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Wednesday, January 24, 2018

Iran: Protests and threat of renewed sanctions focus economic thinking

Iranian Revolutionary Guards Corps logo

By James M. Dorsey

Iranian Supreme Leader Ayatollah Ali Khamenei appears in the wake of recent anti-government protests to have put his weight behind President Hasan Rouhani’s repeated calls for reduced military and Revolutionary Guards involvement in the economy.

Mr. Khamenei signalled his support by ordering the military and the Guards to start divesting from commercial holdings and businesses not related to their core tasks except for construction projects considered essential by the government.

The order serves not only to address protesters’ grievances that were sparked in part by losses suffered by millions of Iranians a result of the collapse of fraudulent financial institutions with links to the Guards and other public institutions. The financial entities lured investors with high interest rates that they could not pay.

Mr. Khamenei’s order could also sweeten Iranian efforts to persuade Europe to put in place legal measures that would allow it to invest in the Islamic republic even if the United States imposes new sanctions and withdraws from the 2015 international agreement that curbed Iran’s nuclear program.

Europe shares many of the United States’ concern about the role of the Guards in Syria, Yemen, Iraq and elsewhere in the Middle East and the fact that it runs Iran’s ballistic missile program but has insisted that the agreement should be maintained.

A target of US sanctions, the Guards reportedly are not opposed to a reduced stake that analysts say accounts for as much as 30 percent of the Iranian economy. The Guards operate, among others, Khatam al Anbia, a huge construction company with tens of thousands of employees that is involved in civil development, the oil industry and defense businesses. The Guards build roads, operate ports, manage telecommunication networks, and own business in sectors as far flung as finance and medical.

The “top brass have realized that running companies is actually not their competency. The poor management has been a drag on the economy and--as seen in the recent #IranProtests--a risk to internal security and to the prestige of the armed forces,” said Esfandyar Batmanghelidj, an Iran analyst, commentator and business consultant.

In a world in which everything is interlinked, disinvestment by the Guards and military as well as other public institutions like the Social Security Organization, Iran’s largest pension fund, would involve privatization in a country that has found it difficult to attract foreign investment because of the threat of a re-imposition of US sanctions conditionally lifted as part of the nuclear agreement.

US President has threatened not to renew US sanctions relief in May if Europe and the US Congress failed to work towards an agreement with Iran on an addition to the nuclear accord that would restrict Iranian missile testing and development, provide for expanded inspections of Iranian facilities, and extend prohibitions on nuclear-weapons work. Iran insists that the accord cannot be renegotiated.

Europe has been pressing the Trump administration not to walk away from the accord. Iranian officials have suggested that Tehran would adhere to the nuclear deal in case of a US walkout provided that it served its interests.

For Iran to see continued merit in the deal, it would have to believe that European companies would remain interested in investing in the Islamic republic. That would require the European Union adopting legislation that would shield European companies from US secondary sanctions that would target non-American entities invested in Iran.

Privatization of military and Guards-owned companies, given Iran’s undercapitalized financial markets and its small pool of viable domestic investors, would depend on foreign investors, who in turn are unlikely to risk being penalized by potential renewed secondary US sanctions.

“Europe should put in place a viable contingency plan if the United States continues backtracking on the deal and let Washington know it’s ready to use it… Europe will need to present a package (together with China and Russia) that can entice Iran to continue abiding by the core elements of the current nuclear agreement,” said Iran expert Ellie Geranmayeh.

Writing in Foreign Policy, Ms. Geranmayeh argued that Europe should initially attempt to secure from the United States exceptions to the potential sanctions modelled on the US penalties imposed on Russia that provide relief from enforcement for European companies.

“If Washington refuses this approach, European governments should publicly warn that in any instance where the U.S. Treasury actively enforces secondary sanctions targeting European companies dealing with Iran, the European Union will revive measures similar to its ‘blocking regulation’,” Ms. Geranmayeh argued.

The blocking regulation adopted by the European Union in 1996 thwarted then US President Bill Clinton’s attempt to force Europe and others to abide by US sanctions on Libya, Iran and Cuba. The regulation made it illegal for European companies to abide by US sanctions, gave them legal cover to refuse payment of US fines, and opened the door to the EU penalizing US companies in retaliation.

In practice, European companies, if forced to choose between doing business with the United States or Iran, would likely opt to steer clear of the Islamic republic. The EU would be banking on the expectation that the Trump administration would ultimately opt to compromise in a bid to avoid a deterioration of trans-Atlantic relations.

In announcing Mr. Khamenei’s support for reducing the stake in the economy of the military and the Guards, Iranian defense minister Amir Hatami cautioned that “the degree of our success depends on market conditions and the possibility of divestment.”

Said Mr. Batmanghelidj: “If success in privatization is to be achieved…Iran's equity market investors will need foreign investors to help carry the burden and unlock the opportunity.”

With little insight into what entities will be put up for sale, European investors, even if the EU puts legal protections in place or cuts a deal with the United States, like their Russian and Chinese counterparts, are likely to take a wait-and-see attitude. That could put efforts to reduce the military and Guards’ economic stake in jeopardy, catching it between the rock of lack of Iranian transparency and the hard place of weak domestic financial markets and a limited pool of investors.

