Policy Tensor

Careful What You Wish For

In Markets on December 13, 2014 at 2:02 pm

 WTI

For the US stock market, good news is bad news. The Fed is waiting for the recovery to strengthen to exit the zero lower bound. When it does, we’ll see a market correction and an end to the current financial boom driven by yield-seeking investor behaviour. The magnitude of the correction will depend on the balance between the extent of the bubble in asset prices on the one hand, and the continuing positive impact of the Oil Price Counter-Revolution on the other. Let’s not get this wrong: the expectation of a genuine recovery in the non-financial economy, such as it is, is almost entirely driven by the near-collapse in the price of energy.

The Oil Price Counter-Revolution is better than a Middle Class tax cut, which does not affect the poor or the really rich, both of whom don’t pay much in income tax; but whose consumption is now a larger share than that of the Middle Class. It is a decline in the cost of making every input except people and capital for everyone except the energy firms. Since oil is used in almost every single industry, the impact is very broad, making the oil price the dominant variable for the economy. Hence, the implication of a genuine recovery. Which brings us to what is happening in the energy markets.

The cost of producing solar and wind energy has collapsed to levels last prevailing in the cost of making energy from oil and natural gas in early 2014. The shale boom has continued apace, pushing down the price of gas in the United States to a third of that prevailing in Europe, and a fourth of that in Japan. US tight oil production is increasing relentlessly, so much so that the United States is likely to briefly replace Saudi Arabia as the largest producer of crude. The Kingdom declined to accept lower quotas in the last Opec meeting. The Saudis reckoned that a brief period of benchmark prices in the sixties (Brent is now at $62 and West Texas Intermediate at $58; both were above $100 for a long time) will drive many American tight oil producers with their high costs out of the market, and undermine Iran. It is wrong on both counts.

Brent

Some of the impact of higher than anticipated gulf production will be absorbed by a divergence between Brent (Eurasian) and West Texas (American), thereby softening the impact on American producers. And unlike petrostates with their fiscal burdens, private American oil firms can survive at much lower margins by cutting costs; expanding capacity when prices revive. A prolonged period of cheap oil will lead to a consolidation of industrial structure, with marginal firms being absorbed by their stronger rivals. But it is unlikely to diminish capacity in the long term. Since tight oil fields get exhausted in a short year or two (regular fields like those in the gulf last more than a decade), American oil production is much more flexible than Opec production in the medium term. Oil firms can easily postpone capacity expansion and let existing capacity erode, thus responding relatively quickly to price signals. Since capital is cheap and credit easily secured, firms do not face a financial constraint on capacity expansion either. And if prices continue to slide, they can shelve plans to expand capacity and buy back their own shares to maintain their stock prices. The United States has too deep of bench of innovative oil firms. The Saudis cannot eliminate American competition by aggressive price-cutting.

Aggresive price-cutting can certainly hurt Iran. But that is at least as likely to backfire geopolitically on the Saudis as otherwise. Iran is already in dire straits economically due to the sanctions regime. Further pressure will quite likely undermine the hawks who are holding back on a nuclear deal with the United States. American and Iranian geopolitical interests have converged remarkably since the rise of the Islamic State. Both now very nearly want the same thing in Iraq and Syria. A greater willingness to compromise on the part of the ayatollahs, a likely result of great fiscal pressure, is very likely to clench the deal. Iranian businessmen are already rubbing their hands.

More generally, the revival of American oil production has dethroned Opec. The cartel no longer enjoys the extraordinary power it wielded in its heyday. If Iran returns to the market and Western capital underwrites an expansion of Iranian capacity, Opec itself would become bipolar. Without a thaw in Saudi-Iranian relations, it would become defunct. In either case, if Iran returns to the market in force, Saudi Arabia’s status as the swing producer will assuredly be undermined. And with it perhaps, the leverage that the Saudis have enjoyed against their protector since the Islamic revolution.

