Gulf States Newsletter

PEOPLE, POLITICS & RESOURCES IN THE GULF REGION

www.gsn-online.com Volume 33 • Issue 860 • 11 September 2009

Rival Iraqi factions play kidnap politics as violence

increases ahead of elections
The return of mass bomb attacks to the streets of Iraq is a potent reminder that the country is still ruled by violence.
As the murder of four of the five Britons kidnapped by Shia extremists shows, extreme force still pays political
dividends in this brutal environment

T
he lull in attacks which followed last year’s US military
surge, and the ‘Charge of the Knights’ operation led by
Prime Minister Nouri Al-Maliki that crushed southern
Iraq’s Shia militias, temporarily masked the extent of the
simmering chaos of the political landscape (GSN 829/4). The
talk was of soft power and development filling the gap when, in
April, Maliki visited London to open an investment conference
(GSN 853/12). But much of that optimism has already
disappeared in a mire of red tape and corruption. The truck
bomb attack on the finance and foreign ministries on 19 August,
which left 100 people dead and 600 injured, exposed insurgents’
capability and damaged Maliki’s claims to have dealt definitively
with terrorism. The government blamed insurgents based in
Syria. Further attacks are likely in the run-up to the January
2010 national election, as the US military presence fades.
Meanwhile, the rampant horse-trading between rival
movements and militias as coalitions are built for the electoral
contest provides clear evidence that violence is still a good route
to power for many players. Maliki’s recent political successes
have necessarily been built on the use of force. His personal
command of the anti-militia operations in Basra last year
transformed him from a weak compromise candidate into the
strongman leader that many Iraqis had been waiting for. One
Iraqi from Basra described the Charge of the Knights operation
as the pivotal moment when life in the city changed. A seasoned
observer of the Iraqi security scene told GSN that the question
now was whether Maliki could “keep on playing the strongman
without having to resort too frequently to strongman antics”.
The prime minister has continued to use the military to advance
his agenda. He recently ordered a military raid on the
Mujahideen-e Khalq camp outside Baghdad, home to 3,000
dissident Iranians, which until recently was protected by US
CONTINUED ON PAGE 3

Dubai’s debt Saudi tremors Lockerbie release: Qatar’s Scottish play

The revelation that Dubai
World owes nearly $60bn
undermines attempts to
reassure markets that Dubai’s
debt is no more than $80bn. If
sovereign debt is only $10bn as
officials say, government
enterprise debt other than
Dubai World’s liabilities would
account for only some $10bn.
But GSN’s analysis suggests
the emirate’s debts are a lot
bigger than previously stated.
Fortunately, Ruler Sheikh
Mohammed Bin Rashid Al-
Maktoum sees the global
financial crisis as only “a
passing cloud”.
—SEE PAGE 16
The assassination attempt on
Prince Mohammed Bin
Nayef underlined the terrorist
threat coming out of Yemen.
But how tough judicial and
security action against Shia
and Ismaili populations will
help reinforce the national
unity King Abdullah has
fought to instill remains
unclear. Such heavy-handed
crackdowns may be influenced
by dynastic rivalries, involving
leading Al-Sauds such as
Interior Minister Prince
Nayef and Eastern Province
governor Prince Mohammed
Bin Fahd.
—SEE PAGES 4 AND 14
Qatar seems to have played a
facilitating role in getting convicted
Lockerbie bomber Abdelbasset Ali
Mohammed Al-Megrahi back to
Libya, just as it helped in getting
the Bulgarian medics out of
Colonel Qadhafi’s Jamahiriya
(State of the Masses) in 2007 (GSN
811/1). The signs are that Qatar,
which chairs the League of Arab
States, has been discreetly
assisting sensitive negotiations
between Libya and Scotland over
the ailing Al-Megrahi’s
controversial release.
Minister of State for International
Development and Acting Minister
of Business and Trade Dr Khalid
Bin Mohammed Al-Attiyah met
First Minister Alex Salmond in
mid-June to discuss Al-Megrahi’s
return to Libya. He subsequently
sent two letters to Scottish
Secretary for Justice Kenny
MacAskill on the same subject. A
letter from Salmond to Qatar’s
ambassador to the UK, Khalid
Rashid Al-Hamoudi Al-
Mansouri, and two letters from
MacAskill to Al-Mansouri were
published by the Scottish
Executive in late-August in
response to speculation about
negotiations leading to Al-
Megrahi’s release. Salmond’s
letter said that he and the minister
had discussed “the links between
our two countries”. In response to
Al-Attiyah’s request, Salmond sent
CONTINUED ON PAGE 11

ISSN 0953-5411 Cross-border Information

 Contents

POLITICS
IRAQ: Rival factions play kidnap politics 1
QATAR: Facilitating role over Lockerbie bomber 1
IRAQ: Hostage horse-trading 3
SAUDI ARABIA: Mixed messages over minorities 4
IRAN: The Kingdom gets nervous 5
Gulf States Newsletter
YEMEN: Northern crisis adds to Saudi tensions 6
Volume 33 • Issue 860 • 11 September 2009 BAHRAIN: Al-Houthi collusion accusations 6
IRAN: Majlis approves government posts 6
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SAUDI ARABIA: Nayef Bin Abdelaziz consults 7
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Senior contributing editor SAUDI ARABIA: Turki Al-Faisal speaks out again 7
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Contributing editors OMAN: Qaboos tackles swine flu, Iranian ties 7
Nadine Marroushi
John Hamilton DEFENCE AND SECURITY
Kevin Godier (Finance)
James Gavin KUWAIT: Arrests reflect history of militancy 8
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Production IRAN: ‘Vanished cargo carrying arms’ 10
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Webmaster DIARY
Chris Light (webmaster@gsn-online.com)
EVENTS: What’s on around the region 10
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2 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009

