Pakistan-based rebel group is targeting nuclear facilities: India

NEW DELHI (AP)- India’s defense minister on Monday repeated a warning that Islamic militants based in Pakistan were targeting Indian nuclear, military and religious sites, a news agency reported.

Defense Minister Pranab Mukherjee told lawmakers that militants from Lashkar-e-Tayabba - a group believed to have links to al-Qaida - “are planning to carry out some strikes on critical infrastructure items, military targets and religious places,” according to the Press Trust of India.

There’s also intelligence reports indicating Lashkar is planning to attack nuclear installations in India, Mukherjee said.

His comments came three days after National Security Adviser M.K. Narayanan issued a similar warning, which was dismissed by Islamabad as an Indian attempt to defame Pakistan.

Lashkar is among the groups suspected of taking part in a string of bombings in India, including the July 11 Bombay train bombings, which killed 207 people.

Mukherjee told Parliament the government was taking the latest threats seriously.

“Necessary steps are being taken to protect our vital installations and other high-profile targets,” he said, without elaborating.

Banned in Pakistan and but reportedly still operating there openly, Lashkar is among the more than a dozen Islamic rebel groups fighting Indian rule in Kashmir. The rebels want the territory to be independent or merged with Pakistan, and New Delhi has long accused Islamabad of providing material aid and training to the insurgents. Pakistan says it only gives them diplomatic and moral support.

About 68,000 people have been killed in the conflict since it began in 1989.

Weapons and funding boost Hezbollah's power

Sarah Challands, CTV.ca News

Israel's efforts to wipe out the capabilities of Hezbollah are now focusing on the caves and tunnels of southern Lebanon's savage terrain and just this week, Israel confidently claimed it had destroyed half of the Islamic militant group's arsenal.

However, while Hezbollah continues to launch rockets capable of hitting cities deep inside Israel, some experts believe the Israeli claim is just wishful thinking.

With a charismatic and popular leader, superb military training, millions in funding and support from Iran and Syria, Hezbollah is a force that won't go quietly, if at all.

Indeed, the religious conviction of its guerrillas, their seasoned fighting experience and the support they have among Lebanon's 1.2 million Shiites are additional assets that could help ensure its long-term survival.

Rachad Antonius, a Middle East specialist at the University of Quebec, believes Israel's goal of wiping out Hezbollah is impossible to achieve.

"Hezbollah represents a very broad range of people and it's an important sector of the society," Antonius told CTV News.

"The only way to silence them would be to kill all the Lebanese in the south. Israel cannot do that."

Hezbollah has repeatedly met Israeli ground troops with heavy fire and recently succeeded in wiping out an Israeli tank and an armoured bulldozer with anti-tank missiles.

The militant group is believed to have rockets, possibly manufactured in Iran, with ranges of up to 45 miles and its deadly arsenal includes land mines, anti-aircraft guns, assault rifles and night vision equipment.

Ground troops
If Israel wants to succeed in pushing the group's rocket launchers back so they can no longer reach Israel, sending in ground troops is seen as a necessity.

But the ground offensive could be costly in terms of casualties and Hezbollah chief Sheik Hassan Nasrallah has made no secret of his wish to see his guerrillas take on Israeli troops eyeball-to-eyeball.

Nasrallah has also ridiculed Israel's claim to have wiped out '50 per cent' of Hezbollah's arsenal.

"The arsenal that you fear is still there ... and our ability to fire many, many more remains intact," he said.

And although Israel may have succeeded in disrupting Hezbollah's supply lines by bombing the main highway to Syria and imposing a naval blockade on Lebanon, Hezbollah has long proved adept at finding ways to receive and hide its weapons and funds.

Hezbollah's fighters are said to be mostly drawn from the local regions of southern Lebanon and can easily blend into the local population, relying on residents for food and shelter.

"Israel's biggest weakness is that it's ignorant of the magnitude of Hezbollah's resources," said Helmi Moussa in the Beirut newspaper As-Safir.