The Torture Report

In Thinking on December 9, 2014 at 6:07 pm

Enhanced Interrogation Techniques

The just-declassified Senate Intelligence Committee’s report on the CIA’s detention and enhanced interrogation program found that torture “was not an effective means of acquiring intelligence or gaining cooperation from detainees,” with numerous CIA officials repeatedly warning that it failed to produce accurate intelligence. “The CIA inaccurately claimed that specific, otherwise unavailable information was acquired from a CIA detainee ‘as a result’ of the CIA’s enhanced interrogation techniques, when in fact the information was either: (1) corroborative of information that was already available to the CIA or other elements of the U.S. Intelligence Community from sources other than the CIA detainee, and was therefore not ‘otherwise unavailable’; or (2) acquired from the CIA detainee prior to the use of the CIA’s enhanced interrogation techniques.” The CIA therefore mislead the White House, the National Security Council, the Department of Justice, the CIA Office of Inspector General, the Congress, and the public about what it was doing and whether it was at all useful. “The conditions of confinement for CIA detainees were harsher” and the “interrogations of CIA detainees were brutal and far worse than the CIA represented to policymakers and others.” For instance, “at least five CIA detainees were subjected to ‘rectal rehydration’ or rectal feeding…One interrogator told another detainee that he would never go to court, because ‘we can never let the world know what I have done to you.’” [Emphasis mine.]

Further, the agency “repeatedly provided inaccurate information to the Department of Justice, impeding a proper legal analysis of the CIA’s Detention and Interrogation Program”; “actively avoided or impeded congressional oversight of the program,” with the Director falsely claiming in a meeting with foreign ambassadors that “every Committee member was ‘fully briefed,’ and that ‘this is not the CIA’s program. This is not the President’s program. This is America’s program.’”

Not only did the CIA lie to the Senate Intelligence Committee, it “impeded effective White House oversight” as well. Incredibly, “no CIA officer, up to and including CIA Directors George Tenet and Porter Goss, briefed the president on the specific CIA enhanced interrogation techniques before April 2006.” An internal agency email noted that “…the WH [White House] is extremely concerned Powell would blow his stack if he were briefed on what’s been going on.” In fact, the CIA “did not brief the OIG [the CIA’s Office of Inspector General tasked with oversight of the agency] until after the death of a detainee.” The CIA withheld information from other branches of the government including the FBI, the State Department, and the Office of the Director of National Intelligence so that “the limitations on sharing information undermined government-wide counterterrorism analysis.”

Beyond counterterrorism, the CIA undermined the effectiveness of US foreign policy by either not informing US ambassadors of detention sites in the countries in which they served, or by preventing them “from seeking guidance on the policy implications” of the black sites. Most unnerving are the CIA’s efforts to manipulate public opinion. “The CIA coordinated the release of classified information to the media, including inaccurate information concerning the effectiveness of the CIA’s enhanced interrogation techniques.” One official explained, “when the [Washington Post]/[New York Times] quotes ‘senior intelligence official,’ it’s us…authorized and directed by opa [CIA’s office of Public Affairs].”

In what seems like a story straight out of the Bourne trilogy, “two contract psychologists devised the CIA’s enhanced interrogation techniques and played a central role in the operation, assessments, and management” of the program. Neither of these guys “had any experience as an interrogator, nor did either have specialized knowledge of al-Qa’ida.” They “developed theories of interrogation based on ‘learned helplessness.’” They “personally conducted interrogations of some the CIA’s most significant detainees.” “In 2005, the psychologists formed a company specifically for the purpose of conducting their work with the CIA. Shorty thereafter, the CIA outsourced virtually all aspects of the program.” In 2006, the value of the contract was “in excess of $180 million; the contractors received $81 million prior to the contract’s termination in 2009.” By 2008, “contractors made up 85% of the workforce for the detention and interrogation operations.”

