The Filter Coffee

Foreign policy, strategic affairs, defense and governance

End of Story, Morning Glory?

The United Arab Emirates (UAE) is experiencing the antithesis of the “Dubai Chalo” mantra of the ’60s and ’70s.  Dubai is likely the shed 10% of its population over the next two years, as a result of unmanageable debt, failing businesses and shrinkage of property values.   This is only to be expected —  unsound economics have driven Dubai’s growth in recent years.  Unlike other states in the Arabian Peninsula, Dubai has no oil of its own.  Indeed, from the emirati pearl merchants of the early 1900s to the establishment of the Jebel Ali Port in the 1970s, its historic strength has been trade.

However, the single minded pursuit of turning this free-trade town into a megacity rivaling New York or Los Angeles is as bad an idea today as it was when it was conceived.  And now, conservative but oil-rich Abu Dhabi, who many said was slow off the mark in this maddening real estate circus, is having the last laugh.  The Maktoums of Dubai have had to had to swallow their pride and approach Abu Dhabi to bail them out.  But even Abu Dhabi’s bailout of Dubai comes with strings attached:

[T]he rapid deceleration had given rise to speculation that Abu Dhabi, the richest member of the UAE, might have to bail out its flashier neighbour. Rumours spread that Abu Dhabi would only stump up the cash if Dubai ceded control of its successful airline, Emirates.

Federal support has come through folding Dubai’s troubled mortgage companies into well-capitalised Abu Dhabi banks. There have been other direct discussions between Dubai and Abu Dhabi state companies, although none has reached agreement.

Sheikh Mohammed’s Dubai International Capital fund, whose assets have shrunk sharply, briefly courted investment from Mubadala, the Abu Dhabi investment arm. No substantive discussions ensued, people close to the matter say, but the incident fuelled rumours of a bail-out. Well before the credit crisis raised questions about Dubai’s solvency, Mubadala and Dubai Aluminium had been discussing equity restructuring of their joint venture, Emirates Aluminium, a vast smelter on the Abu Dhabi/Dubai border.

What Dubai needs to do now is to rightsize.  New York City was not built overnight.  Even if NYC’s economy relies heavily on financial markets, these markets trade against tangible products — from the pharmaceuticals of New Jersey, to the automobiles of Detroit.  Dubai’s financial markets trade in recycled financial instruments, which have a tendency to flourish during the good times, and falter during the bad.  This blogger also feels that Dubai (and the UAE as a whole) needs to address debt insolvency.  Given that foreigners and foreign owned entities form the majority of Dubai’s demographic and economic footprint, a credit history check system such as the one in the United States would be ineffective.  Yet, there is an urgent need to address the frequency with which expatriates and foreign-owned companies run up substantial debt and abscond from the country.  The current economic crisis in Dubai is as much a result of a nonexistent debt reconciliation system, as it is due to building artificial islands, skyscrapers and magical kingdoms that no one could afford.

The one benefit of an Abu Dhabi bailout might be that the UAE would start functioning more like a federation with a visible nucleus (Abu Dhabi) than the disagreegated collection of city-states that it now is.

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Filed under: Abu Dhabi, Dubai, economics, Financial Crisis, Middle East, Politics, UAE, United Arab Emirates, World, , , , , , , ,

US – UAE Nuclear Deal

Very quietly, the United States and the United Arab Emirates have signed a deal that will allow the UAE to develop nuclear reactors and obtain nuclear fuel from the US, under the 123 Agreement framework. Under the agreement, the UAE, which is already a signatory to the Nuclear Non-Proliferation Treaty (NPT) and the Comprehensive Test Ban Treaty (CTBT), will be subjected to nuclear safeguards inspection from the International Atomic Energy Agency (IAEA), and will forgo the right to enrich/reprocess spent Uranium fuel. The whole nuclear program of the UAE will apparently be under US management, pending IAEA approval.

Since its birth in December 1971, the UAE has experienced massive economic growth on account of its petroleum reserves. This initial economic growth gave rise to two main economic power centers in this federation of seven emirates — Abu Dhabi, the capital of the UAE and largest emirate by area, whose revenues are driven by oil, and Dubai, the most populous emirate, whose revenues are driven by trade and financial services.

Economic growth lead to investments in infrastructure and construction, resulting in the arrival of hoards of blue – and white collar workers, primarily from the Indian subcontinent, to fill the employment vacuum. This sustained population growth, particularly in Dubai, has forced the UAE to consider alternative sources of energy. By some estimates, UAE’s demand for electricity is likely to rise to 40,000 megawatts (MW) by 2020. However, UAE’s energy sector is projected to be capable of meeting only about 50% of this demand.