If that were not enough, Saudi efforts to counter Iran could further dampen foreign investor appetite. In a sign of the times, South Korean construction company POSCO Engineering & Construction in which Saudi Arabia's Public Investment Fund has a 38 percent stake cancelled a $1.6 billion contract to build a steel mill in Iran because of objections by the company’s two Saudi board members.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario,  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa, and the forthcoming China and the Middle East: Venturing into the Maelstrom.

Monday, January 22, 2018

Whither Saudi Crown Prince Mohammed bin Salman’s ‘moderate’ Islam?

Credit: algeriepatriotique

By James M. Dorsey

Recent Algerian media reports detailing Saudi propagation of a quietist, apolitical yet supremacist and anti-pluralistic form of Sunni Muslim ultra-conservatism raises questions about the scope of Saudi Crown Prince Mohammed bin Salman’s commitment to what he has termed ‘moderate’ Islam. So does Saudi missionary activity in Yemen.

The missionary activities suggest that Saudi Arabia continues to see ultra-conservatism as the primary ideological antidote to Iranian revolutionary zeal. Saudi Arabia has invested an estimated $100 billion over the last four decades in globally promoting ultra-conservatism in a bid to counter the Islamic republic. The campaign has contributed to greater conservatism and intolerance in Muslim communities and countries and in some cases fuelled sectarianism.

Saudi support for ultra-conservatism does not by definition call into question the kingdom’s determination to fight violent radicalism and extremism, and counter non-violent political expressions of Islam.

More recently, the kingdom has been willing to surrender control of major religious institutions that it funds and controls when that proves to be beneficial to improving its image, tarnished by negative perceptions of its support for ultra-conservatism.

The grand mosque and Islamic centre in Brussels, Europe’s largest, is a case in point. Saudi Arabia, responding to Belgian criticism of the mosque’s ultra-conservative Saudi management, last year appointed as its imam, Tamer Abou el Saod, a 57-year polyglot Luxemburg-based, Swedish consultant with a career in the food industry.

The appointment followed complaints in parliament about Saudi and other ultra-conservatives who managed the mosque. Senior Saudi officials have responded positively to a Belgian government initiative to prematurely terminate the kingdom’s 99-year lease of the mosque so that it can take control of it.

Prince Mohammed has created expectations of greater social liberalism by vowing to return Saudi Arabia to an undefined form of “moderate” Islam; lifting a ban on women’s driving, a residual of Bedouin rather than Muslim tradition; granting women access to male sporting events; allowing various forms of entertainment, including cinema, theatre and music; and stripping the religious police of its right to carry out arrests.

The reforms notwithstanding, Saudi Arabia has yet to indicate whether it has reduced its long-standing funding for ultra-conservative educational and cultural facilities even though Saudi financing vehicles like the World Muslim League have re-positioned themselves as promoters of tolerance and humanitarianism. The league operates the Brussels mosque.

The League’s secretary general, Mohammed bin Abdul Karim Al-Issa, a former Saudi justice minister, has in the last year argued that his organization was “a global umbrella for Islamic people that promotes the principles and values of peace, forgiveness, co-existence, and humanitarian cooperation” that organizes inter-faith conferences.

Algerian media reported however that the kingdom’s assertion that it promotes moderate and more tolerant strands of Islam may not be universal. “While Saudi Arabia tries to promote the image of a country that is ridding itself of its fanatics, it sends to other countries the most radical of its doctrines,” asserted independent Algerian newspaper El Watan.

El Watan and other media reproduced a letter written by Saudi Sheikh Hadi Ben Ali Al-Madkhali, a scion of Sheikh Rabia Al-Madkhali, the intellectual father of a quietist strand of Salafism that projected the kingdom prior to Prince Mohammed’s reforms as the ideal place for those who seek a pure Islam that has not been compromised by non-Muslim cultural practices and secularism. The letter appoints three prominent Algerian scholars, including Mohamed Ali Ferkous, widely viewed as the spiritual guide of Algerian Madkhalists, as Salafism’s representatives in Algeria.

Similarly, Saudi Arabia has said it would open a Salafi missionary centre in the Yemeni province of Al Mahrah on the border with Oman and the kingdom. Saudi Arabia’s ill-fated military intervention in Yemen was sparked by its conflict with Iranian-backed Houthi rebels, a Zaydi Shiite Muslim sect with roots in a region bordering the kingdom, that dates to Saudi employment of Salafism to counter the group in the 1980s.

Question marks about what Prince Mohammed defines as moderate Islam are fuelled by a widespread assumption that the ruling Al Saud family cannot afford a clean break with ultra-conservatism in general and Wahhabism, its specific Saudi strand, in particular, because it derives its legitimacy from the kingdom’s religious establishment.