Furthermore, the agency’s detainees “were subjected to coercive interrogation techniques that had not been approved by the Department of Justice or had been authorized by CIA headquarters.” The agency did not maintain adequate records of its detentions and interrogations making a full accounting of its abuses “impossible.” It “never conducted a credible, comprehensive analysis of the effectiveness of its enhanced interrogation techniques” and did not hold personnel responsible even for “serious and significant violations” of its own legally-challenged policies. The agency ignored and overruled the objections expressed by “numerous CIA officers.” Some “CIA officers were instructed by supervisors not to put their concerns or observations in written communications.” The Committee found that the program “created tensions with U.S. partners and allies, leading to formal demarches to the United States, and damaging and complicating bilateral intelligence relationships.” More generally, “the program caused immeasurable damage to the United States’ public standing, as well as to the United States’ longstanding global leadership on human rights in general and the prevention of torture in particular.”

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I want to make three points regarding the Senate’s findings. For years now, we have been well aware of the CIA’s rendition, detention, and torture of terrorism suspects. The report claims that “the CIA did not hold any detainees after April 2009.” It is likely true that detainees in US custody are no longer being tortured and that the CIA no longer directly operates black sites. But that does not mean that the United States does not participate and acquiesce in torture. Since Obama came into office the modus operendi has shifted to reditioning suspects to partner nations like Saudi Arabia, Pakistan, Morocco and Yemen, that torture with impunity, and then deliver whatever information is obtained back to US intelligence. That is, the United States has reverted to the standard practice that prevailed before the Bush administration.

The really stunning revelation is that the agency not only mislead the public and Congress, but also the White House and the National Security Council. The agency acquired an unprecedented degree of autonomy from the administration. Elected officials were more than willing to acquiesce. When asked by Bush about the interrogation of Abu Zubaydah, the White House Counsel, Alberto Gonzales told him: “Mr. President, I think for your own protection, you don’t need to know the details of what’s going on here.” Bush agreed. This brings to mind Glennon’s adaptation of Bagehot’s theory of double government, wherein he notes: “U.S. national security policy is defined by the network of executive officials who manage the departments and agencies responsible for protecting U.S. national security and who, responding to structural incentives embedded in the U.S. political system, operate largely removed from public view and from constitutional constraints. The public believes that the constitutionally-established institutions control national security policy, but that view is mistaken. Judicial review is negligible; congressional oversight is dysfunctional; and presidential control is nominal.”

According to Glennon, the explanation for the extraordinary continuity in national security policy between the Bush and Obama administrations is that policies are made not in the “dignified” or “Madisonian” institutions of the US State—Congress and the Presidency—but in the national security deep state—what Bagehot would’ve termed the “efficient institutions.” America has “moved beyond a mere imperial presidency to a bifurcated system—a structure of double government—in which even the President now exercises little substantive control over the overall direction of U.S. national security policy. Whereas Britain’s dual institutions evolved towards a concealed republic, America’s have evolved in the opposite direction, towards greater centralization, less accountability, and emergent autocracy.”

Indeed, the state that is structurally most similar to modern-day United States is not Great Britain but Prussia. “The Sparta of the North” was a garrison state ruled by a civil-military bureaucracy; one that retained its essential character when it expanded to become Imperial Germany in 1871. The Kaiser was the nominal head of a legal authoritarian state over which he exercised at best intermittent control. When German officials were manipulating European capitals into a general war in the July Crisis of 1914, as Copeland has impeccably demonstrated, they were also manipulating the Kaiser himself to sign the order to mobilize that would plunge Europe into war. To put it mildly: this does not bode well for the United States.

The most alarming aspect of the revelations is the manipulation of public opinion by the Central Intelligence Agency. The agency systematically went about managing the public view of its activities. There may be no possibility of criminal prosecutions for those who authorized and committed torture in the name of national security. But it is imperative that the public be protected from the extraordinary power of the US deep state. The least that Congress can do is to abolish the agency’s Office of Public Affairs, and forbid it from manipulating US media. For instance, by making it a prosecutable criminal offense for agency officials to provide inaccurate information to the public.