The 123 Agreement is yet to be ratified by Congress, and will still need to be approved by the President of a new US administration. Barack Obama has not publicly stated his views on the issue. The deal has already met with vociferous disapproval from members of Congress. Rep. Brad Sherman, the chairman of the House Foreign Affairs Terrorism, Nonproliferation, and Trade subcommittee, said:

“Any (nuclear cooperation) agreement between the United States and the UAE should not be submitted to Congress until, at a minimum, the UAE has addressed the critical issue of transshipments and diversion of sensitive technologies to Iran.”

If that’s the Congressman’s line of thought, then this is yet another classic example of the kind of cluelessness that has come to typify the thinking of successive US administrations on matters concerning the Middle East. Indeed, Iran is the one country that can be counted on to get irked by the proposed deal.  Relations between “Shi’a” Iran and “Sunni-Arab” UAE have always been icy.

A major bone of contention between the UAE and Iran is with regard to the Abu Musa and Lesser Tunb islands, unilaterally occupied by Iran, but claimed by the UAE. The Abu Musa archipelago lies within the strategic Straits of Hormuz corridor, an area vital to the petroleum driven economies of the Arabian Peninsula. In addition, as Anthony Cordesman points out, there are two specific areas of concern for Abu Dhabi — (a) the presence of a significant Iranian immigrant (potential “fifth column”) population in the UAE, and (b) the strategic proximity of Dubai and Sharjah to the old Iranian port-town of Bandar Abbas. The vulnerability of the northern emirates’ shipping channels to Iran’s airbase in Bandar Abbas is a source of worry for UAE’s rulers.

For its part, Iran can’t be too pleased with the cosiness exhibited smaller Arabian Peninsular countries like the UAE and Qatar towards the United States. US military bases in the UAE, like those in Jebel Ali and Al Dhafra, and UAE’s ambivalence towards the US invasion of Iraq can’t have helped matters much either.

This nuclear deal is a bad idea — not because of an alleged UAE-Iran nexus, but because the UAE will be susceptible to an Iranian military assault either if Iran-UAE relations deteriorate, or if Iran has its back to the wall in any future US-Iran military confrontation. The UAE can ill afford be in a military conflict with Iran — the repercussions will be felt far beyond the region, given that expatriates make up about 80% of the total population of the UAE.

Allowing the accumulation of nuclear material in a politically and militarily weak country situated in the most unstable region on earth, and in the proximity and cross-hairs of Iran, is foolish. To think that this will impress upon Iran the virtues of towing Washington’s line with regard to nuclear technology is an exercise in naiveté. Far from making the UAE politically and strategically more secure, the deal will prove to be an albatross around Abu Dhabi’s neck.

Filed under: 123 Agreement, Abu Musa, America, Barack Obama, Business, Dubai, Iran, Nuclear Energy, Politics, UAE, United Arab Emirates, World, , , , , , , , , , , , , , , , , , , , ,

12 Easy Steps to Destroy India: A Handguide

Well really, there’s just 1 easy step to destroy India: have the UPA government hire R Vaidyanathan as chief strategist in the fight against terrorism. He will swiftly ensure that the anarchy in Afghanistan and NW Pakistan will spread like cancer to eastern Pakistan, and then eventually to all of India as well. Vaidyanathan wrote 8 things India Inc, govt must do against Pakistan“, a masterfully crafted economic and strategic treatise, and followed that up with “12 steps to shock-and-awe Pakistan’s economy” the very next day, apparently in response to overwhelming feedback to the first article. Nothing will ensure India’s discombobulation faster than the implementation of some of his plans.
Vaidyanathan’s proposed assaults on Pakistan’s economy include the following gems:

Identify the major export items of Pakistan (like Basmati rice, carpets, etc) and provide zero export tax or even subsidise them for export from India. Hurt Pakistan on the export front.

Create assets to print/distribute their currency widely inside their country. To some extent, Telgi types can be used to outsource this activity. Or just drop their notes in remote areas.

I fail to see how this is going to make matters better. In fact, there is a very distinct possibility that things could get much worse. It is a fact that terrorist organizations like LeT and Al Qaeda prey on frustrated, impoverished, disenfranchised youth for recruitment. By his own admission, Ajmal Amir, the lone surviving terrorist from the Mumbai attacks, was a laborer and a petty thief before being recruited by the Lashkar. There is a history of young men living under conditions of unemployment, poverty and helplessness turning to terrorism. It’s no surprise that most of the 9/11 hijackers came from Saudi Arabia (one of the world’s fastest growing unemployment rates, at 12%) and Yemen (unemployment rate of 35%). I bring this up because India’s economic muscle is very real, and can inflict substantial damage on Pakistan’s economy. Nothing will please the Lashkar more, since hordes of Ajmal Amirs will be lining up outside their recruitment offices in Muridke, in much the same way that Indians line up to work for Infosys or Wipro.

