, a price range that shuts out all but the biggest spenders – and it is these that Lebanon’s marina owners want to woo as an increasing number of Arab owners are looking for suitable destinations to moor their boats. “It is a growth industry. We have more marinas and more people coming from the Gulf,” said Mohamad Chehab of Chehab Marine, a yacht accessory shop in the Starco building. The local yachting sector can be divided into two segments: sailors (mainly European), who include Lebanon in an Eastern Mediterranean cruise itinerary, and Arabs, mainly from the GCC nations, seeking to permanently moor a boat in a Lebanese marina. Not surprisingly, those in the industry are most excited about business coming from this latter group of high net-worth individuals.

“I have received had ten phone calls today from Kuwaitis and Saudis interested in yachts. It’s incredible. It’s the first time in 12 years that I have noticed this demand coming from Gulf residents,” Chehab said. This could be explained by the post-9/11 effect that has seen many Arabs eschew Europe for the delights of Lebanon. Many in the sector believe it will only be a matter of time before a yacht will become the ultimate accessory of the well-heeled Arab. “Wait one year and you will be amazed. Just think of all the luxury apartments you have in downtown, many of the people who will buy these will also be interested in boats,” Chehab said.

Investors in turn are keen to get a slice of this pie and are now showing more interest in the sector. It is rumored that several big marina projects are planned in Lebanon with property developers from Dubai showing interest. “We know of three or four (marinas) that are going to be launched in the coming years. One in the south and one in Beirut, and we expect to have some up north,” said Christine Asmar, project manager with International Fairs and Promotions (IFP), the company who with its German partner, Messe Duesseldorf, organized the recent Beirut Boat Show that attracted roughly 18,000 visitors.

“We all know that this is a country where everything lends itself to the marine industry: the weather is nice for nine months a year, it’s never too windy, it’s never to rainy and it’s conveniently located in the Mediterranean,” said Asmar. Interestingly enough, despite these relatively ideal sailing conditions, there seems to be little interest in sail boats, as most Arabs buyers are interested in engine-powered boats. “In the [global] super yacht segment, 20% are owned by Arabs,” said Asmar.

Prior to the Beirut Boat Show, now in its fourth year, IFP conducted a feasibility study that pointed toward major future growth in the industry. “The market projections for marinas and other water front facilities in the whole Middle East and Lebanon would be about $20 billion, with Lebanon’s potential estimated at $1 billion,” Asmar said. Although it could be argued that any report commissioned by the expo organizers may not be entirely objective, the potential was borne out by unprecedented sales at this year’s show.

“The highest number of visitors we had was in 2001. But the spending power was greater in 2004. It’s not the quantity that is important it’s the quality. A lot of sales took place at the show this year,” she said. “We also had a bigger participation on the international level.” Asmar said she felt that Lebanon and Dubai both catered to different markets and were not really in competition with each other. “Dubai is not a rival. We had exhibitors from Dubai this year and they are the people who confirmed to us that this is a complimentary market to Dubai, it doesn’t compete in any way,” said Asmar. “The region is big and the investments so huge that we can afford to have two shows, one in Beirut one in Dubai.” Asmar added that water sports centers on the Sinai Peninsula, such as Sharm el-Sheikh, attracted a different kind of market, one more interested in diving and other activities than yachting.

There are three large-scale marinas in Lebanon, Joseph Khoury in Dbayeh, Automobile et Touring Club du Lebanon (ATCL) in Jounieh and Solidere marina, near the old St Georges hotel. ATCL, a non-profit private club and the oldest marina in Lebanon is almost always full, said director Nabil Gemayel. Most of the club members are Lebanese but Gemayel said the club often attracts Europeans coming from other Eastern Mediterranean destinations. “We receive every year around 40 or 50 yachts from Cyprus, Turkey and Greece,” he said.

The Joseph Khoury marina in Dbayeh opened five years ago and is arguably the biggest marina in the Middle East, with 700 berths and 200 staff. Manager Joe Bassoul said the occupancy rate was around 30%, but he believes business will improve as the marina – the newest in Lebanon – becomes more established. “It needs time before you can improve the situation,” said Bassoul, who added that the boats in his marina ranged from small size yachts to bigger boats, with usually around 15 luxury yachts moored in the facility.

Imad Dana, manager of the new Solidere marina, said that 95% of the members are Lebanese. The marina boasts around 150 boats in the 250 berth marina and Dana said he expected to see an increase in interest. The Solidere marina employs around 40 people, but Dana added that many of the bigger yachts have their own crews, some with as many as 20. Fueling the new interest in boating are two yachting events in the country: ATCL recently hosted the Emir Rally, a boat race across the Mediterranean, and Solidere marina will be the starting point for the La Route d’Elissa boat race that involves 10 sail boats with all female-crews racing from Lebanon to Tunisia. However, despite this new bubble of optimism, Lebanon still cannot compete with yachting hubs in Turkey, Cyprus and Greece where easy air access, cheaper mooring prices and stable politics attract European yacht owners. The key to Beirut’s attraction is that it is the genuine destination for Arabs to come and play on their boats. Although Dubai has some of the biggest sea-front developments in the world, such as the massive Palm Island project, many in the Middle East and Gulf are more interested in mooring their boats permanently in Lebanon, where the lifestyle is more in keeping with the yacht-owning culture.