Iraqi domestic politics and hostage-taking
Political outlook in Iraq
CONTINUED FROM PAGE 1
troops. The action was praised by Tehran, which regards the
exiled inhabitants of the camp as dangerous enemies. Maliki,
manoeuvring feverishly, has otherwise been turning against
Iran-backed allies. He recently abandoned his coalition partners
in the ruling Shia United Iraqi Alliance (UIA). In late-August,
the Shia parties, including the Islamic Supreme Council of Iraq
(ISCI) and the Sadrist movement, formed a new coalition
excluding the PM’s Dawa Party. They had rejected Maliki’s
conditions for continued alliance including half the seats on a
newly formulated “non-sectarian” list, an end to the has-hasah
system of dividing government jobs according to sectarian
quotas, and a guarantee Sadrists would be excluded from power.
Having split, Maliki must nevertheless hold the ruling majority
together for another four months. But he has been lucky. ISCI,
Dawa’s major rival among the Shia political parties, has been
weakened by the death in mid-August of its respected leader
Abdelaziz Al-Hakim. He has been succeeded by his son
Ammar, but a power struggle may ensue. Jeish Al-Mahdi leader
Moqtada Al-Sadr is still studying in Iran, although he is
expected to return to contest the elections.
Maliki’s proposed nationalist coalition is backed by the US,
which believes it is necessary to prevent Iraq from sinking into
sectarian conflict. It will probably contain elements from the
Sahwa (the Sunni Awakening Movement), whose co-operation
was fundamental in the defeat of Al-Qaeda in northern and
central Iraq. Maliki’s relations with Sunni groups have been
fractious and dogged with mistrust (GSN 852/5). But he is
reported to have built bridges with Ahmed Abu Risha, one of
the most important tribal sheikhs in Anbar province, and with
Saleh Al-Mutlak, who leads the second largest Sunni party, Iraqi
Front for National Dialogue. He may also win support from the
new opposition party in the Kurdistan Regional Government
region, Goran (Change), which won 25 seats in recent elections
(GSN 857/5). It is a gamble, but “there are plenty of nationalists
from every group – Shia, Sunni and Kurds – so it can probably
work”, said the security source.
Horse-trading over hostages
The type of deal that Iraqi Prime Minister Nouri Al-Maliki
must make to retain power is illustrated by the traumatic
endgame of negotiations between the UK and Iraqi
governments and a militant Shia splinter group called Asaib Ahl
Al-Haq (Leagues of the Righteous) over the release of British
hostage Peter Moore. Asaib split from the Jeish Al-Mahdi after
Muqtada Al-Sadr called his ceasefire in August 2007. The US
military believes the group is backed by the Iranian Islamic
Revolutionary Guards Corps’Al-Quds force, whose leader Qais
Al-Ghazali is in US custody.
Moore, an IT consultant with Bearing Point, was training
GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Politics
Ministry of Finance employees in the use of a computerised
financial management system capable of tracking Iraq’s oil
receipts. After his kidnap, the system was abandoned. According
to eyewitnesses quoted in UK newspaper The Guardian in July,
he and his bodyguards, employees of Canada’s Gardaworld, were
snatched from inside a ministry building in central Baghdad by
a highly organised gang wearing Ministry of Interior uniforms
and driving ministry Toyota Land Cruisers, which then made its
escape unchecked through a number of official roadblocks.
Observers said an operation of this scale must have had some
kind of official support. Whether or not this is true, what was
effectively a freelance operation appears to have quickly moved
beyond the control of a single individual. “Not even the leaders
of the militias are able to control their factions,” a security source
with knowledge of the affair told GSN. The facts are still hazy,
but it appears the captors killed all four bodyguards in unknown
circumstances as long as a year ago. No warning of the killings
was given and they were then kept secret. Mobile phone chatter
monitored by the security forces soon after the return of the
first two bodies showed that senior Asaib figures were very
surprised when they heard the prisoners, with which they
hoped to parlay themselves out of prison and into power, were
dead. This suggests that Al-Ghazali may not have been aware of
what was going on elsewhere in his organisation. “If it was
acting, it was extremely well done,” said the source: “They were
all part of the same gang to begin with, but these things are
extremely fluid.”
The group appears to have acted with extreme subterfuge in its
communications with the authorities. In July 2008, the UK
authorities received a message claiming that a rival group had
seized the hostages in a raid on the original kidnappers. But
this appears to have been a false claim, perhaps designed to
increase pressure on the British government. The grisly process
is now approaching its conclusion. In early July, Washington
ordered the release of five Iranians detained by US forces in Iraq
in January 2007 (GSN 858/8). Some observers have
interpreted this as a step in the negotiations. Hours before the
first two bodies were handed over, the US Army delivered Laith
Al-Ghazali, brother of Qais Al-Ghazali, to the government,
which promptly released him. A third body was handed over in
mid-August. The fate of the fourth guard is officially unknown,
but he is also believed to have been murdered.
Qais’ freedom is believed to be the key concession now
necessary to trigger Moore’s release. He is being held by the US,
which has accused him of organising the capture and murder of
five US servicemen in Karbala. But he may soon have a share
of power. According to a report by veteran Iraqi correspondent
Patrick Cockburn of the UK’s The Independent newspaper, the
US and Iraqi governments “are eager to see Asaib Ahl Al-Haq
abandon its armed struggle and join the political process. It has
refused to do so while Qais Al-Ghazali is held captive.” The
Americans have until now refused to hand over Qais, although
GSN’s security source said he expected this would happen soon.
3
Politics
Minorities policy falls victim to Al-Saud dynastic
rivalries as princes vie for power
Tough judicial and security interventions undermine King Abdullah’s overtures to Shias and Ismailis as Prince Nayef
and his allies grow more assertive
B
arely two weeks after King Abdullah Bin Abdelaziz
ordered the early release of 17 Ismaili Shia political
detainees from Najran, security forces raided an Ismaili
mosque in Al-Khobar. Following the shutdown of four Shia
mosques in the Eastern Province (Sharquia) city, this intervention
highlights the striking inconsistencies that now characterise
Saudi policy towards religious minorities.
External events such as the hardliners’ triumphant crackdown in
Iran and the Al-Houthi sect’s bloody rebellion in northern
Yemen have intensified the concerns and sensitivities that shape
Riyadh’s policy towards the Shia (see boxes). And major tensions
clearly persist within the Kingdom, underlined by the 27 August
assassination attempt in Jeddah on Assistant Interior Minister
Mohammed Bin Nayef (MBN) by a Yemeni-born suicide
bomber (see Risk management report, below).
But there are signs that the issue is also influenced by the long-
running dynastic power rivalries within the Al-Saud. The
heavy-handed crackdown in the Eastern Province – as many as
300 police seized the Ismaili mosque in Al-Khobar after Friday
prayers on 4 September – is reportedly masterminded by the
governor of this key oil-producing region, Prince Mohammed
Bin Fahd (MBF), and his ally MBN.
Their tough stance is in striking contrast to King Abdullah’s
overtures in Najran, the Ismaili Shia heartland in the south-west.
The release of 17 local protesters on 24 August, six months
before the end of prison terms they had been serving since
2000, followed the dismissal last autumn of hardline Prince
Mishaal Bin Saud as provincial governor, and the installation in
May of the monarch’s son, Prince Mishaal Bin Abdullah. This
was followed by the granting of 1,200km2 of land to locals.
Meanwhile, work continues on the new Najran university
campus, a major investment in social and intellectual capital for
a region long regarded by the Kingdom’s Wahhabi establishment
as poor and backward.
In the Eastern Province and Najran, the policy towards Saudi
Shias has been marked by apparently incompatible contrasts.
The crackdown on places of worship in Gulf coast cities comes
only four years after municipal elections were organised –
notably with the redrawing of municipal boundaries to create
one overwhelmingly Shia council district, Qatif – to assure the
Shia of an elected local political voice. Yet the situation is so
deteriorating that Human Rights Watch (HRW) has issued a
report accusing the authorities of discrimination and abuse.
4 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Saudi Arabia
In Najran, during a 45-minute meeting in May 2008, Ismaili
community leaders asked King Abdullah to appoint his son,
Mishaal, as governor. Mishaal Bin Saud was removed, and this
spring, Mishaal Bin Abdullah was appointed. Yet a prominent
participant in the talks, Ahmed Turki Al-Saab, was arrested only
ten days later, on 12 May. He was flown to Riyadh and remains
in jail. And the early release of the 17 activists was followed by
the imposition of a further five-year sentence on Hadi Al-
Mutif, the longest-serving Ismaili detainee, after he smuggled a
declaration filmed by mobile phone out of prison for broadcast
on the internet.
Al-Mutif, who was imprisoned as a teenager for an apparently
trivial blasphemous remark, has become such a powerful symbol
of the debate over whether Ismailis should comply with
religious conservative orthodoxy that he has spent the last two
and a half years in solitary confinement. He has also been
moved to a jail in Abha, in Asir, where there are few Ismailis.
Saudi insiders caution that it is an over-simplification to view
King Abdullah and his allies, such as Municipal Affairs Minister
Prince Mitaeb Bin Abdelaziz and his son, Prince Mansoor, as
promoters of reform and tolerance while redoubtable Interior
Minister and Second Deputy Premier Prince Nayef Bin
Abdelaziz leads a hardline faction committed to Wahhabist
supremacy and the repression of minority rights. They point
out that Abdullah, like other senior Al-Saud, is careful to protect
his relationship with the senior Wahhabi clerical establishment.
Although the Shias and Ismailis were invited to join the
National Dialogue that he launched when he was Crown
Prince, this has not led to a fundamental revision of the way
these minority interpretations of Islam are viewed by the Saudi
authorities. School textbooks may have been pruned of some
of their most sectarian language, but the commitment to the
supremacy of Wahhabi orthodoxy remains.
Rising tensions
The authorities have become increasingly unnerved by
domestic and external events. In February, Shia pilgrims from
the east clashed with religious police over the rituals for
commemorating the dead at the Baqi religious cemetery in
Madinah. News of the incident spread rapidly as film of the
confrontation appeared on the internet. Some conservative
Sunni Saudis were angered by what they regarded as Shia
desecration of a holy site. A number of Shia pilgrims were
detained, provoking demonstrations in the mainly Shia Gulf
coast towns of Qatif and Safwa. One Shia preacher, Nimr Al-
Saudi Arabia
Nimr, even proclaimed that “our dignity is more precious than
national unity” – although community leaders were quick to
disown the potentially separatist views and reassure the
authorities of Shia loyalty to the Saudi state.
Nevertheless, much of the progress on improving relations
between the mainstream Shia and the Saudi authorities has been
eroded. The tension that has prevailed since the Madinah
episode has not been helped by the fact that the Eastern
Province is a key economic region containing major oilfields.
The authorities have arrested scores of Shias involved in the
spring protests; HRW has recently confirmed that many of them
are still being held. And four Shia mosques in Al-Khobar which
have been open since the initial government-Shia reconciliation
of the early 1990s have been shut, a policy that forces Shias to
worship at unofficial meeting places and private homes, an
activity that many security officials regard as subversive.
Much of the Al-Saud establishment regard traditional Twelver