'Party of God'
Described by the United States as a terrorist organization, Hezbollah, or 'Party of God,' is a powerful political and military movement which represents Lebanon's Shiite Muslims.

It was established with financial backing from Iran in the early 1980s and was the only Lebanese political party to openly keep its arms at the end of the 1975-1990 civil war.

According to U.S. intelligence reports, Iran's Islamist government gives Hezbollah around $100 million a year and provides the movement with sophisticated weapons systems to be used by its several thousand well-trained soldiers.

Iran also sends advisers, and according to U.S. intelligence, issues its marching orders.

Meanwhile, Syria allows Hezbollah to train fighters in remote camps in Syria and territory under its control in Lebanon.

According to the FBI, Hezbollah has not played a role in any terrorist attacks within the United States.

The FBI says that its members in the U.S. are raising funds for activities overseas and nothing more than that.

Ending the Israeli occupation
Hezbollah's military arm, the Islamic Resistance, was a main force in driving Israeli troops from southern Lebanon after a 22-year occupation.

During the occupation, Hezbollah adopted the tactic of taking Western hostages, but their most effective weapons were the remote-controlled roadside bombs that were detonated when Israeli patrols passed by.

In 1983, militants who went on to join Hezbollah ranks carried out a suicide bombing attack that killed 241 U.S. marines in Beirut.

Israel, faced with mounting casualties after having already lost 900 soldiers in the conflict, withdrew in 2000, a decision that Hezbollah and many in Lebanon saw as a major Arab victory.

The group's success won it the support of many Lebanese, widespread admiration for Hezbollah chief Nasrallah, and a subsequent presence in the Lebanese parliament.

Terrorism expert Eric Margolis described Nasrallah as a "remarkable character."

Appearing on CTV News, Margolis said while Nasrallah was seen as "the great Satan" to the West and Israel, he was "the great hero" of the Arab world.

"He was the only Arab to defeat the Israelis militarily and he fought them out of southern Lebanon after years of bloody combat," he said.

"He is the most popular Lebanese politician and with this latest challenge to Israel, he is now quickly becoming the most looked at and probably the most popular Arab politician."

Hezbollah even has its own television station, Al Manar, which reaches a worldwide audience by satellite. The movement also runs a network of schools and hospitals throughout Lebanon.

Refusal to disarm
Despite a 2004 UN resolution ordering Hezbollah to disarm, the group is still believed to have anywhere between 5,000 to 20,000 militiamen under arms in Lebanon.

Last year, Hezbollah chief Nasrallah boasted his movement had more than 12,000 rockets, including Katyushas, which could reach northern Israel.

The movement has vowed to keep fighting as long as Israel remains in the Shebaa Farms area, a tiny disputed border enclave on the border between Lebanon, Israel and Syria's Israeli-occupied Golan Heights.

Lebanon says Shebaa Farms is Lebanese land occupied by Israel, but Israel, backed by the United Nations, insists the farms are on the Syrian side of the border and therefore form part of the Golan Heights, which Israel has occupied since 1967.

Syria agreed to withdraw its 14,000 troops from the country after the UN Security Council 2004 resolution, which demanded all foreign forces leave Lebanon.

The withdrawal of Syrian troops and the widespread anti-Syrian protests in the wake of the 2005 assassination of Lebanese ex-Prime Minister Rafik Hariri changed the balance of power.

The assassination, which was blamed on Syria, saw Hezbollah become the most powerful military force in Lebanon.

And while Hezbollah capitalized on its political gains, it continued to describe itself as a force of resistance against Israel, not only for Lebanon, but for the entire region.

The movement has called for the destruction of Israel, describing its occupation of Palestine as 'occupied Muslim land' and arguing the state has no right to exist.

Hezbollah has also frequently protested the continued detention of prisoners from Lebanon in Israeli jails.

It shows support not only for the Palestinians, but also for the Islamist militant group Hamas, while presenting itself as a champion of the anti-Israeli struggle.