“It’s very hot in the Gulf so they never use their boats and there are no destinations. In Lebanon, we have created summer resorts all over the coast,” said Chehab, who was at pains to mention that it wasn’t only the Gulf owners who were buying and mooring boats in Lebanon. “You have a lot of Lebanese emigrants coming from abroad and buying boats here,” said Chehab, while Alain Maaraoui, managing director of Sea Pros, said most of his sales were to locals. “Sales are going up, although last year was better than this year, but mostly they are Lebanese.”

Nonetheless, Lebanon could do more to attract visits from European yachters. Aside from the hazy images of war and uncertainty, Lebanon faces a major a hindrance with red tape in the customs and general security procedures, which deter foreign visitors. “It’s too much paperwork and people prefer not to go through that and just go somewhere else,” Asmar said. Moreover, bureaucracy makes it difficult for boat owners to leave their non-Lebanese registered boats here for longer than six months; this is in contrast to Turkey, where there is no time limit on mooring periods for foreign boats.

The conflict with Israel also restricts movement along the Lebanese coast. “To go through the Lebanese coast is not really permitted by the Lebanese authorities. They prefer the boat to come and stay in the marina and then people can visit the coast by car,” said Gemayel.

Cost is another factor that may put off the price-conscious European boat owner. Lebanon simply cannot compete in the Eastern Mediterranean. Average mooring prices in Lebanon are $350 per meter a year for smaller boats, with the price rising to around $600 a year for larger yachts. This is almost double the mooring charge in Turkey and Cyprus. But many in the industry say prices will drop as soon as there is more competition. “When there are more marinas the price will go down,” Asmar said.

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.

It all seemed to be going so well for Lebanese wine. Once the sole preserve of Musar, Ksara and Kefraya, the sector has, since the late 90s, seen the emergence of new wineries, producing exciting wines in eye-catching bottles. The UVL (Union Vinicole du Liban), established in 1997, showed it could function as a genuine association. It was serious about establishing a regulatory national wine institute and there was even a spirited initiative to sell Lebanon as a wine tourism destination. Its members even demonstrated rare ESPRIT DE CORPS by exhibiting on the same stand at the two major international wine fairs in London and Bordeaux in 2003. Lebanese wine was moving.

This momentum had been inspired by the knowledge that Lebanon was hosting the annual OIV (OFFICE INTERNATIONAL DE LA VIGNE ET DU VIN) congress in Beirut in June 2005. The event would enhance the country’s brand equity, strengthening its export potential and boosting its quality to price ratio. It would create a new image of Lebanon, one driven by wine and culture, rather than war and mayhem. Finally, UVL president, Serge Hochar, co-owner of Chateau Musar and for so long the darling of the wine world, the man who risked life and limb to make wine during the dark days of the war, would welcome the OIV to his country. It was to be a truly vintage year for Lebanese wine. And then, last month came the awkward admission from UVL members that the OIV had changed its mind. So far no official explanation has been given by the OIV for the seemingly sudden VOLTE-FACE and at the time of going to print, Frederico Castelluci, director general of the OIV has not replied to EXECUTIVE’s requests for clarification. “It is a huge loss to Lebanon,” said Charles Ghostine, managing director of Ksara, Lebanon’s biggest producer. “We have not yet received official notification; this will be sent to the Lebanese government. However, I do not hold much hope of the congress being held in Beirut next year.” Ghostine has more reason to be disappointed than most. In June of last year, he gave a speech at the OIV congress in Paris, in which he outlined Lebanon’s plans for 2005. “All 45 countries, including Israel, gave me a standing ovation,” he said. “We were meant to go to Vienna this summer to present our final itinerary. Then I get the call from Frederico Castelluci, telling me that there was a change of plan.”

Ghostine said Castelluci had told him that the reason for the change of venue stemmed from the organization’s doubt that Lebanon had the “technical ability” to manage some of the more scientific and linguistic aspects of the congress. “They need translators in five languages. This is not a problem. We can translate in six,” said Ghostine. Privately, wine producers believe pressure from the Israeli delegation was the main driving force behind the decision. “The OIV is a non-political body and therefore they cannot cite a non-political reason,” said one. “What can we do? We need them more than they need us.”

Ghostine’s frustration is evident when he talks of missed opportunities, especially in the export markets. “The recognition the congress would have bestowed upon us would have been priceless. To be honest we are still not fully established as a wine making force even though we have be doing it for 6,000 years,” he said. “The congress would have given up priceless exposure. Export markets are very important to us. Lebanon is exporting 40% of its wine.” UVL president, Serge Hochar was equally uncomfortable with the turn of events. “Until we have an official notification from the OIV, I prefer not to comment.” The demise of Beirut 2005 came as a surprise to many of those who had worked hard within the government to ensure it happened. “It’s the first I have heard of it,” said Basil Fuleihan, ex-economy minister and now the chairman of the Parliamentary Committee on Economic Affairs, Trade, Industry and Planning. “Quite frankly if it turns out to be true, it is very disappointing news for Lebanon and Lebanese wine.” While in office, Fuleihan lobbied hard for the congress and is a firm believer in the potential of the sector. “Lebanese wine needs to be supported. It is good for general prosperity; it’s good for exports and it’s good for the image of Lebanon.”