Prince Mohammed’s grip on power by virtue of his position as heir to the throne, defense minister, and economic czar that was cemented with last year’s purge of prominent family members, businessmen and officials in what amounted to a power and asset grab may, however, persuade him that the family no longer needs religious legitimacy.

Prince Mohammed’s moves have put an end to rule based on consultation within the Al Saud family and more than ever forced the ultra-conservative religious establishment to endorse his moves in a bid to survive and retain some degree of influence rather than out of conviction. In effect, Prince Mohammed has assumed the kind of power associated with one-man-rule, possibly convincing him that his legitimacy is rooted in his power and image as a reformer rather than ultra-conservatism.

Like with many of his reforms, Prince Mohammed is treading on fragile ground as long as his popularity is based on expectations rather than delivery. There has so far been little in his social reforms at home or declarations about Islam that suggests that he intends to go beyond curbing the rough edges of Sunni Muslim ultra-conservatism and creating the building blocks for an autocratic monarchy capable of performing economically and technologically in a 21st century world.

Prince Mohammed’s social and ideological reforms no doubt seek to fight political violence. The crown prince has yet to demonstrate that this involves in practice rather than words the countering of an ultra-conservative ideology that breeds intolerance, fosters anti-pluralism, and potentially creates breeding grounds for radicalism.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa.

Sunday, January 21, 2018

Gulf crisis turns Qatar into the ‘region’s Israel’

Qatar airbrushed from map in UAE / Credit: Simon Henderson

By James M. Dorsey

Prominent US constitutional lawyer and scholar Alan M. Dershowitz raised eyebrows when he described Qatar as “the Israel of the Gulf states.”

Known for his hard-line pro-Israel views, Mr. Dershowitz drew his conclusion following an all-expenses paid trip to the Gulf state. Mr. Dershowitz argued that Qatar like Israel was “surrounded by enemies, subject to boycotts and unrealistic demands, and struggling for its survival.”

He noted that while he was in Qatar an Israeli tennis player had been granted entry to compete in an international tournament in which the Israeli flag was allowed to fly alongside of those of other participants.

In response, Saudi Arabia took Qatar to task for accommodating the tennis player and almost at the same time refused Israelis visas to take part in an international chess tournament. To be fair, with US President Donald J, Trump recognizing Jerusalem as Israel’s capital, it may have been difficult for the kingdom to have done otherwise.

“This episode made clear to me that the Saudis were not necessarily the good guys in their dispute with Qatar. The Saudis have led a campaign to blockade, boycott and isolate their tiny neighbouring state. They have gotten other states to join them in this illegal activity,” Mr. Dershowitz said.

His remarks were likely to have surprised Arabs and Jews as well as pro-Israeli circles. Israel, like Saudi Arabia and the United Arab Emirates, sees Qatar as a state that supports militants like Hamas, the Islamist Palestinian group that controls the Gaza Strip, and Islamists such as the Muslim Brotherhood, which has been designated a terrorist organization by Qatar’s detractors.

Mr. Dershowitz’s similarities notwithstanding, the differences between Qatar and Israel are multiple. Most importantly, Qatar does not occupy foreign territory, nor does it deny the rights of others or employ its military to achieve geopolitical objectives. It is Qatar’s soft power approach and idiosyncratic policies that provoked the ire of its Gulf brethren and accusations that it supports violent and non-violent militants.

Nonetheless, the trappings of the eight-month-old Gulf crisis, sparked by the imposition last June of a UAE-Saudi-led diplomatic and economic boycott, would seemingly to some degree bear out Mr. Dershowitz’s view.

Much like Arab maps of the Middle East that for the longest period of time, and often still do, failed to identify Israel, a map of the southern Gulf in the children's section of Abu Dhabi's recently inaugurated flagship Louvre Museum omits Qatar. The map would seemingly turn the Gulf dispute into an existential one in which the perceived basic principle of recognition, existence, and right to stake out one’s own course is at stake.

Yet, protagonists in the Gulf crisis, much like those on the pro-Palestinians side of the Arab-Israeli divide, ensure that some degree of crucial business can be conducted, albeit often surreptitiously, and that common or crucial national interests are not jeopardized.

Money exchangers in the UAE still buy and sell Qatari riyals. Natural gas continues to flow. Neither Qatar nor the UAE have tinkered with the sale of Qatari gas that is supplied through a partially Abu Dhabi-owned pipeline that accounts for up to 40 percent of Dubai’s needs.

A similar picture emerges with aviation. Like Israel, which does not bar Arab nationals entry, Qatar has not closed its airspace to Bahraini, Emirati and Saudi aircraft even though the three states force it to bypass their airspace by overflying Iran. This has nevertheless not stopped aviation from becoming the latest flashpoint in the Gulf, signalling that the region’s new normal is fragile at best.

Tension rose this month with when Qatar twice charged that military aircraft jet had violated its airspace. Qatar used the alleged violations to file a complaint with the international aviation authority. The UAE, beyond denying the allegations, asserted that Qatari fighters had twice intercepted an Emirati airliner as it was landing in Bahrain.