Hezbollah's critics accuse it of recklessness and of pursuing a Syrian and Iranian, rather than a Lebanese, agenda.

Meanwhile, Damascus and Tehran, neither of whom want to be drawn directly into this fierce conflict, are anxiously attempting to deflect pressure from the Bush administration in Washington.

Mideast Stocks Hold Up Well Amid Conflict

Investors From Persian Gulf Region Seem Unconcerned by Instability; Israeli Shares Post Slight Gain
By Karen Richardson in New York and Yasmine El-Rashidi in Cairo
THE WALL STREET JOURNAL

THE ISRAELI-LEBANESE conflict has been weighing on stock markets throughout the world for the past couple of weeks -- except in some of those countries closest to the conflict.

Investors from nearby Persian Gulf countries tend to draw sharp distinctions between their home markets and those located westward on the same continent.

"Lebanon is far away," says Waleed Abdullah, a sales manager in Sharjah, one of the United Arab Emirates, who has been buying stocks in neighboring Dubai and Abu Dhabi. "Our investments here aren't affected really by what happens there."

For investors like Mr. Abdullah, conflict in the Middle East means one thing: higher oil prices. "It's always good for us," he says.

Israeli stocks and some other Mideast markets have held up relatively well, too, since Hezbollah forces captured two Israeli soldiers July 12, sparking retaliation by Israel.

Foreign investors, including U.S. and European money managers, don't see things the same way. For them, the higher oil price -- and the possibility of an outright war that could pull in other countries -- has added to their concerns about stock investing at home and abroad.

Friday, the Dow Jones Industrial Average finished at 10868.38, up just over 1% for the week despite a rally of more than 200 points Wednesday. While that was the second-best one-day gain the index has registered all year, it came after two straight days of sizable drops as fighting intensified in the Gaza Strip and Lebanon. The Standard & Poor's 500-stock index eked out a gain of 0.3% for the week, while the Nasdaq Composite Index fell for the third straight week, dropping 0.8% to its lowest close since May 2005.

While U.S. investors remained most concerned with the Federal Reserve's interest-rate strategy -- and specifically whether the central bank will snuff out economic growth in an effort to keep a lid on inflation -- they continue to cast a wary eye abroad.

Few like what they see, including the typically hardy emerging-market investors whose purchases of stocks last year in Saudi Arabia, the U.A.E. and other markets made the Persian Gulf one of the world's fastest-growing stock arenas. Most of these Western investors pulled out in the first quarter over concerns that the markets had overheated, and they aren't returning anytime soon.

"This just isn't an environment where you'd get rewarded," says Stephen Auth, who oversees some $29 billion as chief investment officer of Federated Investors Inc. in Pittsburgh. "You've just got to have an enormous appetite for risk to be investing there."

One reason most Gulf markets are holding up so well despite the escalating fighting is that they fell so far earlier this year. Over a period of a few weeks in February and March some of the Gulf markets lost as much as a quarter of their value.

Both the Dubai Financial Market and the Abu Dhabi Securities Market -- the U.A.E. exchanges dominated by investors from the region -- rebounded in recent days before ending slightly lower Thursday, the end of the business week for most markets in the region. Elsewhere, Qatar's Doha Securities Market closed flat for the week, and Kuwaiti stocks lost just over 1% on the week. In Saudi Arabia, the benchmark Tadawul Index shed over 6%, but the Saudi stock market -- the largest in the Gulf -- is widely viewed to have risen too quickly after doubling in 2005 and has been falling all year.

Yesterday, the Saudi market rose sharply, while Kuwaiti stocks eased, and Doha was little changed.

In Israel, the Tel Aviv 100 index is actually up about 1% since July 12. Israel's main stock exchange is home to a number of companies that also trade in the U.S., such as food retailer Blue Square Israel, telecommunications and electronics company Koor Industries and clothing maker Tefron.

Global investors have tended to invest sparingly in the Gulf markets even in the best of times. The same is true for the Middle East: Together the markets of Egypt, Israel, Jordan and Morocco account for just 0.29% of the Morgan Stanley Capital International All-Country World Index, a benchmark for many large global stock investors.