But wait, it gets better. Vaidyanathan continues…

We should realise that a united Pakistan is a grave threat to the existence of India. Hence, we should do everything possible to break up Pakistan into several units. This is required to be done not only for our interest, but for world peace.

Not only for our interest, but for world peace? How very benignant of him. Pakistan as a federation is already teetering on the brink of collapse. There is already a struggle going on in Baluchistan. In Swat, Pakistani forces are fighting the Taliban against the imposition of a parallel Sharia law. South Waziristan has unilaterally declared independence, which the government in Islamabad has tacitly accepted. The “real” Pakistan now exists only in Sindh and Punjab, and even in Sindh there are several secessionist movements.

If Pakistan as a federation falls, the whole area from Helmand province in Afghanistan to Wagah will be in a state of anarchy. This is a humanitarian disaster waiting to happen, and India will be ill equipped to handle the influx of refugees from this region. Worse, once in India and bereft of any viable employment opportunities, many of these refugees may turn to theft and militancy. One only has to look at the Afghan refugee crisis in Pakistan to get a sense of what to expect, if it were to occur in India. Secondly, and more importantly, Pakistan is a nuclear weapons state. The threat of rouge Army officers, and/or ISI agents in cahoots with their Al Qaeda, LeT and JeM buddies launching attacks on India with those weapons is very real. To ward off such a possibility, Indian troops, along with US and NATO forces will be forced to enter into mainland Pakistan in search of the weapons, where our troops will get summarily slaughtered in close combat situations à la the US in Iraq. It takes only five minutes for a nuke from Pakistan to hit India. How soon can India’s forces track down and decommission Pakistan’s warheads?

India has already shown, post-Kargil, that it does not have the appetite to go after Pakistan unilaterally.  Indeed, off-late, India’s strategy vis-a-vis Pakistan appears to be to make the United States do its bidding in Pakistan — a bungling miscalculation, since the US itself is tied down by its own compulsions in the Afghan-Pakistan border.  India has not articulated a credible strategy towards Pakistan.  Relying on the US somewhat to use its influence on Pakistan is fine, as long as it is only part of a coherent, multidimensional strategy that India, as a soverign, independent nation adapts, taking into consideration its own national interests.  Flexing India’s economic muscle is also fine, as a means to an end — the end being the ultimate termination of anti-India militant forces in Paksitan, and not the capitulation of the state of Pakistan itself, as proposed by Vaidyanathan.

India must make it clear to Pakistan that it has multiple non-military arsenal in its inventory that it can use to bleed Pakistan, in the same way that Pakistan, implicitly or explicitly, aims to hurt India.  For example, India should make it clear that it is willing to violate the Indus Water Treaty, and severely or completely choke the westward flow of the Chenab, dealing a blow to Pakistan’s agricultural output for domestic consumption and external trade.  Similarly, India should be able to affect a de facto deep water import blockade of the port of Karachi, ostensibly with an intent to ward off pirate activity from the Horn of Africa. A substantial volume of import trade with Pakistan, will then need to originate from or be routed to the Arabian Penninsula, from smaller ports in Muscat or Sharjah; smaller trade volumes means increased per-unit costs of imports.

If in the future, India is to be the global force that many are predicting it to be, then Pakistan’s stability will be vital to the fulfillment of that prophecy. An unstable Pakistan will mean an unstable India. Rather than seeking to destroy and disintegrate Pakistan, India must work to ensure that its voice is heard in Pakistan.  India’s sphere of infleuence must effectively include, not exclude Pakistan.  Any carrot-and-stick policy that India adopts with regards to Pakistan must show our neighbor that its interest lie in working with, rather than against India.  The benefits in working with India must be conspicious and very apparent, as must the consequences of attempts to destablize India.  To this end, where necessary, India should be willing and able to unilaterally use non-military tools at its disposal to punish Pakistan.  However, a constant, ineffectual, quasi-military, adversarial posturing with Pakistan, such as the one currently in favor in New Delhi, will leave India muddled in the internal quagmires of South Asia, and unable to break free from its shackles to project power and influence beyond this impoverished and chaotic region.

Filed under: 11/25/2008, 9/11, Afghanistan, Al Qaeda, Congress I, economics, helmand, India, Indian Army, isi, Lashkar-e-Taiba, Laskhar-e-Toiba, let, Mumbai, Mumbai Terrorist Attack, november 25, nuclear weapons, nukes, Pakistan, pakistan army, Saudi Arabia, Terrorism, Wagah, Yemen, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

By-two Kaapi (Twitter)