In what may be a significant difference, Israel, unlike Qatar is not in the business of fostering opposition, if not regime change, in the region. Israel largely feels that autocratic rulers are more reliable partners and less susceptible to the whims of public opinion.

By contrast, regime change figures prominently in the UAE and Saudi Arabia’s toolkit, at least in the public diplomacy part of it, albeit with mixed results. Emirati and Saudi efforts to foster opposition from within the ruling family to Qatari emir Sheikh Tamim bin Hamad al-Thani. appeared to have backfired.

Projected by Saudi and UAE leaders and media they control as a leader of opposition to Qatari emir Sheikh Tamim bin Hamad Al Thani, Sheikh Abdullah bin Ali al-Thani, a little-known member of the ruling family, appears to have pulled a Saad Hariri, on his Emirati and Saudi sponsors.

Like what happened to Mr. Hariri, who last year resigned as Lebanon’s prime minister while on a visit to the Saudi Arabia, only to withdraw his resignation and adopt policies that contradict those of the kingdom once he was allowed to leave, Sheikh Abdullah has accused his hosts of pressuring him to the point that he wanted to commit suicide.

In two video clips, Sheikh Abdullah, the son of Sheikh Ali bin Abdullah al-Thani, a former emir who was deposed in 1972, initially charged that he was being held against his will in the UAE. Once he was allowed to leave for Kuwait, Sheikh Abdullah accused the crown princes of the UAE and Saudi Arabia, Mohammed bin Zayed and Mohammed bin Salman, of having sparked the Gulf crisis “to usurp the wealth and riches of Qatar," a likely reference to Qatar’s gas and financial reserves.

The UAE appears to have been successful in a third case of seeking to influence the shape of government elsewhere by pressuring real and potential players. Former Egyptian prime minister Ahmed Shafiq. who went into exile in the UAE in 2012 after losing a presidential election, asserted in November that he was being held against his will in the country. He was expelled to Egypt within hours, where he declared that he would not run in forthcoming elections in March.

Mr. Dershowitz no doubt did Qatar a favour by visiting the country and by coming out in its defense. Comparing Qatar to Israel, however, may not go down well with significant segments of Arab and Qatari public opinion as well as pro-Israel groups. In doing so, he may have dampened the impact of his comments.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa.

Wednesday, January 17, 2018

Chinese engineer’s disappearance takes on geopolitical significance


By James M. Dorsey

Thirty-six-year-old Chinese engineer Pingzhi Liu went missing almost a month ago. It took Pakistani authorities three weeks to classify Mr. Liu’s disappearance as a likely kidnapping that could have significant political and economic consequences.

Identifying the mysterious disappearance as a kidnapping is not only embarrassing because Mr. Liu was one of thousands of Chinese nationals working in Pakistan that are guarded by a specially created 15,000-man Pakistani military unit.

It is also awkward because it coincides with apparent Chinese questioning of aspects of the $56-billion China Pakistan Economic Corridor (CPEC), a crown jewel of China’s Belt and Road initiative, and increasingly strained relations between Pakistan and the United States.

Mr. Liu was accorded military protection even though his project, the Karot Hydropower Plant, located near the Pakistani capital of Islamabad, is not part of CPEC. Karot was the first project financed by China’s state-owned $40 billion Silk Road Fund, established in 2014 by President Xi Jinping to foster increased investment in Eurasia.

Mr. Liu went missing on December 20 while on night duty. He was last seen walking out of a tunnel at around 3.30am while talking on his phone. No claim for his potential kidnapping or ransom has been made.

The fact that Mr. Liu was working on a project in Punjab rather than Balochistan, a troubled region with a history of attacks on Chinese personnel, has set alarm bells off.

China last month warned its nationals in Pakistan, a country plagued by religious and ethnic militancy, of plans for a series of imminent terrorist attacks on Chinese targets

"It is understood that terrorists plan in the near term to launch a series of attacks against Chinese organisations and personnel in Pakistan," the Chinese embassy in Pakistan said in a statement on its website.

The embassy warned all "Chinese-invested organisations and Chinese citizens to increase security awareness, strengthen internal precautions, reduce trips outside as much as possible, and avoid crowded public spaces".

Police have twice detained for interrogation Chinese and Pakistani workers associated with the Karot project. They are also introducing security and vetting measures for Pakistani nationals working with Chinese personnel.

If proven to be a kidnapping, Mr. Liu’s disappearance could not have come at a more awkward moment. China has signalled that it is considering freezing further CPEC-related investment until the country’s domestic situation stabilizes. China is believed to have so far invested $29 billion of the $56 billion committed.

“Political events in Pakistan have sent China in a watchful mood… I am concerned if we continue to throw surprises to the outside world, then anyone can be forced to rethink their economic investments,” Pakistan’s chief CPEC negotiator, Ahsan Iqbal, told Pakistani daily The News.

China had earlier decided to redevelop criteria for the funding of CPEC-related infrastructure projects in an apparent effort to enhance the Pakistani military’s stake in the country’s economy at a time that the armed forces are flexing their political muscle.