"We're talking about less than 1% of the world's equity markets being affected by the Mideast conflict," says Larry Smith, who manages about $400 million as chief investment officer of Third Wave Global Investors in Greenwich, Conn. "It's de minimis."

The Egyptian market has fallen 7.2% since July 12 through Friday. The Jordanian market has lost 4.2% through Thursday, and the benchmark Moroccan index has shed 2.5%.

What foreign investment there is tends to come from hedge funds looking for an edge. Some of these privately managed pools of money make short-term trades that benefit from geopolitical instability.

Experienced foreign investors do see differences among markets in the region, pointing to Dubai's prominence as a financial center and Israel's world-class tech companies. Yet they still fear political and religious conflict in ways that the region's investors who have lived with these overhangs their whole lives often don't.

"I would continue to avoid these markets now," says Howard Schwab, portfolio manager of the Driehaus International Opportunities and Global Equity Yield funds in Chicago.

Mr. Schwab doesn't own any Persian Gulf stocks and hasn't owned an Israeli stock for about seven or eight months. He would consider investing in Asian or European companies with business exposure to the Middle East to gain exposure to the region.

Both foreign and regional investors also agree that should conflict spread to include Syria, Egypt or Iran, all markets in the region -- if not the world -- would suffer.

Israel set war plan more than a year ago

Strategy was put in motion as Hezbollah began gaining military strength in Lebanon

Matthew Kalman
CHRONICLE FOREIGN SERVICE

Jerusalem -- Israel's military response by air, land and sea to what it considered a provocation last week by Hezbollah militants is unfolding according to a plan finalized more than a year ago.

In the six years since Israel ended its military occupation of southern Lebanon, it watched warily as Hezbollah built up its military presence in the region. When Hezbollah militants kidnapped two Israeli soldiers last week, the Israeli military was ready to react almost instantly.

"Of all of Israel's wars since 1948, this was the one for which Israel was most prepared," said Gerald Steinberg, professor of political science at Bar-Ilan University. "In a sense, the preparation began in May 2000, immediately after the Israeli withdrawal, when it became clear the international community was not going to prevent Hezbollah from stockpiling missiles and attacking Israel. By 2004, the military campaign scheduled to last about three weeks that we're seeing now had already been blocked out and, in the last year or two, it's been simulated and rehearsed across the board."

More than a year ago, a senior Israeli army officer began giving PowerPoint presentations, on an off-the-record basis, to U.S. and other diplomats, journalists and think tanks, setting out the plan for the current operation in revealing detail. Under the ground rules of the briefings, the officer could not be identified.

In his talks, the officer described a three-week campaign: The first week concentrated on destroying Hezbollah's heavier long-range missiles, bombing its command-and-control centers, and disrupting transportation and communication arteries. In the second week, the focus shifted to attacks on individual sites of rocket launchers or weapons stores. In the third week, ground forces in large numbers would be introduced, but only in order to knock out targets discovered during reconnaissance missions as the campaign unfolded. There was no plan, according to this scenario, to reoccupy southern Lebanon on a long-term basis.

Israeli officials say their pinpoint commando raids should not be confused with a ground invasion. Nor, they say, do they herald another occupation of southern Lebanon, which Israel maintained from 1982 to 2000 -- in order, it said, to thwart Hezbollah attacks on Israel. Planners anticipated the likelihood of civilian deaths on both sides. Israel says Hezbollah intentionally bases some of its operations in residential areas. And Hezbollah's leader, Hassan Nasrallah, has bragged publicly that the group's arsenal included rockets capable of bombing Haifa, as occurred last week.

Like all plans, the one now unfolding also has been shaped by changing circumstances, said Eran Lerman, a former colonel in Israeli military intelligence who is now director of the Jerusalem office of the American Jewish Committee.