More generally, if there was ever a time to thoroughly reform the apparatus of US national security, it is now. This is the most significant effort to reign back the national security state since the Church committee. It seems clear that the reason that the Senate Committee went ahead with making the summary report public is their exasperation with the CIA, which has continued to evade oversight. In other words, this is an effort to sign up the public for a fight to restore Congressional oversight of a recalcitrant agency which has come to believe that it is above the law. Feinstein deserves all the support she can get.  

A Controlled Experiment

In Middle East on November 10, 2014 at 7:27 pm

Isis strikes

The Obama White House decided last week to double the number of American “trainers and advisers” in the fight against the Islamic State; bringing the total number of US military personnel in the campaign in Iraq to 3,000. The United States has been conducting airstrikes for three months now, with little to show for it. US warplanes, reported the paper of record, “are mostly hitting pop-up targets of opportunity.” In Iraq, only a quarter of more than three thousand sorties so far involved striking targets on the ground. The situation in Syria is even worse. After the initial strikes on obvious fixed sites clearly visible from the air, the campaign has petered down due to lack of targeting information. This comes as no surprise, given that there are no partners on the ground to direct fire.

What the United States is doing in the campaign against Isis amounts to a controlled experiment. What is being tested is the “Afghan model” of warfare, in which indigenous allies replace US ground troops with the help of American air power and a small number of special operations forces.[1] The rapid collapse of the Taliban alliance in 2001 was explained by the devastation wrought by US precision strikes allowing even a rag-tag crew of local allies to take-over territory abandoned by the Taliban. Specifically, special operations forces acted solely as scouts tasked with providing precise locations of enemy positions which would then be annihilated by precision airstrikes. Once the enemy had thus been routed even untrained indigenous ground troops could be expected to prevail against survivors. Obama’s current war plan to “degrade and destroy” the Islamic State essentially amounts to a bet on the viability of the Afghan model.

Stephen Biddle has forcefully argued that the Afghan model is not widely applicable.[2] In particular, the viability of the model depends crucially on the “balance of skill” on the ground: “allies with inferior skills cannot exploit precision airpower even with US [special operations forces].” The effects of precision airpower work through a “synergistic interaction with ground force skill.” When combined with a favorable balance of skill on the ground, precision airstrikes conducted from a position of absolute command of the air produce tremendous lethality. But ground and air forces are “poor substitutes for one another.”

The governing logic of this nonlinear relation between airpower and the balance of skill on the ground relies on the lessons of 1918, laid out in Biddle’s excellent monograph. The deadlock of the Western Front remained unbroken for more than three years. Massed infantry tactics in 1914 yielded nothing but slaughter in the face of modern firepower. In 1915-1918, all armies instead first used artillery barrages to dislodge the enemy from dug-in positions, followed by infantry charges to take-over territory. Such effort usually failed outright because even a few survivors armed with modern weapons could still slaughter a painfully large number of exposed troops as they charged the trenches. Even when such tactics allowed one side to advance a few hundred yards, it increased their exposure to the enemy’s artillery. How, then, could men survive the storm of steel and advance at all?

The solution that was hit upon by all (surviving) great powers was essentially the same. Germany (as usual) was the first to innovate with the Second Battle of the Somme in the first of the four Spring Offensives in 1918. Instead of massed infantry brigades, troops advanced in dispersed small platoons that were less vulnerable to concentrated fire. They moved at speeds afforded by the terrain, using all possible cover to shield themselves from the hail of fire. Artillery was deployed not to dislodge the enemy but to momentarily suppress enemy fire to allow one’s troops to dash across open fields and into the safety of cover. This required combined arms operations with close and unprecedented cooperation between multiple units. These innovations, quickly deployed by all powers still fighting, finally restored movement to the Western Front in 1918.