The Chinese decision that reportedly led to the suspension of funding for three major road projects valued at a total of $850 million – the upgrading of the Dera Ismail Khan-Zhob motorway and the Karakorum highway as well as construction of a 110-kilometre road linking Khuzdar and Basima – suggested that Beijing was not averse to exploiting its massive investment in the Belt and Road to shape the political environment in key countries in its authoritarian mould.

The possible investment freeze threw into doubt China’s reliability as Pakistan’s all-weather friend at the very moment that the Trump administration announced that it was cutting almost all security aid to Pakistan, believed to total more than $1 billion, until it deals with militant networks operating on its soil.

Pakistan, in response and in advance of a visit by a United Nations Security Council team to evaluate Pakistani compliance with its resolutions, has sought to crack down on the fundraising and political activities of Muhammad Hafez Saeed, an internationally designated terrorist accused of having masterminded the 2008 attacks in Mumbai.

Pakistan’s predicament could worsen if Mr. Trump, who has targeted Pakistan in blunt tweets in the past month, decides to tighten the screws beyond cutting aid by taking further punitive action such as sanctioning Pakistani military officials, revoking Pakistan’s non-NATO ally status; increasing drone strikes beyond Pakistan’s tribal areas; designating Pakistan as a state sponsor of terror, and/or pressuring international financial institutions to blacklist Pakistan.

The sensitivity of the timing of Mr. Liu’s disappearance was heightened by the fact that some in Pakistan appear to doubt whether CPEC will be the magic wand for Pakistan’s economy and regional geopolitical position that Pakistani and Chinese leaders make it out to be.

Criticism of CPEC has focused on doubts about the financial viability of various projects, Pakistan's ability to repay related debts, a lack of transparency, and assertions that Chinese nationals were usurping Pakistani jobs.

In a rare challenging of Chinese commercial terms Pakistan recently withdrew from a Chinese-funded dam-building project.

Pakistani Water and Power Development Authority chairman Muzammil Hussain charged that “Chinese conditions for financing the Diamer-Bhasha Dam were not doable and against our interests.” China and Pakistan were also at odds over ownership of the $14 billion, 4,500 megawatts (MW)-hydropower project on the Indus River in the country’s problematic region of Gilgit-Baltistan near disputed Kashmir.

Earlier, a State Bank of Pakistan study concluded that exports of marble to China, Pakistan’s foremost rough-hewn, freshly-excavated marble export market, and the re-export to Pakistan of Pakistani semi-processed marble was “hurting Pakistan’s marble industry to a significant extent.”

report by the Pakistani Senate, that has repeatedly criticized CPEC’s lack of transparency and Chinese commercial policies, concluded that China would for the next four decades get 91 percent of the revenues generated by the port of Gwadar.

The vanishing of Mr. Liu, if proven to be a criminally or politically motivated kidnapping, threatens in the current environment to put Pakistan between a rock and a hard place. Its relationship with its traditional ally, the United States, is on the rocks while its ties to China are proving to be more complex than Pakistani leaders had envisioned.

Amid domestic political instability, anti-government protests, and pressure to come clean in its getting a grip on militancy, Pakistani democracy may be saddled with the bill.

While neither the United States nor China can afford a complete rupture, neither has a clear strategy to help Pakistan stabilize. China’s solution appears to be tacitly supporting a greater role of the military in Pakistani politics – a formula that has in the past failed to produce results and is more part of the problem than part of the solution.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa.

Tuesday, January 16, 2018

Sovereign wealth funds: Investment vehicles or political operators?

Credit: Al Bawardi Critchlow

By James M. Dorsey

The $6.85 billion acquisition in 2006 of Peninsular & Oriental (P&O) Steam Navigation Company, a storied British shipping and logistics company, by Dubai’s state-owned DP World, one the world’s largest port management and terminal operators, sparked fears that governments could employ cash-rich sovereign wealth funds (SWFs) and state-run companies as political muscle.

Twelve years later, with the Middle East fighting multiple battles and external powers jockeying for influence, those fears have proven justified despite the adoption in the wake of the sale of non-binding guidelines for sovereign funds that manage hundreds of billions of dollars.

Concern that an Arab state would post 9/11 gain control of some of the busiest terminals in US ports, including New York, Newark, Baltimore, Philadelphia, New Orleans and Miami, forced DP World to exclude P&O’s American assets from the deal.

The worries prompted the creation of a multilateral international working group chaired by a senior UAE financial official alongside an International Monetary Fund executive that in 2008 adopted the Santiago Principles designed to “ensure that the SWF undertakes investments without any intention or obligation to fulfil, directly or indirectly, any geopolitical agenda of the government.”

Enforcing adherence to the principles has proven easier said than done. With the UAE, whose 1.4 million citizens account for a mere 15 percent of its population of 10 million, projecting itself as a regional military power in the war in Yemen and through the establishment of foreign military bases, DP World has since the US debacle been acquiring ports rights globally, including in countries where the UAE military is active.