Shias as sympathetic towards Iran. Such suspicions had been
largely dispelled since the late 1990s by a combination of
internal détente with leading Saudi Shia clerics and the
diplomatic overtures of the liberal Iranian president
Mohammad Khatami, who was keen to reassure Arab
neighbours that the Islamic Republic did not harbour
hegemonic ambitions. However, the Saudi establishment’s
attitude towards the Shia today is formed against a much less
favourable international context.
Dynastic rivalries
The handling of Saudi minorities has become caught up in the
tussle for influence within the Kingdom. Saudi sources have
told GSN that the driving figures behind the current crackdown
in the east are Sharquia governor MBF and his ally MBN.
Patriarchal prestige and patronage is a key factor in Saudi
politics, and after the death of King Fahd Bin Abdelaziz, most
of his sons lost influence. Abdelaziz Bin Fahd, for example,
now has a largely ceremonial minister of state court position
that gives him little influence or real spending power. But MBF
is married to a daughter of Prince Nayef and thus has the
support of the powerful interior minister and his son, MBN.
The latter is increasingly concerned with the day-to-day
running of the ministry, while his father concentrates on
consolidating his national influence with a view to royal
succession. While Nayef builds up his national position, MBN
strengthens his control over affairs at the ministry; he is now
generally regarded as more powerful than the department’s
nominal number two, Deputy Minister Ahmed Bin Abdelaziz.
While Crown Prince Sultan Bin Abdelaziz remains unwell
abroad, Nayef is increasingly prominent, as GSN has previously
noted (GSN 858/1, 857/7). One Saudi observer told GSN
that succession rivalry could now be viewed less in terms of
competition between King Abdullah’s branch of the family and
the Sudeiris and more as that between Abdullah’s branch and
GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Politics
Iranian concerns
The first term of President Mahmoud Ahmadinejad restored hardline
conservative nationalism to centre stage. The president’s continuing
nuclear programme, ignoring Saudi demands for a nuclear-free Gulf,
could only deepen anxieties. Riyadh’s concern has been heightened by
the ruthlessness with which Ahmadinejad and Supreme Leader Ayatollah
Ali Khamenei have sought to consolidate hardline dominance in the wake
of the disputed presidential election. Since the 1979 revolution, Iranian
politics has been complex, as liberals, moderate conservatives and
hardliners jostled for influence. But none was ever totally dominant, and
this provided a kind of unstable stability – the ideologues balanced by the
pragmatists – that reassured neighbours. As recently as summer 2008,
senior Iranian policymakers told GSN of their support for King Abdullah’s
Saudi reform programme and their keenness to strengthen good relations
with the Gulf Co-operation Council.
But since Ahmadinejad’s recent victory, the dominant hardliners have
been relentlessly determined to crush all challenges to their ascendancy
– even at the price of destroying the pluralistic internal political balances
that have lasted for most of the 30 years.
In this setting, Ahmadinejad’s refusal to rein in the nuclear programme
looks more worrying to neighbours. The depth of Riyadh’s concern can
be seen in the graphic coverage that the Saudi media and Saudi-owned
regional media have given to the opposition protest movement in Iran,
and the brutal manner in which it has been suppressed. This is the
regional context against which the Al-Saud establishment is viewing the
Kingdom’s Shia, who are concentrated largely on the coast of Sharquia
and inland in the Al-Hasa oasis. However unrepresentative they may be
of a community that is, in broad terms, loyal to the Kingdom, remarks
such as those of Nimr Al-Nimr, inevitably touch a raw nerve. And in this
situation, King Abdullah’s attempts to foster détente with the Shia have
lost momentum, leaving the initiative to those elements of the ruling
establishment who favour crushing any expression of distinct Shia
community identity.
Nayef ’s branch. This analysis would dovetail with the recent
contradictions in policy towards Shias and Ismailis. Abdullah
has sought a more consensual approach towards these minorities,
but this has been sidelined by the tough stance now taken in
Sharquia by MBN and his ally MBF.
Meanwhile,Abdullah has sought to develop Najran as a political
base for his son Mishaal, now installed as governor, a policy that
fits neatly with his attempt to reduce the marginalisation of the
Ismailis. Unlike the Shia, who are traditionally excluded from
the security forces, the Ismailis have always depended on
government patronage and the chance to develop businesses in
other parts of the Kingdom. Indeed, they are settled in large
numbers in some Sharquia towns, and are also sometimes
recruited into the armed forces.
Abdullah has clearly sought to build on these traditions.
However, his overtures towards the Ismailis are complicated by
occasional hardline interventions by the judicial and penal
authorities answerable to the Interior Ministry – such as the
new sentence imposed on Al-Mutif or the continued
imprisonment of Al-Saab.
5
Politics
Yemen’s northern crisis adds to Saudi
communal tensions
The position of Ismailis in Najran is set against the troubling state of
neighbouring northern Yemen, where the conflict between government
forces and the Al-Houthi rebel movement is growing more intense (GSN
855/19 ). After signs that the rebellion was spreading south into Amran
governorate, and thus creeping closer to Sanaa, President Ali Abdullah
Saleh is reported by Yemeni sources to have deployed hundreds of tanks,
other armoured vehicles and rocket launchers to try to crush the rebels.
Casualties have soared in recent days.
This is a major concern for the Saudis. Saleh recently flew to Morocco
to consult Crown Prince Sultan, who has always been closely involved
with the Yemen dossier. Jordan’s King Abdullah Bin Hussein was there
too; it is thought his highly regarded forces may provide training for the
Yemenis.
It remains to be seen whether Mishaal Bin Abdullah has the
political skills to reassure Najranis, despite these awkward
reminders of the government’s harsher side.
IRAN
Majlis approves Revolutionary
Guard government
The Majlis has approved 18 of President Mahmoud
Ahmadinejad’s 21 nominations to government posts, many of
whom are hardliners loyal to the president and with
backgrounds in the Islamic Revolutionary Guard Corps (IRGC).
The composition of the new government further fuels suspicion
that the IRGC is seizing power in the Islamic Republic. It has
become more prominent since it backed Ahmadinejad in June’s
disputed presidential election, subsequently clamping down on
dissenters and opposition.
But any successful coup d’état would require it to gain control
over the one instrument of state that rivals the IRGC itself, the
powerful Intelligence Ministry (Vavak). After last month’s
reported purge of the Intelligence Ministry in which several
senior officials, including Intelligence Minister Gholam
Hosseim Mohseni-Ejei, were removed, the Majlis
overwhelmingly approved the president’s nomination, Heidar
Maslahi, who was Rahbar Ayatollah Ali Khamenei’s
representative in the Basij militia. Critics of Ahmadinejad and
his new government are outspoken against this choice, claiming
that Maslahi has no experience in intelligence, and that his
appointment, like the rest of the government, is a case of loyalty
over competence. “The president wants to be the ruler in
sensitive ministries,” conservative lawmaker Ali Motahari told
the Mehr News Agency. “So he has introduced people whose
major quality is that they are ‘yes-men’.”
Many of Ahmadinejad’s nominations are highly controversial
inside and outside of Iran. New Interior Minister Mostafa
6 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Yemen, Iran & Bahrain
BAHRAIN: Al-Wefaq rejects Al-Houthi
collusion accusations
A conservative member of the National Assembly, Jassim Al-Saidi, has
accused Shia opposition party Al-Wefaq National Islamic Society of
meddling in internal Yemeni affairs. Al-Saidi claimed the group had
‘strong ties’ with the Al-Houthi rebel movement, some of whose
members had visited Bahrain and met Al-Wefaq. “I have concrete
evidence which clearly shows Al-Wefaq support for Al-Houthi rebels. Such
meetings are illegal under Bahrain law and will cause instability and affect
Bahrain-Yemeni relations,” Al-Saidi said. Al-Wefaq MP Jalal Fairooz told
online newspaper the American Chronicle that this was “outright lying…
There is no evidence, this is merely cheap tactics by the MP to promote
his agenda of sectarianism.” Al-Wefaq officials have called on Al-Saidi to
produce his evidence; he responded by saying he will submit evidence to
the Interior Ministry at the “right time”.
Mohammad Najjar is also a senior figure within the IRGC
and critics are questioning the wisdom of military commanders
running interior affairs. The same criticisms are being directed
at new Oil Minister Massoud Mirkazemi, who also has an
IRGC background and no experience in what, for Iran, is a
crucial and troubled sector (see Energy).
The hardline conservative parliament was outspoken against
Ahmadinejad’s nomination of three women to government
posts. Although the two nominated for welfare and education
were overwhelmingly rejected by parliament, the president’s
choice for health, Marzieh Vahid Dastjerdi, was appointed with
175 votes in favour and 82 against and has become the first
female minister in the Islamic Republic’s history.
While some nominations have caused friction within Iran, the
appointment of suspected terrorist Ahmad Vahidi as Defence
Minister has caused outrage worldwide, particularly in Israel
and Argentina. Vahidi, again with an IRGC background, is on
an Interpol wanted list for the bombing of a Jewish centre in
Buenos Aires in 1994. Controversially,Vahidi received more
votes than any other nominee, with 227 of the 295 members of
parliament in support. Such an overwhelming endorsement
drew heavy criticism from the US, which said the country was
“taking a step backward”. “We find today’s action disturbing,
and, for Iran, it is sending precisely the wrong message,” said US
state department official PJ Crowley. Israeli Foreign Ministry
spokesman Yigal Palmor said the appointment was “more proof
of the violent nature of the regime and a total disregard of the
need to work with the international community”.
Ahmadinejad’s success in getting loyalists appointed may help
counter the image of a divided and crisis-engulfed government.
However, the issue of nuclear power is likely to become more
contentious as a result, with the elements of the government
likely to favour negotiations with the West being swept aside in
this latest consolidation of power by Iran’s hardliners.
Oman, Qatar, Saudi Arabia & Abu Dhabi
QATAR
EMIR AND CP TAMIM: Meetings
As well as apparently playing a part in arranging the release of Libyan
Lockerbie bomber Abdelbasset Ali Mohammed Al-Megrahi (see
Politics, above), Emir Sheikh Hamad Bin Khalifa Al-Thani held talks
with visiting Somali President Sharif Sheikh Ahmed, who also
visited the UAE. The Emir also met Palestinian President Mahmoud
Abbas in late August, while Heir Apparent Sheikh Tamim has met
Hamas figurehead Khalid Mishal, a regular visitor to Doha.
SAUDI ARABIA
KING ABDULLAH: Busy Ramadan
King Abdullah Bin Abdelaziz has held talks with visiting Bahraini
Crown Prince Sheikh Salman Bin Hamad Al-Khalifa and US
assistant to the president for homeland security and counterterrorism
John Brennan. The King also held a meeting with Qatari Premier and
Foreign Minister Sheikh Hamad Bin Jassim Bin Jabr Al-Thani.
CROWN PRINCE SULTAN: Receiving VIP visitors in Agadir
Still convalescing in Morocco, Crown Prince Sultan Bin Abdelaziz
has had visits at his Agadir palace from Jordan’s King Abdullah II and
Yemen’s President Ali Abdullah Saleh. Dubai Ruler Sheikh
Mohammed Bin Rashid Al-Maktoum and UAE Presidency Affairs
Minister Sheikh Mansour Bin Zayed Al-Nahayan have also visited.
NAYEF BIN ABDELAZIZ: Regional consultations
Interior Minister and Second Deputy Premier Prince Nayef Bin
Abdelaziz has held meetings with his Bahraini counterpart Sheikh
Rashid Bin Abdullah Al-Khalifa and Qatar’s State Minister for
Internal Affairs Sheikh Abdullah Bin Nasser Al-Thani and other
Qatari internal security officials.
PRINCES: Reappointment to senior jobs
