The Real Dubai Ports Scandal

For the !%$@%$#*!-teenth time: Dubai = Mafiya Central.

Talk to intel agents and they'll volunteer that Dubai is the main laundering site and trading post for the Russian and FSU mafiya as well as just about every arms dealer on the planet. It was AQ Khan's preferred port. It's the Wild East. OF COURSE the Iranians are shuttling weapons, contraband, what have you through Dubai.

Where the f*** has our press corps been on this story? It's been well known for over a decade.

Not only our press corps, where have our foreign policy officials been?

Where have our foreign policy officials been? On the take, of course.

Fred halliday has a terrific analysis of the kinds of business practices that go on in places like Dubai:

www.opendemocracy.net/.../stolen_wealth_funds

Here are some highlights:

“The Gulf states in particular remain - for all the superhighways, skyscrapers, "knowledge cities" and glitzy conferences - controlled by secretive ruling families whose members regard the state, and its revenue, as theirs. An Arab ambassador recently put it to me that the minister of finance is, in effect, the private accountant of the ruler. No-one knows what the state's (or ruler's) income is. Oil revenues provide the basis of an informed guess; but when it comes to the often equally large income from capital invested abroad, and who controls it, there not even broad estimates exist.

The Gulf's other face

The new power of state corporations is most obvious in the energy market. The control by the state and its associated companies of production and distribution of key energy resources is in the middle east (as in Russia and China) a key source of state power. In this environment, the rise of the SWFs has international implications for inter-state as well as business relationships.

A powerful state may establish a degree of order in business and state affairs. But in the middle east and Russia (to name only these areas) the very nature of the "originating" state guarantees that there will be problems - for three basic market and regulatory preconditions for a sustainable working model are absent:

* there is no free press; hence no independent investigation or reporting on economic matters; the least that would happen if a Gulf Arab or Russian paper did print independent reports is that the advertising would dry up

* there is no rule of law; hence those with power in such countries are free to break contracts, renege on commitments, reappropriate assets, and even pilfer state funds, as they see fit. This is not going to change in the near future - indeed, the availability of new oil and gas revenues may only make it worse

there is no independent parliament or political structure. The Russian elections of December 2007 (parliamentary) and March 2008 (presidential) show that legislatures count for little; of what remains, intimidation, forcible exile, imprisonment, or, more congenially, bribery, solve the rest. As for the Gulf states, all talk of a "transition" to democracy is nonsense: the rulers and their associates continue to make all the major decisions.”

He is not hopeful about the ability of the West to deal with this phenomenon:

“For some western banks and businesses starved of funds, and facing the credit-crunch sparked in autumn 2007 by the "sub-prime" mortgage crisis in the United States, all this may appear good news. Their balance- sheets have (as the financial journalists say) "lots of holes to be filled". But these institutions - and western governments - which wish or are obliged to deal with SWFs have a clear choice here (see Ann Pettifor, "How debtonation dies", 30 August 2007).

They can enter agreements with SWFs (and other economic-political bodies in authoritarian states) with their eyes open - aware of the arbitrary adminstrative practices, occult financial sources and political interests involved. Such an approach is possible, many have followed it over the years.

They can also choose to leave the sovereign wealth funds to invest elsewhere; and to wait for the time - on present showing a pretty long way away - when both the SWFs and the wider political-financial systems of these countries meet better western criteria.

This is the choice. What western banks and businesses - and governments - should not do is to fool their publics, and possibly even themselves, about the realities of business, politics and influence in authoritarian states. The indulgence (or worse) towards money-laundering and fake accounting in the west, as well as the venality of many of those involved at the highest levels of business and power, may give a clear signal as to which path is the more likely. But at some point a dysfunctional global financial system needs bold action based on principle with long-term purchase, not mere calculation of short-term benefit. The SWFs are not going away. It is time to relearn for the old phrase about speaking truth to power.”

The SWFs are trivial players. The real threat is not from the SWFs but from the criminalized states  themselves. Putin's Russia is a rogue state, as is the House of Saud. Oil is the sole source of their power and legitimacy. Dubai is their playground.

Maybe tep, but these are inter-related entities.

I'd be careful of the argument that Russia is a rogue state.  It's a paranoid state coming under the influence of an large new nomenclatura with a magical pool of oil and gas revenues to swim around in.  But it's not a rogue state in the sense of a state that has fallen under the sway of a fringe subversive force or one that has abandoned all engagement with the international community.  It's subject to waves of obscure political energy, however, that point to a set of unsatisfied national goals.

Saudi Arabia might be a more convincing example, I think, but the country's own internal complications emerging from the traumatic clash of modernity, Islamic puritanism, and tribal monarchy suggest something different -- more like "the impossible state" or similar, one that appears to exist and function despite logic.  However, in any real comparison that might take place in the future, Iran may come across in that comparison as being pretty stable, and a far more developed and mature society.