To be sure, DP World’s expansion in the Horn of Africa and the Gulf of Aden often makes economic sense and may well have been initially commercially driven in cases like the agreement in 2008 to operate for a period of 30 years the Yemeni port of Aden, once the British empire’s busiest port. The company lost its contract four years later because of its failure to invest in the port.

The port has since taken on even greater geopolitical significance with the UAE military’s focus on Aden and alleged backing for a secessionist movement in southern Yemen in the almost three-year-old Saudi-led military intervention in the country that has allowed DP World to again enter into negotiations about assisting in rebuilding Yemen’s maritime and trade sector that would likely include the company’s return to the Aden port.

DP World’s involvement in Aden tallies in geopolitical terms with its own as well as the UAE’s expansion elsewhere in the Horn of Africa. The company won two years ago a 30-year concession, with an automatic 10-year extension, for the management and development of a multi-purpose deep seaport in Berbera in the breakaway region of Somaliland.

Berbera faces South Yemen across the strategic Bab al Mandab Strait, past which some 4 million barrels of oil flow daily. The UAE military is training Somaliland forces and creating an air and naval facility to protect shipping.

DP World was also developing the port of Bosaso in Puntland, another Somali breakaway region, and was discussing involvement in a third Somali port in Barawe. The Somali ports compliment a UAE military base in Eritrea’s Assab as well as various facilities in Yemen.

“Money and politics make a combustible mix: If you don’t get the formula right, it can blow up in your face,” analysts Adam Ereli and Theodore Karasik warned in a recent Foreign Policy article about the role of sovereign wealth funds in relations between Russia and the Gulf.

In one instance, Kirill Dmitriev, a close associate of President Vladimir Putin and the head of Russia’s sovereign wealth fund, the Russian Direct Investment Fund (RDIF), met in early January 2017l in the Seychelles with Blackwater founder Erik Prince, a supporter of President Donald J. Trump and the brother of US Education Secretary Betsy DeVos in an effort to create a US-Russian back channel. The meeting, days before Mr. Trump’s inauguration, was arranged by UAE Crown Prince Mohammed bin Zayed.

The meeting occurred as UAE, Saudi and other Gulf sovereign funds as well as DP World earmarked $20 billion for investments in infrastructure, energy, transportation, and military production through RDIF as a way of strengthening relations with Russia. RDIF is one of several Russian entities sanctioned by the US Treasury.

“Even if allowances are made for sectorial and geographic diversification, the level of allocations to these markets is out of proportion to their size and viability,” Messrs. Ereli and Karasik said. In a separate article for The Jamestown Foundation, Mr. Karasik argued that “the Gulf states are using their economic strength to flex their political muscle, in order to invest in Russia at a time when Moscow’s embattled economy is struggling with low oil prices.”

Debate about the political role of sovereign wealth funds subsided with the adoption of the Santiago Principles. Those principles are currently being flaunted in an environment of greater economic nationalism, reduced US emphasis on transparency and democratic values, Russian and Chinese focus on economic benefit, and Gulf governments that have become more assertive in flexing their muscles and asserting themselves internationally.

Gulf sovereign wealth funds have learnt the lessons of DP World’s US experience and are likely to be more cautious in ensuring that potential future investments in the US do not challenge Mr. Trump’s America First principle as well as his emphasis on security. Elsewhere, they operate in an environment in which the Santiago Principles fall by the wayside and governments face little criticism of their use of sovereign wealth funds as geopolitical tools.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa.

Saturday, January 13, 2018

Salafi mission calls into question Saudi concept of moderation and policy in Yemen


By James M. Dorsey

Plans to open a Salafi missionary centre in the Yemeni province of Al Mahrah on the border with Oman and Saudi Arabia raise questions about Saudi Crown Prince Mohammed bin Salah’s concept of a moderate form of Islam.

The questions are prompted by the fact that Prince Mohammed has so far put little, if any, flesh on his skeletal vow last October to return his ultra-conservative kingdom to “moderate Islam.”

The crown prince has created expectations of more social liberalism with the lifting of a ban on women’s driving, a residual of Bedouin rather than Muslim tradition, as well the granting of female access to male sporting events; the legitimization of various forms of entertainment, including cinema, theatre and music; and the stripping away of the religious police’s right to carry out arrests.

While removing Saudi Arabia as the only Muslim country that didn’t permit women to drive or allow various recreational activities, Prince Mohammed has yet to conceptualize what a rollback of Sunni Muslim ultra-conservatism would mean in a nation whose public life remains steeped in a puritan interpretation of the faith. (The lifting on the ban of women entering stadiums leaves Iran as the only country that restricts female access to male sporting events.)

The disclosure of the plan for a Salafi mission suggests Prince Mohammed may only want to curb ultra-conservatism’s rough edges. It also calls into question Saudi policy in Yemen that is reminiscent of past failures.

Saudi Arabia’s conflict with Iranian-backed Houthi rebels, a Zaydi Shiite Muslim sect with roots in a region bordering the kingdom, dates to Saudi employment of Salafism to counter the group in the 1980s.