The service of Prince Badr Bin Mohammed Bin Abdullah as Al-
Ahsa governor has been extended for another four years. His family,
the Al-Jiluwi, have been prominent in Sharqiya (Eastern Province)
for decades. Meteorology and Environment Protection president
Prince Turki Bin Nasir Bin Abdelaziz’s service has also been
extended. Turki was appointed in 2001 following a career in the air
force. Jeddah governor Prince Mishal Bin Majid Bin Abdelaziz has
also had his term renewed. And despite talk of problems at the top of
the family, it was announced that National Security Council secretary
general Prince Bandar Bin Sultan Bin Abdelaziz’s term has been
extended (GSN 859/Online).
PRINCES: Summer’s over
Various princes have begun returning to Saudi Arabia at the
conclusion of their summer holidays, including several who had been
staying in Morocco with Crown Prince Sultan. Abdel-Illah Bin
Abdelaziz, Saudi Arabian National Guard (SANG) deputy
commander Mitab Bin Abdullah Bin Abdelaziz and Tabuk governor
Fahd Bin Sultan Bin Abdelaziz. Allegiance Commission head Prince
Mishal Bin Abdulaziz returned from a holiday in France.
GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Royals watch
OMAN: Qaboos orders action on swine flu
With Oman taking the threat of H1N1 – ‘swine flu’ – very seriously, Sultan
Qaboos Bin Said Al-Saeed on 5 September ordered the establishment
of a Supreme Committee for H1N1 to draw up a comprehensive plan to
tackle the disease. Swine flu has claimed ten people dead and infected
more than 1,000 in the Sultanate since July. In mid-August, the Ministry
of Education deferred the start of the 2009/10O academic year to 26
September, for most schools and kindergartens. The new Supreme
Committee will be headed by Diwan of the Royal Court Minister Ali Bin
Hamad Al-Busaidi, and includes Royal Office Minister General Ali Majid
Bin Mussabagh Al-Mamari and the ministers of interior, national
economy, health, awqaf and religious affairs, and information.
Meanwhile the government remains in close contact with Iran following
Sultan Qaboos’ 4-5 August visit to Tehran – at the time of President
Mahmoud Ahmadinejad’s inauguration, but not to attend the event,
diplomats insist. Some sources say Qaboos’ visit was rather to help build
bridges with the UK and other western allies (GSN 859/1). Iranian Foreign
Minister Manouchehr Mottaki paid yet another visit to Muscat in late
August.
KHALID BIN ALWALEED: London Welsh investment
In an era when Gulf money has poured into English Premier League
football clubs, Prince Alwaleed Bin Talal’s business empire has
decided to invest in London Welsh, a British rugby union club.
Alwaleed’s Saudex Group, chaired by his son Khalid, has promised to
pump some £2.6m into the ailing club. In 2008, Saudex agreed to
sponsor London Scottish Rugby Club for the 2008-09 season.
REEMA BINT BANDAR: Student initiative
Prince Bandar Bin Sultan Bin Abdelaziz’s daughter Princess
Reema Bint Bandar, has teamed up with New York-based The
Dwight School’s Institute for Civic Leadership to encourage the visit of
US high school students to Saudi Arabia.
TURKI AL-FAISAL: US energy policy
The former ambassador to London and Washington has written an
article in Foreign Policy magazine in which he said that for US
politicians, invoking energy independence is now as “essential as
baby-kissing” and accuses them of “demagoguery”. Constant talk
about energy independence is “political posturing at its worst – a
concept that is unrealistic, misguided and ultimately harmful to
energy-producing and consuming countries alike”,Turki said.
UAE – ABU DHABI
MBZ: US meetings for AD crown prince
Crown Prince Sheikh Mohammed Bin Zayed Al-Nahayan is in
Washington DC for meetings with senior US officials.Accompanying
him in talks with President Barack Obama is UAE Foreign Minister
Sheikh Abdullah Bin Zayed Al-Nahayan. MBZ has already held
meetings with Secretary of State Hillary Clinton,Treasury Secretary
Timothy Geithner, Energy Secretary Steven Chu, National Security
Adviser General Jim Jones, Congress members and Senators Richard
Lugar (Republican-Indiana) and John McCain (R-Arizona).
7
Defence and security
Kuwait arrests reflect a long history of militancy
The emirate represents the second most threatened in the GCC after Saudi Arabia, and Kuwaitis are significantly
represented among Al-Qaeda’s leadership
T
he Kuwait Security Service (KSS) arrested six Kuwaiti
citizens in August, following intelligence leads provided by
the US intelligence community in July. The arrests
followed reports on 24 June of the sentencing of two Kuwaitis
for travelling to Afghanistan via Bahrain. The court case
exposed embarrassing details, notably the employment of one of
the defendants in the Ministry of Awqaf and Islamic Affairs and
the involvement of a mosque official in recruitment activities.
On 4 July, Kuwaiti newspapers reported the arrests of five
Kuwaitis who had returned from fighting in Afghanistan,
including two living in Saudi Arabia at the time of their
detention. Other Kuwaitis are facing investigations for terrorist
financing and operational activities in Lebanon and Saudi
Arabia.
Details of the August plot
Little is known about the six suspects. One is reported to be a
surgeon at a hospital in Kuwait City. Another is believed to
have been involved in the assault on US troops on 8 October
2002, in which a marine was shot dead and another was
wounded during training at Failaka Island. The two Kuwaiti
assailants – Anas Ahmad Ibrahim Al-Kandari and Jassem
Hamad Mubarak Al-Hajeri – were shot dead by US forces.
In 2003, seven Kuwaitis were jailed for complicity in the
premeditated attacks and GSN understands that the latest
detainees include at least one of the seven men convicted in
2003.
According to press reports, the group intended to develop an
ammonium nitrate fuel oil (Anfo)-based fertiliser bomb boosted
by gas canisters for delivery in a truck. It is not known whether
the device was to be detonated by a suicide bomber or remotely.
GSN’s contacts in the US government suggest that the Anfo
mix was in component parts, awaiting mixture.
The likely timing of the attack was during Ramadan (after 22
August). A serious vehicle-borne improvised explosive device
(VBIED) plot was last uncovered in Kuwait in January 2005,
when the Peninsular Lions network was preparing one or more
VBIEDs using ice-cream trucks. They believed the trucks could
carry large amounts of explosives and sit along US military
routes in ambush positions for long periods of time without
attracting suspicion.
US military most likely target
The main road systems linking US bases to Iraq are the most
accessible and likely target for the group. In 2005, GSN
discovered that such a convoy was targeted by a crude hand
grenade tripwire across a road, and in 2007, US convoys were
8 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Kuwait
covertly filmed for a jihadist video aired on extremist websites.
On 26 February 2008, GSN’s monitoring of the militant At-
Tibyan website discovered a communiqué entitled Witness Some
of the Miracles of the Mujahideen in Kuwait which mentioned US
bases in Kuwait as well as the actions of the Mujahideen, which
had “readied themselves to hit the crusader bases from which
the American and British convoys leave”.
GSN’s US government source believes the August arrests foiled
a planned truck bomb attack on US vehicles on one of the
military road systems leading north to Iraq. This mirrors the
intended targets of the Peninsula Lions network uncovered in
Kuwait in 2005. The Peninsula Lions included individuals who
had returned from Iraq (such as Nasser Khlaif Al-Enezi) and
had experience in making roadside improvised explosive devices
(IEDs). The group’s operational intentions were synchronised
with those of the Iraqi resistance, focusing on targeting US
convoys, either with roadside IEDs or ambushes that would result
in the capture and execution of US personnel.They intended to
videotape the activities to support recruitment.
Other potential targets
Google Earth maps and documents seized at the residences of
the suspects indicated that three targets were under
consideration:
• CAMP ARIFJAN – the camp is the main inter-nodal logistical
base servicing US military operations in Iraq and Afghanistan. It
is regularly referenced in jihadist communiqués and is an
obvious target for Arab opponents of US military presence and
activities in the region;
• SHUAIBA REFINERY – the well-protected site has, in the past
two years, been placed on alert as a result of reported sea-borne
terrorist threats. Landside defences are considered to be well
layered and capable of resisting a terrorist attack; and
• KUWAIT SECURITY SERVICE HEADQUARTERS – the KSS
headquarters in Kuwait city is another target discussed in jihadist
chat rooms, reflecting the KSS’ leading role in detaining
numerous militants since 2001 and disrupting recruitment
activities.
Kuwait ‘next biggest GCC risk’
The arrests are not of the same magnitude as the 2005 Peninsula
Lions episode – referred to as Kuwait’s 9/11 – but they are
nonetheless indicative of a credible terrorist threat. Kuwait has
always represented the second most threatened GCC state after
Saudi Arabia. A number of factors explain the extent of the
threat.
Kuwait
Kuwaitis are significantly represented among Al-Qaeda’s senior
leadership – militants such as Khalid Sheikh Mohammed, who
is in US custody, and Suleiman Abu Ghaith, who is still at large,
held senior positions in Al-Qaeda and are alleged to have played
key roles in the 11 September 2001 attacks on the US. The
tradition continued with the involvement of scores of young
Kuwaitis in later jihads in the Balkans, Caucasus, 9/11,
Afghanistan and now Iraq.
Kuwaitis continue to travel to Iraq to fight the US military –
though representing just 1% of foreign fighters in Iraq, the
citizens of the small state of Kuwait continue to slip into Iraq to
carry out high-impact attacks. In April 2008, Iraqi security
forces claimed that 25 Kuwaiti volunteers were operating in
Diyala with Al-Qaeda in Iraq. Three Kuwaiti suicide bombers
who killed US servicemen in Mosul in March and April 2008
were publicly identified as men that the KSS were supposed to
have under surveillance. Fighters have moved back and forth
from Iraq to Kuwait since 2004.
Attacks on foreign military personnel and contractors in Kuwait
have a strong precedent. These include an incident on 11
October 2001, when Canadian defence contractor Luc Ethier
was killed in a drive-by shooting in Kuwait City; the 8 October
2002 fatal shooting of a US marine on Failaka Island; the 21
November 2002 shooting and wounding of two US servicemen
in transit by a Kuwaiti policeman; the 21 January 2003 fatal
shooting of US national Michael Rene Pouliot at a traffic light
at Camp Doha; the 14 December 2003 wounding of four US
soldiers in two separate shooting attacks on military convoys
moving along Kuwaiti roads; plus other unsuccessful attacks in
2002-04. There is a close connection between Kuwaiti and
Saudi militants – the Saudi-Kuwait border is largely unsecured
and many of the plots uncovered since 2001 had a Saudi
component or involved Kuwaiti suspects fleeing to Saudi Arabia.
With the Saudi-Yemeni Al-Qaeda in the Arabian Peninsula
(AQAP) becoming more active again, the Kuwaiti militancy
may be related to broader Ramadan attack plans.
Unexploded ordnance and firearms are accessible to potential
militants. Kuwait suffers from extensive unsecured military
explosives (from the 1991 Gulf war) and from lax gun control.
Shooting incidents and injuries from unexploded ordnance
underline the ease with which militants can secure weapons.
Gulfis graduate from Sandhurst
Several Gulfis were among the latest batch of officers to pass out of the
Royal Military Academy Sandhurst. Bahraini graduates included
Sheikh Hashim Bin Mohammed Bin Salman Al-Khalifa and Sheikh
Abdullah Bin Khalifa Bin Abdullah Al-Khalifa. Other graduates included
Kuwait’s Nasser Khalid Mohammed Al-Hussaini and Salem
Mohammed Twaim Al-Dawai, Oman’s Mohammed Said Ali Al-
Muhairi and Salim Suhail Salim Al-Kathiri, Qatar’s Ali Rashid
Al-Muhannadi, Abu Dhabi’s Mohammed Saeed Saif Al-Mashgouni,
Dubai’s Mohammed Ahmed Al-Jumairi, and Yemen’s Fatia
Mohammed Al-Hammadi and Qabol Ali Naji Al-Saadi.
GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Defence and security
Regional navies look closely at
piracy threat
Gulf Co-operation Council (GCC) navies are rapidly building up
powerful fleets of muscular corvettes and multi-role offshore