"There are two radical views of how to deal with this challenge, a serious professional debate within the military community over which way to go," said Lerman. "One is the air power school of thought, the other is the land-borne option. They create different dynamics and different timetables. The crucial factor is that the air force concept is very methodical and almost by definition is slower to get results. A ground invasion that sweeps Hezbollah in front of you is quicker, but at a much higher cost in human life and requiring the creation of a presence on the ground."

The advance scenario is now in its second week, and its success or failure is still unfolding. Whether Israel's aerial strikes will be enough to achieve the threefold aim of the campaign -- to remove the Hezbollah military threat; to evict Hezbollah from the border area, allowing the deployment of Lebanese government troops; and to ensure the safe return of the two Israeli soldiers abducted last week -- remains an open question. Israelis are opposed to the thought of reoccupying Lebanon.

"I have the feeling that the end is not clear here. I have no idea how this movie is going to end," said Daniel Ben-Simon, a military analyst for the daily Haaretz newspaper.

Thursday's clashes in southern Lebanon occurred near an outpost abandoned more than six years ago by the retreating Israeli army. The place was identified using satellite photographs of a Hezbollah bunker, but only from the ground was Israel able to discover that it served as the entrance to a previously unknown underground network of caves and bunkers stuffed with missiles aimed at northern Israel, said Israeli army spokesman Miri Regev.

"We knew about the network, but it was fully revealed (Wednesday) by the ground operation of our forces," said Regev. "This is one of the purposes of the pinpoint ground operations -- to locate and try to destroy the terrorist infrastructure from where they can fire at Israeli citizens."

Israeli military officials say as much as 50 percent of Hezbollah's missile capability has been destroyed, mainly by aerial attacks on targets identified from intelligence reports. But missiles continue to be fired at towns and cities across northern Israel.

"We were not surprised that the firing has continued," said Tzachi Hanegbi, chairman of the Knesset Foreign Affairs and Defense Committee. "Hezbollah separated its leadership command-and-control system from its field organization. It created a network of tiny cells in each village that had no operational mission except to wait for the moment when they should activate the Katyusha rocket launchers hidden in local houses, using coordinates programmed long ago to hit Nahariya or Kiryat Shemona, or the kibbutzim and villages."

"From the start of this operation, we have also been active on the ground across the width of Lebanon," said Brig. Gen. Ron Friedman, head of Northern Command headquarters. "These missions are designed to support our current actions. Unfortunately, one of the many missions which we have carried out in recent days met with slightly fiercer resistance."

Israel didn't need sophisticated intelligence to discover the huge buildup of Iranian weapons supplies to Hezbollah by way of Syria, because Hezbollah's patrons boasted about it openly in the pages of the Arabic press. As recently as June 16, less than four weeks before the Hezbollah border raid that sparked the current crisis, the Syrian defense minister publicly announced the extension of existing agreements allowing the passage of trucks shipping Iranian weapons into Lebanon.

But to destroy them, Israel needed to map the location of each missile.

"We need a lot of patience," said Hanegbi. "The (Israeli Defense Forces) action at the moment is incapable of finding the very last Katyusha, or the last rocket launcher primed for use hidden inside a house in some village."

Moshe Marzuk, a former head of the Lebanon desk for Israeli Military Intelligence who now is a researcher at the Institute for Counter-Terrorism in Herzliya, said Israel had learned from past conflicts in Lebanon, the West Bank and Gaza -- as well as the recent U.S. experiences in Afghanistan and Iraq -- that a traditional military campaign would be counter-effective.

"A big invasion is not suitable here," said Marzuk. "We are not fighting an army, but guerrillas. It would be a mistake to enter and expose ourselves to fighters who will hide, fire off a missile and run away. If we are to be on the ground at all, we need to use commandos and special forces."
Since fighting started

-- Israeli air strikes on Lebanon have hit more than 1,255 targets, including 200 rocket-launching sites.

-- Hezbollah launched more than 900 rockets and missiles into northern Israel.