Teething problems

The news came at a time when the UVL has been experiencing delayed teething problems. In January, Massaya, one of the most energetic of the new generation of wine producers, resigned after it claimed the association was dragging its heels on an initiative to establish a wine marketing board and launch a national advertising campaign. A statement issued by Massaya, which had vigorously lobbied for the move, said that it was obvious that the interests of Massaya and the UVL were irreconcilable and that the winery had no option but to go it alone.

Elsewhere plans to establish a national wine institute (to be responsible for implementing the 2000 wine law and oversee and regulate all areas of grape growing and wine production) seem to be caught in a bureaucratic bottleneck. “We have prepared our draft constitution,” said Ghostine. “Now we are just waiting for government approval. We are confident our file is in order.” According to Hochar, its establishment is crucial to the evolutionary progress of the sector. Speaking in November of last year he announced: “We have joined the OIV and we have passed a wine law. Now we just need an institute to implement it,” he said. “We cannot move forward without it.” UVL members are energetic exhibition-goers, although last month only three producers – Musar, Ksara and Kefraya – made it to the London Wine Fair. The energy of 2003 appears to have waned. “The reason we all went to London last year was that we got money from the EU,” explained Massaya’s Ramzi Ghosn. “All this needs intensive lobbying on behalf of the UVL and this in turn requires time and effort. Nothing will come of nothing.”

Still, Lebanon’s $26 million wine industry is essentially filled with promise. The good news is that exports have doubled in six years and producers continue to consolidate proven international markets, while seeking out new ones. Ksara alone has doubled its exports and is consolidating its position in the UK, a market pioneered by Chateau Musar in the 70s and one that also proved successful for Kefraya, Massaya and Clos St Thomas. The future

The good news is there is room for further growth. “There is huge potential. Any collaboration with the wine growers has been done with the best interests of the sector at heart. I have not sensed any official reluctance,” said Fuleihan, stressing the government’s faith in the industry. “All the grievances have been addressed such as tariffs and taxation. Yes, the government has not yet developed a viable agro or industrial strategy but we cannot satisfy the entire spectrum of demands because of the existing financial constraint.”

What is certain is that the land is there for further planting, although many within the industry prefer to exercise caution. “We just cannot plant without a strategy,” said Paulette Chlela, Ksara’s Chef de Culture. “We have already seen grape prices drop by 10% in the last year because of a dip in demand.”

But the overriding belief is one of an opportunity that needs to be seized. “Wine is the only hope for the Bekaa,” believes Ghosn. “In some areas this reality is taking shape while in others it will take a bit more time. New grape plantations have changed the lives of many of the Bekaa’s struggling farmers, who have been forced to grow illegal hashish and opium, or produce that was severely undercut by those from neighboring countries. The landscape of many towns is changing as the demand for good TERROIR increases.”

Ghosn also believes that to best demonstrate the value-added Lebanon has to offer the wine world, more producers should improve viticulture methods, moving away from high to lower, more concentrated yields and use better quality grapes. “To do this, there will have to be significant replanting or restructuring of existing vineyards, the adoption of more up-to-date working methods, and new vineyards. This will mean further exploration of Lebanon’s different regions and TERROIR, including a formal study of the various soil types and viticultural potential.” However, as the sector grows, the incidence of malpractice will undoubtedly increase. The UVL must snuff out those producers tempted to push the ethical envelope and clamp down on the importation of foreign wine in bulk quantities, over-harvesting, medal sticker abuse, diluting and misrepresentation. “It has already started,” shrugged Dargham Touma, owner of the Heritage winery, alluding the increasing number of Syrian-made “Lebanese” wines that are reportedly finding their way into Lebanese and North African restaurants in France. The national institute cannot come soon enough.

Nor can a national marketing campaign, one that would emphasize the quality of Lebanese wine as well as educating the drinker on the health benefits of drinking and stress the economic importance of buying Lebanese. Already, the wines are facing an epic struggle in an evolved and viciously competitive drinks sector. “Whisky and Vodka are king,” exclaimed Touma. “External budgets are dictating consumer budgets. They are telling people what to drink and what not to drink.” Given many of the mediocre brands that are being pushed in the local market, it is sad that many of Lebanon’s best wines are unknown to local drinkers, who in a misguided exercise in snobbery often perceive foreign wines as better. Oz Clarke, the English wine guru has rated Clos St Thomas’ “Chateau” as “stunning”, while only last month Jancis Robinson, arguably an even bigger hitter than Clarke, raved about Massaya at a tasting in London.

Tell that to the OIV.