patrol vessels, making it likely that nations such as the UAE,
Saudi Arabia and Oman will soon boast the most advanced
surface combatants in the region.
Operational experience has always been a weakness, but this
may be addressed by a slew of operational commitments being
taken on by the GCC as it seeks to address piracy and trafficking
threats.
Naval combined task forces (CTFs) have proliferated in the Gulf
in the past five years, and the Bahrain-based US Fifth Fleet has
formed the Combined Maritime Forces (CMF) to draw together
23 national components split between three major CTFs. The
CMF is led by US Naval Forces Central Command (Centcom)
commander Vice Admiral William Gortney, and its deputy is
UK Maritime Component Command (UKMCC) chief
Commodore Tim Lowe of the Royal Navy.
Until recently, the component elements of the CMF comprised
the following forces:
• CTF-150 – covering the Gulf of Aden, Gulf of Oman,
Arabian Sea, Red Sea and Indian Ocean. Its primary mission
has been ‘maritime security’ – monitoring traffic in the Horn of
Africa, with a focus on counter-terrorism;
• CTF-151 – covering the same area as CTF-150, but focusing
almost entirely on counter-piracy missions;
• CTF-152 – a GCC-based force operating in the south and
central Arabian Gulf;
• CTF-158 – CTF-152’s northern Gulf counterpart ended
operations on 30 December 2008 as UN Security Council
Resolution 1723 expired. From that date, security on and
around the Basra and Khawr Al-Amaya oil terminals reverted to
Iraqi navy control.
GCC steps up in CTF-151
Piracy is becoming a widely recognised threat in the Gulf
region, giving the GCC an opportunity to show off the naval
ambitions of its major states. The Gulf of Aden is an area in
which the Royal Saudi Naval Forces (RSNF) and coastguard
are seeking to demonstrate their capabilities and mark out their
sphere of influence. RSNF commander Prince Fahd Bin
Abdullah Bin Mohammed Al-Saud was enraged at the
hijacking last November of the Saudi-owned MV Sirius Star
under the nose of the RSNF western fleet.
Riyadh is unhappy about the presence of so many international
vessels in the Red Sea area. These have included combat vessels
from China, India, Japan, Russia and 18 other countries. Iran
sent two combat vessels to the Red Sea in May.
9
Diar y
To stamp its influence on the area, and as a counterweight to the
prospect of more Israeli navy patrols, Saudi Arabia has drawn
together a working group of 11 Arab navies and will lead a joint
deployment for a year. Significantly, a Saudi-based meeting of
naval leaders from the group declared the Red Sea area to be
“the main responsibility of the Arab countries overlooking it”.
The group includes Saudi Arabia, the UAE, Jordan, Bahrain,
Djibouti, Sudan, Oman, Qatar, Egypt, Kuwait and Yemen.
The UAE is keen to underline its naval ambitions in the Gulf.
It will assume leadership of CTF-152 in November, supplanting
Bahrain, which became the first Arab state to lead CTF-152 in
May 2008. In July, the UAE Navy announced the procurement
of the first of a new class of Italian-built corvettes to sit alongside
its six world-class Baynunah corvettes by the middle of the next
decade (GSN 851/8).
With the change of leadership of CTF-152, this points to a
growing Saudi-UAE struggle for military dominance of the
GCC and the development of distinct spheres of naval influence
on either side of the Arabian Peninsula.
Events across the region
29 September: Doha Business Roundtable, Doha
Tel: +43 (0) 1 712 41 61 60. Web: www.economistconferences.com/doha09
6-7 October: MENA Petrochemicals Forum 2009 Doha
Web: www.jacobfleming.com/conferences/oil-gas/thirdannualpetrochem
8 October: Opportunity Arabia 6, London
Sponsored by Saudi British Bank (SABB). Web: www.the-mea.co.uk/
11-13 October: Africa-Arab Business Investment Forum, Dubai
Tel: +971 4 4356254. Web: www.africa-arab.com
11-14 October: Middle East Energy Security Forum, Doha
Contact Fleming Gulf. Email: mehwish.hilal@fleminggulf.com
11-14 October: Saudi Water and Power Forum, Jeddah
Tel: +44 (0) 20 7978 0080. Web: www.ksawpf.com
12-14 October: World Islamic Retail Banking, Dubai
GSN-Exclusive 10% discount. Web: www.fleminggulf.com/conferences
18-20 October: Middle East Capital Markets, Dubai
E: conferences@meed-dubai.com Web: www.meed.com/events/capitalmarkets
18-21 October: Annual Security for Energy Infrastructure
To be held in Abu Dhabi. Web: www.iqpc.com
10 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Defence and security
‘Vanished cargo was carrying arms to
Iran’, report says
A cargo ship that vanished en route from Finland to Algeria on 24 July
was carrying arms to Iran and was being tracked by the Israeli security
service Mossad, according to sources in Russia and Israel quoted in UK
newspaper The Sunday Times. The Arctic Sea, officially carrying timber
worth £1.3m, was recovered off West Africa on 17 August when eight
alleged hijackers were arrested, according to a report.
The Kremlin has denied the vessel was carrying arms, claiming it was
hijacked by criminals who demanded a £1m ransom. But sources in Tel
Aviv and Moscow claimed the ship had been loaded with S-300 missiles,
Russia’s most advanced anti-aircraft weapon, while being repaired in the
Russian port of Kaliningrad. Had the S-300 missiles been delivered, Iran
would have significantly strengthened its air defences.
Mossad is said to have tipped off the Kremlin that the shipment had been
sold by former military officers linked to the underworld. The Kremlin
then ordered a naval rescue mission. The Sunday Times quoted military
officials who believed this was a ‘cover story’, because any evidence that
it had let arms fall into the hands of criminals or be sold to Iran would be
highly embarrassing.
19-21 October: Middle East Investments Summit, Dubai
Email: sponsorsme@marcusevanscy.com Web: www.mei-summit.com
26-27 October: International Energy Week, Moscow
Email: oilgasweek@ros-con.ru Web: www.ros-con.ru
27-28 October: Gas to Liquids, London
Web: www.smi-online.co.uk
27-29 October: Offshore Middle East 2009, Bahrain
Email: francesw@pennwell.com Web: www.offshoremiddleeast.com
1-3 November: 2nd Saudi Arabia International Oil & Gas
Conference & Exhibition, Dammam
Email: exhibition@saoge.org Web: www.saoge.org
2-4 November: Islamic Funds World Middle East 2009, Dubai
Web: www.terrapinn.com/2009/iiwme
3 November: World Islamic Infrastructure Finance, Doha
Email: andrew@megaevents.net Web: www.megaevents.net/islamic_finance
4-5 November: The International Real Estate Finance Summit
To be held in London. Web: www.islamicrealestate.com
10-12 November: The Abu Dhabi Conference, Abu Dhabi
Web: www.meedconferences.com/abudhabi
For more events visit: www.gsn-online.com/HTML/Public/events.html
Iran & Dubai
IRAN
New oil minister approved
The Majlis (Parliament) has approved the appointment of
Massoud Mirkazemi as oil minister. Mirkazemi, the former
commerce minister who enjoys close links with the Islamic
Revolutionary Guard Corps (IRGC), has been criticised for his
lack of knowledge and experience of the oil industry. His
running of the department, which is engulfed in crisis, will be
crucial during the new parliamentary term, particularly if
further sanctions are imposed on the oil industry over the
country’s nuclear programme.
Majlis Energy Committees chairman Hamid-Reza Katouzian
was reported in the Tehran Times as saying:“It will take anyone
who is not familiar with the [oil] industry… at least two years
to become familiar with the basic concepts in the ministry…
and the nation will suffer serious setbacks in the oil industry
during this time.”
Crude oil sales account for the majority of Iran’s state revenue.
Sanctions and ineffectual subsidies in the domestic oil market
have contributed to the country’s current economic difficulties.
Born in Tehran in 1960, Mirkazemi joined the Revolutionary
Committees after the 1979 revolution, and then joined the
IRGC. He was responsible for technical planning and support
affairs during the Iran-Iraq war in 1981-88, and was made head
of the Ministry of Defence’s centre for research and logistic
studies in 2000. Mirkazemi has worked in a variety of
administrations.
He served in President Mohammad Khatami’s second
government between 2001 and 2003 as an adviser to the
defence minister, and in 2002-04 was director of IRGC’s centre
for foundational studies. He served in Mahmoud
Ahmadinejad’s first government as commerce minister before
going to the Ministry of Oil. Mirkazemi achieved bachelor’s
and master’s degrees in industrial engineering from Elm-va-
san’at University for science and industry, where he later became
a lecturer, and at the IRGC-run Imam Hossein University.
UNITED ARAB EMIRATES
MBR sets up Dubai oil agencies
Dubai Ruler Sheikh Mohammed Bin Rashid Al-Maktoum
has issued decrees setting up two new authorities – one to
manage crude oil sales and the other to manage energy supplies.
Decree number 18 of 2009 established the Department of Oil
Affairs to “monitor the production, sale and export of crude oil
in the emirate”; Sheikh Ahmed Bin Saeed Al-Maktoum has
been appointed chairman. He is best known for his role as head
of the Dubai Civil Aviation Authority, chairman of Dubai
Airports and of Emirates Airline Group. Abdullah
GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009
Energy and industr y
Abdelkareem Al-Rayyes was appointed director general.
Decree number 19 set up the Supreme Council for Energy
(SCE); Sheikh Ahmed also becomes its chairman. A secretary
general is yet to be appointed. The council will act as a
regulatory authority advising the government on ways to
control power and increased demand for water and guarantee a
long-term energy supply.
Dubai is suffering from high power demand – expected to rise
by 10% this year – and tight supply. The SCE will be made up
of representatives from Dubai Electricity and Water Authority,
Dubai Aluminium, Emirates National Oil Company, Dubai
Petroleum, the Dubai Nuclear Energy Committee, Dubai Supply
Authority and the Department of Oil Affairs. Its annual budget
will be determined by the Dubai Executive Council, which sets
the emirate’s annual budget and is chaired by MBR’s son Sheikh
Hamdan Bin Mohammed Bin Rashid Al-Maktoum.
Qatar’s Scottish play – with Libya
CONTINUED FROM PAGE 1
Al-Mansouri information on the procedure for making representations on
Al-Megrahi’s application for prisoner transfer. Al-Mansouri then wrote
two letters to MacAskill containing “representations about Al-Megrahi’s
case on behalf of the state of Qatar and the Arab League”. MacAskill said
he would take account of the points raised.
The exchanges appear to be the culmination of intensive diplomacy. One
veteran observer of Gulf diplomacy told GSN he had noted some time ago
that Al-Mansouri “was devoting a lot of attention to Edinburgh”. He had
“no doubt the Scots have got – or will get – a handsome reward by way
of investment, not only from Libya but also from the Qataris, for whom
Scotland offers a good field for spreading their wealth”. One year ago, the
Scotland on Sunday newspaper reported that Salmond was planning to
visit Qatar to canvas loans from Doha to fund a new £4bn Forth Road
Bridge and a £5bn undersea electricity cable. A spokeswoman for the
Scottish Executive said it was “in ongoing discussions with the Qatari
government, exploring options for a possible visit by the first minister
intended to establish broader business and investment links”.
The Gulf expert said Salmond had “comprehensively outwitted” British
Prime Minister Gordon Brown, who had ended up embarrassed with a
divided party, and strained relations with Libya. Salmond had escaped
international criticism while striking a blow for Scottish independence,
earning him credit in Doha and Tripoli.
Qatar’s relations with Libya are strong. Emir Sheikh Hamad Bin Khalifa
Al-Thani visited Tripoli for the 40th anniversary celebrations of the El-
Fatah revolution, which brought Qadhafi to power. The two countries have
extensive joint investment agreements. Qatar played a significant public
role in negotiating the release of the Bulgarian medics accused of
infecting more than 400 children in Benghazi hospital with HIV. Qadhafi
personally thanked Sheikh Hamad for helping to mediate the deal, into
which French President Nicolas Sarkozy inserted himself at the last
minute. A large part of the compensation paid to the families of the
infected children may have come from Qatar or been routed from Libyan
funds through Qatar to disguise its origins.
11
Financial risk Saudi Arabia