The plan harks back to the creation of an anti-Shiite Salafi mission near the Houthi stronghold of Saada that sparked a military confrontation in 2011 with the Yemeni government, one of several wars in the region. The centre was closed in 2014 as part of an agreement to end the fighting.

Prince Mohammed’s use of ultra-conservative Sunni Islam in his confrontation with the Houthis was also evident in the appointment as governor of Saada of Hadi Tirshan al-Wa’ili, a member of a tribe hostile to the Shiite sect, and a follower of Saudi-backed Islamic scholar Uthman Mujalli. Mr. Mujalli reportedly serves as an advisor to Abd Rabbu Mansour Hadi, the exiled, kingdom-backed Yemeni president.

“Over the past forty years, the Saudi government has invested heavily in Salafi-Wahhabi-style madrasas and mosques in the northern areas, only to realise that this programme was jeopardised by the Zaydi revival movement. If the Houthis were to be defeated in their home province, it is likely that the Salafi-Wahhabi programme will be revived, and implemented more fiercely than in previous years,” said Yemen scholar Gabriele vom Bruck.

The disclosure of the Al-Mahrah plan coincided with a damning 79-page United Nations report that condemned Saudi, Iranian and United Arab Emirates interventions in Yemen. The report concluded that Saudi and UAE proxies threatened peace prospects and that a secession of South Yemen that includes Al Mahrah had become a distinct possibility.

The questions about Prince Mohammed’s concept of a moderate Islam go beyond Yemen. The arts, including cinema, remain subject to censorship that is informed by the kingdom’s long-standing ultra-conservative values. A soccer player and a singer are among those who face legal proceedings for un-Islamic forms of expressing themselves.

The government last year introduced physical education in girls’ schools and legalized women’s fitness clubs, but has yet to say whether restrictions on women competing in a variety of Olympic disciplines will be lifted.

Similarly, and perhaps more importantly, it has yet to indicate whether male guardianship, gender segregation, dress codes that force women to fully cover, and the obligatory closure of shops at prayer times will be abolished. Also, the government has still to declare a willingness to lift the ban on the practice of non-Muslim faiths or adherence to strands of Islam considered heretic by the ultra-conservatives.

The example of Yemen suggests that little has changed in Saudi Arabia’s four-decade-old, $100 billion global public diplomacy campaign that promoted Sunni Muslim ultra-conservatism as an anti-dote to revolutionary Iranian ideology.

Yemen is but one extreme of the spectrum. The Saudi-funded and operated grand mosque in Brussels is the other. Saudi Arabia, responding to Belgian criticism of the mosque’s ultra-conservative management, last year appointed as its imam, Tamer Abou el Saod, a 57-year polyglot Luxemburg-based, Swedish consultant with a career in the food industry. Senior Saudi officials have moreover responded positively to a Belgian government initiative to prematurely terminate Saudi Arabia’s 99-year lease of the mosque so that it can take control of it.

In contrast to Yemen, where the use of ultra-conservatism is a deliberate choice, Prince Mohammed may feel constrained in his moderation quest in the kingdom by the fact that his ruling Al Saud family derives its legitimacy from its adherence to ultra-conservatism. In addition, the kingdom’s ultra-conservative religious establishment has repeatedly signalled that the views of at least some its members have not changed even if it has endorsed the crown prince’s policies.

Saudi Arabia last September suspended Saad al-Hijri, a prominent scholar in charge of fatwas in the province of Asir, for opposing the lifting of the ban on driving because women allegedly had only half a brain that is reduced to a quarter when they go shopping. Sheikh Saad made his comment after the Council of Senior Scholars, Saudi Arabia’s highest religious body, had approved the move.

By the same token, no public action was taken against Sheikh Salih al-Fawzan, a member of the council, who declared on his website that "If women are allowed to drive they will be able to go and come as they please day and night, and will easily have access to temptation, because as we know, women are weak and easily tempted." A video clip of Sheikh Salih’s view was posted on YouTube in October. It was not clear when the scholar spoke or whether he had approved the posting.

A main thrust of Prince Mohammed’s drive to return to moderate Islam is the fight against extremism, involving among others the creation of a centre to oversee the interpretations of Prophet Muhammad's teachings in a bid ensure that they do not justify violence.

There is indeed little doubt that the kingdom is serious about countering extremism. Opposing extremism, however, does not automatically equate to moderation or concepts of tolerance and pluralism. Prince Mohammed has yet to clarify if those concepts are part of his notion of moderation. His track record so far is at best a mixed one.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa.

Friday, January 12, 2018

Iranian protests expose contours of leadership in the Muslim world

Source: Wikimedia Commons

By James M. Dorsey

If week-long anti-government protests in Iran exposed the Islamic republic’s deep-seated economic and political problems, they also laid bare Saudi Arabia’s structural inability to establish itself as the leader of the Sunni Muslim world.

The responses to the protests of major Sunni Muslim countries in the Middle East and North Africa demonstrated that none of the contenders for regional dominance and leadership that include Turkey and Egypt were willing to follow the Saudi lead.