Biddle calls the complex of techniques required to operate effectively in the face of radically lethal modern weapons, the “modern system.” His basic argument in that military power in the modern era is not just a function of material capabilities and technology. Numerical preponderance is such a bad predictor of military outcomes that even flipping a coin performs better. Nor do more sophisticated measures of material capabilities like the Composite Index of National Capability (CINC), also called the COW index, does much better in predicting military outcomes. Rather, a state’s effective military power depends first and foremost on whether or not, and to what degree, it has mastered the modern system of force deployment. Biddle shows how military contests between modern and non-modern armies have been extraordinarily one-sided, whereas numerical preponderance and technological advantages only matter in wars between like armies.

Biddle oversells his case for continuity in land warfare since 1918 a bit in that the introduction of the radical combination of mobile armor and flying artillery in 1940, and the emergence of precision guided munitions in large numbers by 1990, were indeed game changers. By his own account, the French military had learned the lessons of 1918 and adopted the modern system of force deployment. How, then, was the Fall of France accomplished in six short weeks? As for the effect of precision guided munitions and ISR (intelligence, surveillance, and reconnaissance), one only needs to examine the discussions of Russian, Chinese, and Indian military strategists.

Still, on the specific question of the campaign to destroy the Islamic State, Biddle’s insight is clearly applicable. The caliphate is not simply a rag-tag collection of salafi jihadists. It reportedly contains a very large number of former members of the Iraqi army, including the highly-trained Republican Guard. (The Iraqi army was helpfully disbanded by Paul Bremer in his de-Ba’athification of the Iraqi government in 2003.) Moreover, we have seen that the Islamic State is capable of complex operations. It has prevailed against Western and Israeli-trained Kurdish peshmerga, as well as the strikingly numerically preponderant US-trained Iraqi forces, not to speak of Assad’s forces and sundry rebel groups in Syria. At one point, the New York Times article says that the airstrikes have forced Isis fighters to “disperse and conceal themselves,” counting it as a success. But it could equally well be seen as a signal warning that Isis is learning the modern system of force deployment, if they are not already trained to do so. For it is not out of the realm of possibility that they are being trained by elite Republican Guard officers who were the only ones to put up a serious fight against invading US forces in 2003.

It recently surfaced that the Islamic State has acquired a number of advanced surface-to-air missile systems. Isis has used heat-seeking missiles to down Iraqi helicopters. It recently published an online guide describing how to use shoulder-fired missiles to down Apache attack helicopters. The US has refused to deploy these otherwise very effective platforms because of worries about their vulnerability to ground fire. Fixed winged aircraft, whether manned or drones, can provide air cover only for brief, intermittent periods. The adversary can seek cover when they hear the warplanes approaching, and resume their movement after they pass. Survivability rates for trained adversaries on the ground are thus very high, even in the face of an intense air campaign. At lower altitudes such as during take-off and landing, even fixed-winged aircraft are vulnerable to the aging Soviet-made SA-7 Manpads, which has been used often enough by Isis and other insurgent groups. Isis positions close to the Baghdad airport are thus a special headache. Isis militants may also have gained access to Chinese-made FN-6 missile systems, and even the more advanced Russian-made SA-24 Manpads which are effective against aircraft flying at cruising altitudes.

Not only are Isis fighters well-trained and well-armed, they are also learning how to operate in the face of US airpower. The Kurdish peshmerga and Iraqi troops are therefore unlikely to prevail against the Islamic State even with the support of US airpower. The United States’ controlled experiment is likely to fail. America will eventually have to place substantial boots on the ground. The plan put forward by Kimberly Kagan’s shop, the Institute for the Study of War, is sound. It calls for the deployment of 25,000 combat troops. That number will keep rising the longer Obama takes to realize the futility of the experiment.

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1. Andres, Richard B., Craig Wills, and Thomas E. Griffith Jr. “Winning with Allies: The Strategic Value of the Afghan Model.” (2006).

2. Biddle, Stephen D. “Allies, airpower, and modern warfare: The Afghan model in Afghanistan and Iraq.” (2006).

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