Saudi financier’s death brings era of ‘Golden

Chain’ conspiracy theories to a close
For all their power and wealth, few among the Saudi merchant class attained the level of fame of Khalid Bin Mahfouz

K
halid Bin Salim Bin Mahfouz (KBM), who died aged 60 and, according to one Sama source, “the bank has been
in late August, deserved a page in history for turning domesticated”.
National Commercial Bank (NCB ) into the Kingdom’s
But KBM did not remain immune to scandal. As GSN charted
largest bank. But it was rather his notoriety in the West,
at length, there was post-9/11 suspicion in some US circles that
following his involvement in the Bank of Credit and Commerce
Saudi financiers and charities had funded terrorism. Several
International (BCCI ) scandal and subsequent accusations of
books, such as Hatred’s Kingdom: How Saudi Arabia Supports the
terrorist funding, that merited the Saudi banker a prominent
New Global Terrorism, were published, levelling scattergun
obituary in The NewYork Times.
accusations at senior Saudi figures in what became known as an
KBM became involved in one of the biggest banking scandals era of Saudi-bashing. KBM was caught up in these accusations
of the 20th century when he was in his early 40s. In 1986, he because money destined for terrorists had passed through the
and his family’s NCB had invested in BCCI, and he was a family bank.
director. When banking regulators closed BCCI in July 1991,
KBM again put up a robust defence; in July 2005 a UK court
KBM faced a criminal indictment in NewYork, and civil action
awarded him and his two sons £30,000 in damages over 23
in five jurisdictions from BCCI’s liquidators, Touche Ross,
copies of a book by Rachel Ehrenfeld, which was imported
concerning more than $30bn. The Saudi banker’s worldwide
into Britain and alleged that KBM was involved in terrorist
assets were frozen and he was accused of falsifying audit
funding. Ehrenfeld labelled KBM’s actions “financial jihad”.
documents, concealing activities from regulators and fraudulent
trading. Whether KBM was directly involved in financing jihad remains
unknown. Most serious Gulf analysts felt that something of an
During the BCCI investigations, KBM employed a legion of
industry had sprung up surrounding the so-called Golden Chain
lawyers and publicists, but would occasionally mount his own
Conspiracy, some of which crops up in Ehrenfeld’s book, and
public defence, sometimes through respected publications such
much of which was based on the work of KBM’s principal
as The Banker magazine. He said he saw BCCI as a tremendous
accusers and high-profile terrorism researchers, Jean-Charles
international opportunity, but chose to unwind NCB’s
Brisard (who advised US lawyer Motley Rice on the 9/11
investment only seven months after taking a seat on the BCCI
class actions) and Guillaume Dasquié. Brisard later publicly
board; that process was in train when BCCI collapsed, leaving
apologised to the Saudi banker. But KBM was far from being
NCB holding $330m of BCCI convertible notes. Accusations
a hero back home: in recent years he was said to be under gilded
against KBM stemmed from Price Waterhouse’s identification of
house arrest in Jeddah and increasingly unwell. Saudi papers
NCB in 1991 as a key participant in attempts to camouflage
reported the cause of death as heart failure.
fraud at BCCI. The “collusion” of KBM and NCB “appears to
have been a major factor” in concealing fraud at BCCI, the
auditors said.
IRAN: First Persia fund on SDN blacklist
By 1995, KBM could claim that proceedings against him and
NCB were over and done with, and at a fraction of the total First Persia Equity Fund, a Cayman Islands-based subsidiary of the
$30bn claimed. He continued to maintain his innocence, saying state-controlled Bank Melli Iran, has been blacklisted by the US
he settled with the liquidators as a “commercial decision to get Treasury Department’s office of foreign assets control. As part of
rid of what is happening over my head”. He also alleged that further US sanctions aimed at increasing pressure on Tehran over its
the Abu Dhabi government was a “partner in crime” in the nuclear programme, Iranian banks and their affiliates have been
banned from transferring money to or from America (GSN
scandal and was obstructing investigators. Abu Dhabi fought a
849/12). First Persia, which at the end of 2008 was forced to
robust defence of this claim.
shelve plans to set up operations in the Gulf Co-operation Council
Following the BCCI furore, the Saudi government moved to area because of sanctions, is now listed on the US register of
salvage NCB’s reputation and remove KBM from the helm. specially designated nationals (SDN) and blocked persons. It is also
The state acquired 50% of the bank from KBM and his wife, a target of US non-proliferation sanctions due to its alleged
connections with Iran’s nuclear programme. In June 2008,
Naila Abdelaziz Al-Kaaki, in 1999. The move was seen as a
European Union sanctions on parent company Bank Melli forced it
victory for the Saudi Arabian Monetary Agency (Sama – central
to close all branches in the EU.
bank). Today, there are no family members on the bank’s board

12 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009

Risk indicators Stock markets and other data

The family lives on
KBM’s elder brother Mohammed died in 2008 but remaining
siblings Abdullah, Saleh and Ahmed Bin Mahfouz remain
prominent in business. KBM’s sons Abdelrahman and Sultan
are also involved in various sectors, possibly benefiting from
maternal ties to the Al-Kaaki, who are well-connected. They are
shareholders in Bahrain-based Capital Investment Holding,
which majority owns Lebanese bank Crédit Libanais and is
involved in an Algerian bank.
Abdelrahman is on the board of Al-Khaleejiah Advertising and
Public Relations Company, which is owned by the huge, listed
Saudi Research and Marketing Group, in turn partly owned by
the sons of Riyadh governor Prince Salman Bin Abdulaziz
and Saudi/Ethiopian entrepreneur Mohammed Al-Amoudi.

Middle East risk indicators

Preferred Moody’s Fitch Ducroire Delcredere ONDD medium- to
Country payment Coface sovereign sovereign short-term political long-term political
terms grading rating rating risk rating risk rating
Bahrain OA A3 A2 A 2 2
Iran CIA D — — 5 6
Iraq CIA D — — 6 7
Israel OA A4 A1 A 3 3
Jordan OA B Ba2 — 2 5
Kuwait SD/OA A2 Aa2 AA 2 2
Oman OA A3 A2 — 1 2
Palestine CLC — — — 7 7
Qatar OA A2 Aa2 — 2 2
Saudi Arabia OA A4 A1 AA– 1 2
Syria ILC C — — 4 6
Turkey ILC B Ba3 BB– 3 4
United Arab Emirates OA — Aa2 — 2 2
Yemen ILC C — — 3 6

Key: ULC = Unconfirmed letter of credit. ILC = Irrevocable letter of credit. CIA = Cash in advance. OA = Open account SD = Sight draft
Sources: Agencies and Cross-border Information Ltd, Hastings, UK.

Stock markets and exchange rates

Stock Market Index value Index % change Since 2008 Exchange rate
(Index) (10 September 2009) One week 01.01.09 performance Currency £ $ € ¥ (x100)

Bahrain1 1,520.34 0.35
-15.73 -34.52 (Dinar) 0.6246 0.3770 0.5498 0.4109
Iran2 11,696.50 -0.43  35.13 -11.10- (Rial) 16,442.30 9,925.00 14,472.10 10,816.80
Iraq3 n/a n/a n/a n/a n/a (New Dinar) 1,905.15 1,150.00 1,676.87 1,253.34
Jordan4 2,641.77 1.41
-4.23 -24.94 (Dinar) 1.1725 0.7078 1.0320 0.7713
Kuwait5 7,723.50 -0.83  -0.76 -38.03 (Dinar) 0.4752 0.2869 0.4183 0.3126
Oman6 6,546.47 2.04
20.31 -39.78 (Rial) 0.6380 0.3851 0.5615 0.4197
Qatar7 7,098.50 0.74
3.08 -28.12 (Rial) 6.0323 3.6413 5.3095 3.9684
Saudi Arabia8 5,712.95 1.70
18.95 -56.49 (Rial) 6.2128 3.7502 5.4684 4.0872
UAE – Abu Dhabi 9 3,059.35 5.93
28.01 -47.49 (Dirham) 6.0848 3.6730 5.3557 4.0030
UAE – Dubai10 2,040.18 6.25
24.68 -72.42 (Dirham) 6.0848 3.6730 5.3557 4.0030
Yemen n/a n/a - n/a n/a (Rial) 339.638 205.015 298.943 223.437

1 Bahrain Stock Exchange – All Shares Index. 2 Tehran Stock Exchange – Tepix Index. 3 Iraq Stock Exchange – ISX Price Index. 4 Amman Stock Exchange Index.
5 Kuwait Stock Exchange Index. 6 Muscat Securities Market – MSM 30 Index. 7 Doha Securities Market – DSM 20 Index. 8 Tadawul All Shares Index.
9 Abu Dhabi Securities Exchange. 10 Dubai Financial Market.