-- At least 330 Lebanese have been killed, including 20 soldiers and three Hezbollah guerrillas. Lebanese Prime Minister Fuad Saniora says 1,100 have been wounded; the police put the number at 657.

-- 32 Israelis have been killed, among them 17 soldiers, according to Israeli authorities. At least 12 soldiers and 344 civilians have been wounded.

-- Foreign deaths include eight Canadians, two Kuwaiti nationals, one Iraqi, one Sri Lankan and one Jordanian.

Foreign companies buy U.S. roads, bridges

by Leslie Miller

WASHINGTON --Roads and bridges built by U.S. taxpayers are starting to be sold off, and so far foreign-owned companies are doing the buying.

On a single day in June, an Australian-Spanish partnership paid $3.8 billion to lease the Indiana Toll Road. An Australian company bought a 99-year lease on Virginia's Pocahontas Parkway, and Texas officials decided to let a Spanish-American partnership build and run a toll road from Austin to Seguin for 50 years.

Few people know that the tolls from the U.S. side of the tunnel between Detroit and Windsor, Canada, go to a subsidiary of an Australian company -- which also owns a bridge in Alabama.

Some experts welcome the trend. Robert Poole, transportation director for the conservative think tank Reason Foundation, said private investors can raise more money than politicians to build new roads because these kind of owners are willing to raise tolls.

"They depoliticize the tolling decision," Poole said. Besides, he said, foreign companies have purchased infrastructure in Europe for years; only now are U.S. companies beginning to get into the business of buying roads and bridges.

Gas taxes and user fees have fueled the expansion of the nation's highway system. Thousands of miles of roads built since the 1950s changed the landscape, accelerating the growth of suburbia and creating a reliance on motor vehicles to move freight, get to work and take vacations.

In 1956, President Eisenhower pushed to create the interstate highway system for a different: to move troops and tanks and evacuate civilians.

The Bush administration's plan to let a foreign company manage U.S. ports met a storm of protest in February. But plans to sell or lease highways to companies outside the United States have not met such resistance.

John Foote, senior fellow at Harvard's Kennedy School of Government, said the government can take over a highway in an emergency. But he objects to selling roads to raise cash.

But that is just what Chicago has done.

Last year, the city sold a 99-year lease on the eight-mile Chicago Skyway for $1.83 billion. The buyer was the same consortium that leased the Indiana Toll Road -- Macquarie Infrastructure Group of Sydney, Australia, and Cintra Concesiones de Infraestructuras de Transporte of Madrid, Spain.

Chicago used the money to pay off debt and fund road projects. Skyway tolls rose 50 cents, to $2.50; By 2017, they will reach $5.

The Indiana Toll Road lease is a better deal, Foote thinks, because the proceeds will pay for urgent projects such as road and bridge improvements.

That need is precisely why cities and states have begun to look to foreign investors.

Between 1980 and 2004, people drove 94 percent more highway miles, according to Federal Highway Administration statistics. But the number of new highway lane miles rose by only 6 percent.

Washington is not likely to produce more money to build roads. The federal highway fund -- which will have a balance of about $16 billion by the end of 2006 -- will run out in 2009 or 2010, according to White House and congressional estimates.

About half the states now let companies build and operate roads. Many changed their laws recently to do so.

So Illinois lawmakers are examining privatizing the Illinois Tollway, New Jersey lawmakers are considering selling 49 percent of the state's two big toll roads and a gubernatorial candidate in Ohio wants to sell the turnpike.

Indiana Gov. Mitch Daniels, who championed his state's toll road deal, now wants investors to build and operate a toll road from Indianapolis to Evansville.

Patrick Bauer, the Indiana House's Democratic leader, says such deals are taxpayer rip-offs.

Bauer believes Macquarie-Cintra could make $133 billion over the 75-year life of the Indiana Toll Road lease -- for which Indiana got $3.8 billion.

"In five, maybe 10 years, all that money is gone, and the tolls keep rising and the money keeps flowing into the foreign coffers," Bauer said.