In fact, the responses appeared to confirm that regional leadership was likely to be shared between Turkey, Iran, and Egypt rather than decided in a debilitating power struggle between Saudi Arabia and the Islamic republic that has wreaked havoc across the Middle East and North Africa and that the kingdom has so far lost on points.

Uncharacteristically, Saudi Arabia under the rule of King Salman and his son, Crown Prince Mohammed bin Salman, has refrained from commenting on the protests. The kingdom has also been silent in the walk-up to US President Donald J. Trump’s decision what to do with American adherence to the 2015 international nuclear agreement with Iran.

While Saudi media, oblivious of the potential for dissent in the kingdom, gloated about the exploding discontent in Iran, Saudi leaders stayed quiet in a bid to avoid providing Iranian leaders with a pretext to blame external forces for the unrest. (That did not stop Supreme Leader Ayatollah Ali Khamenei and other Iranian leaders from laying the blame at the doors of Saudi Arabia, Israel and the United States).

Similarly, Saudi Arabia, whose regional prominence is to a significant extent dependent on US, if not international containment of Iran, stayed publicly on the side lines as Mr. Trump deliberated undermining the agreement that for almost three years has severely restricted Iran’s nuclear program and halted the Islamic republic’s potential ambition of becoming a nuclear power any time soon.

While the Saudis would welcome any tightening of the screws on Iran, they have come to see the agreement as not only preventing Iran, at least for now, from developing a military nuclear capability but also as avoiding a regional nuclear arms race in which Turkey and Egypt as well as potentially the United Arab Emirates would not be left out.

The agreement gives the kingdom in the meantime an opportunity to put in place building blocks for a future military nuclear capability, if deemed necessary. Mr. Trump’s apparent willingness to ease restrictions on Saudi enrichment of uranium as part of his bid to ensure that US companies play a key role in the development of Saudi Arabia’s nuclear energy sector facilitates the Saudi strategy.

In contrast to the Saudis, Turkish president Recep Tayyip Erdogan was vocal in his support for the Iranian government and call to Iranian President Hassan Rouhani to express his solidarity. Egypt, like Saudi Arabia, has not commented on the protests but has been studious in avoiding being sucked into the Saudi-Iranian rivalry, including its multiple proxy battles in Yemen and elsewhere.

The different responses to the Iranian protests represent more than a difference of evaluation of recent events in the Islamic republic. They represent the fault lines of two, if not three, major alliances that are emerging in the Middle East and North Africa and adjacent regions like the Horn of Africa around the contenders for regional leadership. 

They also highlight Saudi Arabia’s inability to garner overwhelming support for its ambition and/or multiple efforts to achieve it by among others declaring an economic and diplomatic boycott of Qatar, intervening militarily in Yemen, and failing to force the resignation of Lebanese prime minister Saad Hariri.

Turkey has effectively sought to counter Saudi moves not only by forging close ties to the Islamic republic despite differences over Syria, but also by supporting Qatar with a military base in the Gulf state and the supply of food and other goods whose flow was interrupted by the Saudi-led boycott.

Turkey has further established a military training facility in Somalia; is discussing creating a base in Djibouti, the Horn of Africa’s rent-a-military base country par excellence with foreign military facilities operated by France, the United States, Saudi Arabia, China and Japan; and recently signed a $650 million agreement with Sudan to rebuild a decaying Ottoman port city and construct a naval dock to maintain civilian and military vessels on the African country’s Red Sea coast. Saudi Arabia sees the Turkish moves as an effort to encircle it.

Turkey, to the chagrin of Saudi Arabia, and its closest regional ally, the UAE, as well as Egypt has supported the Muslim Brotherhood as well as other strands of political Islam. Egypt this week launched an investigation into embarrassing leaks from an alleged intelligence officers that were broadcast on the Brotherhood’s Istanbul-based Mekameleen tv station and published in The New York Times. Egypt has denied the accuracy of the leaks.

If Saudi Arabia, backed by the UAE and Bahrain and Israel as an officially unacknowledged partner constitutes one block, Turkey forms another that could either include or cooperate with the region’s third pole, Iran. Egypt, conscious of its past as the Arab world’s undisputed leader, may not be able to yet carve out a distinct leadership role for itself, but has worked hard to keep the door open.

Underlying the jockeying for regional dominance is a stark reality. Turkey, Iran and Egypt, to varying degrees, have crucial assets that Saudi Arabia lacks: large populations, huge domestic markets, battle-hardened militaries, resources, and a deep sense of identity rooted in an imperial past and/or a sense of thousands of years of history. Saudi Arabia has as the custodian of Islam’s most holy cities, Mecca and financial muscle. In the longer run, that is unlikely to prove sufficient.


Dr. James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies, co-director of the University of Würzburg’s Institute for Fan Culture, and co-host of the New Books in Middle Eastern Studies podcast. James is the author of The Turbulent World of Middle East Soccer blog, a book with the same title as well as Comparative Political Transitions between Southeast Asia and the Middle East and North Africa, co-authored with Dr. Teresita Cruz-Del Rosario and  Shifting Sands, Essays on Sports and Politics in the Middle East and North Africa.