Broadly, if we start making the definition of "rogue" too broad, we start giving ourselves more of the kind of problems we've been having.  One hinge of the "Axis of Evil" has been toppled, for example, but we seem to be in a rather awkward place as a result of that.

Fine, avoid the inflammatory old term, good call. But the essential point, rhetorical flourishes aside, that's been overlooked these past 8 years is that the Russian state has been thoroughly CRIMINALIZED. It's not efficient. It's not effective. It has gone backwards in most crucial respects -- not just democratic measures but straightforward, neutral indicators of institutional cohesion-- and has slid further still from the mess that was Yeltsin's administration. This is an African-style kleptocracy, and we need to stand up to it, and recognize the extraordinary danger posed by not an ideological or great-power threat but the threat of Russian implosion into mafia clan-style internal warfare and chaos.

Rogue states are effective only at tyrannizing their people. Ditto for the kleptocratic Putin-Mobutu regime and the kleptocratic, seigneurial House of Saud. Call them Bandit States if you like.

I agree with tep, ironyroad, It's not about the use of terms. It's about the existence of certain States whose governments play by rules of their own making and were laws are optional.

The issue isn't how will we deal with them, but how will they deal with us.

In this sense some of these States are no different from NGO's such as al Kaida.

I trust muslim-majority countries as far as I can throw them.  And that includes Turkey and Morocco.  Yeah, we don't want to piss them off to lose whatever "support" they give to our war on terror but they will never ever be true allies like Britain, Poland, Australia, or any other western country founded on Christian tenets.    Even if you discount the fraternity created by Christian principles, it's fairly obvious that a free-market, capitalist, democratic country like America would have much more in common with Denmark than say a banana republic socialist dictator like Chavez.

Great post, very informative thread.

I've only two words to add: Nei Bush.

Neil's "adventures" in Dubai could fill a book. Hope someone is writing it.

Last year Halliburton moved its headquarters and corporate leadership team to Dubai.

The Dubai Miracle? What a joke.

er, jwl, the (Kievan) Russian state was also "founded on Christian tenets." Putin-Mobutu has cleverly kissed up to the Russian Orthodox Church, which is probably the most corrupt and feeble national christian organization on the planet. (Although true to form, Putin-Mobutu has failed to build any lasting institutional foundations for that Church.)

It's not about "western" cutlure so much as it is simply a huge gap between kleptocracies perched on massive oil and other commodity resources, and democratic entities that have relatively advanced rule of law. Russia's in the former camp, Norway, Japan, Oz, Chile etc in the latter.

Bandit States vs Lawful, Free States. How's that, ironyroad, jack, fou luis iggy?

I think you have it about right Teplukhin. Although, I'm reading all about the relationship between Anglo-Saxon banks (NY-London) and the oil industry, right from the repeal of the corn laws. So, I'm probably not the best to comment on this, as I'm seeing Kleptocracies in the most disturbing places.

(I know, I know, I gotta get off the left wing crack. But it's just so sweet.)

Read Daniel Yergin's "The Prize". Also, separately, Matt Simmons is a good read if you can find his (controversial, but supported over the last 10 years, anyway) stuff on his Peak Oil thesis.

Easier than that, luis. Start with enforcing the rule of law. As Clinton said to the Russians in 1998, "These laws don't have to be our [Western] laws or laws that we [in the West] prefer, but they have to be consistent laws, and consistently applied."

Like not screwing (this week's news) British Petroleum out of its multi-billion dollar stake in the TNK joint venture, on ridiculous "industrial espionage" charges. Russia is now an Africanized state. If we can't muster the will to stand up to Putin-Mobutu, "the West" has no meaning anymore.

That's actually pretty easy Luis. One word - Nuclear.

The oil industry has done it's very best to try and push the more exotic (wind, solar etc) options for decades in the hope of slowing the nuke solution.

Why did OPEC insist on the Dollar as the only currency that they would accept? The Deutchmark at the time would have been an acceptable alternative. Very suspect.  Deficits don't seem to matter if the rest of the world has no choice but to pick up the tab. And that whole post WW2 Malthusian planning era is also very disturbing.

I'm making my protest banner as we speak.

MoPutu's government was legally formed. It does not behave legally. Russian due process is a joke. At a minimum we need to stop including this thieving clown in our annual G-8 photo-op.

Re Russia's strangelhold on western europe, what Iggy said. Stop worrying and learn to love nukes. As the French do, to their great advantage.

The petrodollar isn't dead yet Louis. Not by a long shot. Another oil shock (strike on Iran) would result in a huge surge in demand that could keep it going for a while yet.