Sources: Cross-border Information, Hastings. Financial Times, London.

GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009 13

Risk management report Saudi Arabia

GSN Risk Grade — C/2: Economy forecast to contract before 2010 recovery; Sultan still expected home

Political and social developments Economic and commercial outlook

Overview: The giant of the Gulf Co-operation Council has huge
hydrocarbons and financial resources, but also a large, predominantly youthful,
population (of 20m-plus) and a gaping wealth gap between the political and
business elite, grouped around the ruling Al-Saud family, and other social
groups, which include a poor underclass in major cities as well as in isolated
regions. The polity founded by Ibn Saud is formed of strategic alliances with
a variety of tribal, economic and other groupings – notably with the Wahhabi
religious establishment. The predominance of religious thinking in the
country that hosts Islam’s holiest places is reflected in all facets of Saudi life,
from attitudes to women or banking to the violent jihadist cells which profess
loyalty to Al-Qaeda. King Abdullah has led a campaign to curb ultra-radical
preaching and teach tolerance. A reduction in tensions could help the Al-
Saud to stay in power for decades more; the family is calculated to number
some 7,000 princes on the official state payroll, and is present across
government, business and society, underpinning a unique political system.
Elections: In Q2 09, the Saudi authorities postponed municipal elections
that were due to take place later this year. According to the state news agency
SPA, the cabinet decided to extend the mandate of the current municipal
councils for two years after hearing a report on the first municipal council
elections in 2005 from Municipal and Rural Affairs Minister Prince Mitab
Bin Abdelaziz. SPA said the government wanted to give time to “expand the
participation of citizens in the management of local affairs” and to draft new
regulations for the councils toward this goal. Prince Mitab’s son, Mansour, is
Saudi Electoral Commission chairman. The 2005 elections were covered
extensively in GSN 753/1. Rights activists have said the decision to delay is
a setback to their push to open the Kingdom’s politics to the people.
Crown Prince Sultan: King Abdullah said in May that Crown Prince
Sultan had recovered from surgery and would return home by July and that
he was expected to return within six weeks. As yet, there have been no
concrete signs that he is preparing to come home, with one report speculating
that his trip may be reviewed following the attempted murder of Assistant
Interior Minister Prince Mohammed Bin Nayef by a terrorist. Sultan has
recently been seen receiving visits from Dubai ruler Sheikh Mohammed Bin
Rashid Al-Maktoum, Yemeni President Ali Abdullah Saleh and Jordanian
King Abdullah II.
Prince attacked: Assistant Interior Minister Prince Mohammed Bin Nayef
survived an assassination attempt by a wanted Saudi militant who pretended
he wanted to surrender but blew himself up. Yemen-based Saudi militant
Abdullah Hassan Tali Assiri had got in touch with authorities, saying he
wanted to turn himself in to Prince Mohammed, who received him at his
Jeddah home; during the meeting Assiri said that other Saudi militants in
Yemen were keen to surrender but wanted safe passage. According to a Saudi
government statement, the militants wanted to hear this from the prince
himself, and while Mohammed was on the phone, Assiri blew himself up.
The prince was only lightly injured.
Overview: Saudi Arabia will remain the world’s largest oil exporter, but
diversifying the economy away from dependency on crude has been a focus,
particularly while the Kingdom’s coffers have been benefitting from rising oil
prices. The oil price boom has created huge business opportunities as private
sector participation is sought in developing a number of sectors, including real
estate, industry and tourism. Massive industrial and financial cities are
planned. Infrastructure development is a priority and includes expanding the
railway system as well as increasing the capacity of all ports. Saudi officials
remain bullish on the country’s path through the global recession. But there
are questions about the extent of project spending, with considerable
speculation that the economic cities programme will be cut back. Investors’
appetite for privately financed infrastructure has waned, putting even more
pressure on the (admittedly huge) state exchequer and local banks, which are
being called up to provide more long-term and complex facilities than
before.
Samba forecast: Samba Financial Group said in its mid-year review that the
Kingdom’s economic performance has been subdued during H1 09 – due to
dislocations in the global financial markets and lower export demand – but
that the non-oil economy has been supported by robust government
spending, and the economy is set to contract before making a recovery in
2010. Negative real GDP growth is expected as a result of oil production
cuts; the non-oil economy should witness expansion of 2.3% (partly due to
public sector growth), but this will be offset by a contraction in oil output.
Samba forecasts a 13% cut to output. The economy is expected to shrink by
1.2% in 2009, from 4.5% growth in 2008.
Bank deposits: A recent report by BMG Financial Group has said that total
deposits with Saudi banks grew to SR916bn by June 2009, partly due to
banks trying to attract more deposits as interbank lending tightened.
Inflation: Inflation in the Kingdom fell to 4.2% in July, down from 5.2% in
June. The Saudi Arabian Monetary Agency (Sama) has said that money supply
growth in the Kingdom grew 14.2% in July, up from 10.9% in June. Sama’s
foreign assets declined for the eighth consecutive month to SR1.4trn as the
value of the agency’s foreign investments fell.
Investor friendly: The World Bank has named Saudi Arabia the easiest place
in the region to do business, and the 13th most accessible in the world. This
is the fifth consecutive year that the World Bank has ranked the Kingdom as
the best place to do business in the Middle East. The Saudi Arabian General
Investment Authority plans to make the Kingdom one of the top ten foreign
investment locations by 2010.
Power: Saudi Electricity Company has approved the award of SR7.64bn
($2.03bn) worth of contracts, out of the SR80bn it plans to spend by 2012.
SEC said generation capacity would increase by around 13,000MW – it
currently produces some 37,000MW. It said recently that it would issue
Islamic bonds worth around SR5bn to help fund expansion.

SAUDI ARABIA: Rub Al-Khali exploration SAUDI ARABIA: Key data and forecasts
SOME SUCCESS: In early August the Saudi Aramco-Shell partnership, South Rub Al-
Khali Company, announced it had tested promising quantities of gas and liquids at ($bn unless otherwise stated)
its fourth exploration well in the Rub Al-Khali. Aramco described the gas as sour, 2004 2005 2006 2007e 2008f
adding that condensate liquids of up to 25bbls per 1m ft3 of gas could also be Nominal GDP 250.7 315.8 349.1 374.5 413.5
produced, making the project more economical. An official said: “This test is the
Real GDP growth (%) 5.3 6.1 4.3 4.1 4.4
first step in understanding the potential of the field… further assessment will be
needed before embarking on a development plan.” The partnership has been CPI inflation (%, avg) 0.4 0.7 2.2 4.1 5.4
exploring in nine blocks in two parts in the Empty Quarter. Overall fiscal balance (% of GDP) 11.4 18.4 21.5 12.6 12.2
CONTRACTS: Aramco may award two contracts this month for gas projects worth Hydrocarbon exports (% exports) 87.9 89.5 89.5 88.5 88.5
$6.9bn. Contractors are competing to provide project management and early Gross government debt (% GDP) 65.4 40.9 29.0 18.8 11.5
engineering on the projects at the onshore site of the Manifa offshore oil field and Current account balance (% GDP) 20.7 28.5 27.4 22.2 20.1
at the Shaybah field in the Empty Quarter desert. Both projects are aimed at Gross official reserves 27.3 26.5 30.8 36.8 41.1
increasing gas output given that Saudi demand, particularly from the SAMA net foreign assets 86.4 150.3 221.1 294.3 345
petrochemicals and industrial sectors, is rising. The Kingdom has the world’s
fourth-largest proven gas reserves at 267tr ft3.
Sources: Pantera Capital Management

14 GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009

Syria Risk management report

GSN Risk Grade — D/4: Diplomatic flurry as Syria plays regional interventionist role

Political and social developments Economic and commercial outlook

Overview: Once seen as a pariah state, and still subject to US and European
Union sanctions for its relations with what the West considers terrorist
organisations, Syria is, however, slowly emerging from political isolation.
Relations with the US have improved in recent months, marked by the
reappointment of an ambassador to Damascus and a goodwill gesture to
partly lift sanctions. Its relationship with Europe is also improving and a
renewed trade association agreement is pending. Syria scored a number of
political points following its recent successful mediation between Iran and
France. But domestically, President Bashar Al-Assad still has a number of
reforms to implement, including improving human rights, and easing the
totalitarian style and corrupt practices of the ruling Arab Socialist Baath Party.
EU ties: Relations with the EU appear to be improving. President Assad is
being rewarded for increasingly good behaviour, such as Syria’s lack of
interference in recent parliamentary elections in Lebanon, a neighbouring
country with which it has a troubled history. EU member states froze the
EU-Syria trade association agreement in 2005 following the assassination of
Lebanese prime minister Rafiq Hariri, which many blamed on Syria. A UN
investigation into the case is ongoing (GSN 849/19), but it appears to have
been sidelined as an issue as Syria’s mediating role in the Middle East takes
precedence. EU commissioner for external relations Benita Ferrero-Waldner
said recently that the EU was close to agreeing an offer of closer to ties to
Syria. But the agreement is believed to be held up by Dutch concerns about
Syria’s human rights record. Syria is nevertheless being wooed by the EU.
Spain’s foreign minister Miguel Angel Moratinos, whose country takes over
the EU presidency in January, was in Damascus this month expressing his
support for increased partnership with the EU. UK Foreign and
Commonwealth Affairs Minister Ivan Lewis also visited Syria recently,
holding talks with Foreign Minister Walid Al-Moallem concerning Syria’s
role in pursuing peace in the region. This follows Al-Moallem’s summer visit
to London and his meeting with UK Foreign Minister David Miliband.
Iraqi relations: Tensions are high between Syria and Iraq following the 19
August bomb attacks in Baghdad that killed at least 95 people. Iraqi officials
blame the attacks on Sunni Islamist Al-Qaeda militants and members of
former Iraq dictator Saddam Hussein’s banned Baath party believed to be in
Syria. Iraq wants Syria to hand over the suspected insurgents. Both countries,
which have only recently begun to strengthen fragile ties, have recalled their
ambassadors. Iraq has also put thousands of extra police on the Syrian border.
The country’s co-operation is seen as vital for securing parts of northern Iraq,
such as Mosul, where violence is prevalent. Among the most senior members
of the Baath party believed to be in Syria are Mohammed Younis Al-Ahmed,
and followers of Izzat Ibrahim Al-Douri, Saddam’s number two, whose
whereabouts are unknown. There are 1.2m Iraqi refugees in Syria.
Military change: Following a rumoured attempted coup, the President’s
powerful brother-in-law Assef Shawkat is said to have been removed as head
of military intelligence and replaced by Major General Abdelfattah Qudsiyah.
Overview: Syria is in its tenth five-year economic reform programme,
prompted by a need to diversify away from dependence on oil income, and
to tackle the demands of 340,000 nationals who join the workforce annually.
The government is keen to talk about reform, but the economy remains
problematic, maintaining the ‘socialist benefits of centralised planning’ while
aiming to introduce market reforms. Inflation has quadrupled in the last year.
Despite US and EU sanctions, Syria has been fairly successful in attracting
Gulf and other investors. Syria is opening up its financial system to foreign
investors, and there is a growing appetite among Syrian investors to inject
money into foreign entities.
Chinese interest: State-owned Sinochem Corporation has agreed a £532m
($878m) takeover of Emerald Energy to gain access to the UK-listed oil and
gas explorer’s operations in Syria and Colombia. Sinochem president Han
Gensheng said:“Emerald’s Syrian and Colombian assets have attractive growth
potential and, by bringing Emerald into the Sinochem group, will reinforce
our position in the Middle East and South America.” Emerald’s assets in Syria
include a 50% stake in Block 26, in which Gulfsands Petroleum also has 50%
and is operator (GSN 851/12). In August China’s Sinopec International
Petroleum and Production Corporation (SIPC), a subsidiary of the Sinopec
Group, also established SIPC (Syria) Ltd to replace Dublin International
Petroleum, a subsidiary of Canada’s Tanganyika Oil Company that was taken
over by SIPC at the end of 2008. These investments complement Syrian-
Chinese diplomatic efforts. China’s special envoy to the Middle East,Wu Sike,
was in Damascus recently, his second visit to Syria since June.
Gulfsands update: Alternative Investment Market-listed Gulfsands
Petroleum has said that cumulative gross oil production from the Khurbet
East field at Block 26 has passed 4m bbls. Drilling operations have been
completed at Khurbet East 12 (KHE-12) and flow-testing operations are
planned to determine the fluids that will be produced. Gulfsands said
Yousefieh-1 well in Block 26 is now being completed for future production.
Yousefieh-2 appraisal well flowed oil to surface at an average rate of 139 b/d.
Yousefieh-3 appraisal well is being spudded (GSN 852/11).
Qatar investments: According to Syrian Finance Minister Mohammed Al-
Hussein, who was quoted in Doha-based Arabic daily Asharq, Qatari
investments in Syria are expected to reach $12bn over the next few years. A
number of Qatari banks and insurance companies have Syrian units. Qatar
National Bank Syria (QNBS), a private Syrian-Qatari bank owned 49% by
Qatar National Bank (QNB), announced on 15 August that its initial public
offering (IPO) for 34% of the bank’s equity (3.4m shares) was oversubscribed.
“The public offering eventually raised S£4.6bn through the oversubscription
of the 3.4m shares available,” QNBS said. With headquarters in Damascus,
the unit is capitalised at S£5bn ($108.2m) and is expected to begin
operations in Q4 offering retail, corporate, investment and private banking
services. It plans to open two branches in Damascus in the first year of
operation.

SYRIA: Selected economic indicators SYRIA: French saviour

OVERVIEW: Syria’s assistance to France in gaining the release of an embassy
($m unless otherwise stated) 2005 2006 2007e 2008f 2009f employee and French academic, both on trial in Tehran, is seen as a sign that
President Bashar Al-Assad is positioning himself as vital to creating peace in the
Nominal GDP ($bn) 28.6 33.5 40.6 55.2 50.7
region, particularly with countries such as Iran, Iraq and Israel. But, Syria still has a
Real GDP growth (%) 4.5 5.1 4.2 5.2 3.9 long way to go before completely shedding its pariah status – there are a number of
CPI inflation (%, avge) 7.2 10.4 4.7 14.5 8.0 domestic reforms to be implemented, and external relations with militant Iraqi groups
Crude oil production (‘000 b/d) 431 400 380 380 371 and Lebanon’s militant Islamist group Hizbollah are cause for concern. Nevertheless,
Syria’s recent moves are positive and may show that the international community
Government finance overall (% of GDP) -4.5 -1.2 -3.4 -3.5 -3.1
has changed its tactic – rather than isolating Iran, it can engage it through Syria.
Current account balance (% of GDP) -2.2 -2.8 -3.3 -4.1 -3.7
SCORING POINTS: Syria was among countries that provided support to help free Nazak
Balance of payments ($bn) 0.0 -0.8 0.7 -0.4 0.3 Afshar, a French-Iranian citizen who was a defendant in a mass trial of protestors
Total population (m) 19.3 20.4 20.8 21.3 21.8 against the recent re-election of Iranian President Mahmoud Ahmadinejad. French
of which: Iraqi immigrants 0.9 1.5 1.5 1.5 1.5 academic Clotilde Reiss, also on trial, was released on bail. French President Nicolas
Sarkozy has strengthened ties with Damascus in recent months, visiting the country
Sources: IMF Article IV report, February 2009 twice.

GULF STATES NEWSLETTER • VOLUME 33 • ISSUE 860 • 11 SEPTEMBER 2009 15

GSN view
Coming to terms with Dubai’s debt – even if it’s bigger than you think
Attempts to reassure world markets that the emirate’s debt is no more than
$80bn have been overshadowed by the revelation that Dubai World alone owes
$59.3bn. Last November, Emaar Properties chairman Mohammed Ali Alabbar
– for long a key ally of UAE Vice President, Prime Minister and Ruler of Dubai
Sheikh Mohammed Bin Rashid Al-Maktoum (MBR) – attempted to reassure
financial markets that Dubai’s debt was no more than $80bn. It now appears
the figure is higher. Dubai World’s indebtedness was revealed by its property
subsidiary Nakheel Development Ltd, which had to disclose basic financial
information on its parent company under its obligations in a $3.5bn sukuk that
is due in December. This showed Dubai World’s debt on 31 December 2008
was $59.3bn, according to a statement on Nasdaq Dubai.
Alabbar reckoned Dubai’s $80bn debt included $10bn of sovereign debt, thus
putting the debt of government-related enterprises (GREs) at $70bn. But with
Dubai World now accounting for nearly $60bn of the debt, there is just $10bn
to be accounted for. In March, Emirates Group (including Dnata) had liabilities
of $4.2bn. In February, Borse Dubai signed a $2.5bn loan facility to refinance
a $3.8bn term loan and guarantee facility. In April, Dubai Electricity and Water
Authority (DEWA) agreed a deal with 18 banks for a borrowing facility of $2.2bn
to enable it to refinance its loan ahead of its due date. The DEWA refinancing
came on the heels of a $600m Ijara raised by Dubai Department of Civil
Aviation to repay its $1bn debt. The Dubai government is itself exposed to
additional debt via its investments. Investment Corporation of Dubai holds a
31.22% stake in Emaar, which reported $6.5bn-plus total liabilities at end-2008.
Then there are the government-owned banks, Emirates NBD and Dubai
Islamic Bank, with more than $76bn and $19bn of liabilities respectively.
Gulf States
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Perhaps a better measure of their financial health would be their levels of non-
performing loans (NPLs), which already exceed 1% at Emirates NBD. The full
picture of NPLs will probably only emerge in the January 2010 reporting period.
Chief financial officer Sanjay Uppal in July said that Emirates NBD’s NPLs could
peak at 2.5% in 2010. In early August, Moody’s Investors Service said the
bank’s rating had been placed on review for possible downgrade – it was
concerned about future corporate defaults and delinquencies from retail lending.
Alabbar’s $80bn debt figure didn’t include the debt of Dubai Holding since its
assets and liabilities are substantially MBR’s personal holdings. Dubai World
looks in better shape than Dubai Holding: it shows total assets of nearly $100bn
against total liabilities of nearly $60bn, while Dubai Holding’s assets were
$46.7bn against liabilities of $36.6bn. Dubai World thus has net assets of around
$40bn, compared with Dubai Holding’s $10bn. Meanwhile, Dubai’s sovereign
debt is not disclosed. Standard & Poor’s, while accepting Alabbar’s figure of
$10bn, reckons it will have reached $25bn by 2011 – and there are some big
bills to pay. The overall cost of the non-profit making Dubai Metro project –
launched on 9 September – had increased by some 80% from $4.2bn to $7.6bn.
It seems MBR is unbothered by the scale of Dubai’s – and his – debt. According
to the official WAM news agency, MBR told a business gathering at his Zaabeel
Palace earlier this month that the global financial crisis was but “a passing
cloud” that would not linger despite pessimistic speculation. WAM further
reported that the gathering described the current situation as nothing more than
a “storm in a cup” [sic] and was “confident in the sound, swift measures taken
by leadership and government of the UAE to overcome the slowdown”.
Whatever size the debt, apparently.
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