Orange County, Calif., got burned by a toll-road lease for a different reason.

The road, part of state Route 91, was built and run for $130 million by California Private Transportation Company, partly owned by France-based Compagnie Financiere et Industrielle des Autoroutes. The toll road opened in 1995.

Seven years later, Orange County was looking at gridlock. But it could not build more roads because of a provision in the lease. So it bought back the lease -- for $207.5 million.

To encourage more domestic investment in highways, former Transportation Secretary Norman Y. Mineta made a pitch to Wall Street on May 23.

"The time is now for United States investors -- including our financial, construction and engineering institutions -- to get involved in transportation investments," said Mineta, who left office July 7.

U.S. companies are getting the message.

San Antonio-based Zachry Construction Co., along with Cintra, received approval on June 29 for a 50-year lease to build and run a toll road from Austin to Seguin for $1.3 billion.

That is part of Texas Gov. Rick Perry's vision to attract more than $80 billion in private funds for roads by 2030. He wants a new tollway from Oklahoma to Mexico and the Gulf Coast, and one from Shreveport, La., and Texarkana to Mexico. Cintra-Zachry reached a $7.2 billion deal last year to develop the project's first phase. The announcement of a $1.3 billion deal in June was part of that $7.2 billion agreement, said Perry's spokesman, Robert Black.

"In Texas, our population is going to double in the next 40 years and our current infrastructure can't handle that growth," Black said.

Not everyone in Texas buys the idea. Harris County officials recently voted against selling three toll roads. Also, independent gubernatorial candidate Carole Keeton Strayhorn opposes Perry's toll road plan.

"Texas freeways belong to Texans, not foreign companies," she said.

Hezbollah Photos

Shell commits to coal in China oil joint venture

By Richard McGregor
12 July 2006
FINANCIAL TIMES

Royal Dutch Shell and a Chinese partner yesterday committed to a formal study of a coal-to-liquids facility in China's western Ningxia province, a project that would represent one ofthe largest foreign investments in the country if it proceeds.

Mr Lim Haw Kuang, the executive chairman of Shell in China, said at a ceremony to launch the project that a plant of the size envisaged by the partners would cost Dollars 5bn (Pounds 2.7bn) to Dollars 6bn to build.

The study will take three years.

A Shell spokesman said that this figure was only a preliminary estimate and should not be taken as a guide to the final cost of such a project.

The Shell joint venture is part of an investment surge into CTL plants in China, driven by the conjunction of the country's abundant coal, rising energy demand and record oil prices.

Just under 30 coal-to-oil projects are in the detailed planning or feasibility stage in China, according to a report by CSFB, the international bank, with a projected output equivalent to 10 per cent of the country's present oil demand.

The costly, capital-intensive CTL plants are generally considered to become economic with the oil price above Dollars 35 to Dollars 40 a barrel, something that the industry thinks increasingly is a good bet.

Coal is China's "realstrategic (energy) reserve", said the CSFB report, because it could all be sourced locally rather than imported.

China also has another 30 coal-to-methanol plants under construction or going through the approval process as well.

Shell's partner in the Ningxia project is a unit of the Shenhua Group, China's largest coal company, which is growing rapidly onthe back of the boom in China in demand for traditional fuels.

State-owned Shenhua has already announced plans to transform from a mere coal mining company into a producer of power, oil, chemicals and methanol.

Shell, which is a leader in liquefaction technology, has licensed its technology to 15 projects already in China and has one plant with Sinopec, part of China's leading petrochemicals group, under construction.

"We have proven technology that converts coal to gas and then gas to liquids - we believe this technology is important to China," said Mr Lim.

The proposed Shell-Shenhua plant in Ningxia would produce the equivalent of about 70,000 barrels a day, about equal to 1 per cent of Chinese oil demand, now slightly more than 7m barrels a day.

The technology to turn coal into gas and oil was invented in the 1920s by the Germans, who used it to power their military during the second world war.

More recently, it was refined by South Africa in the 1980s when the country was under apartheid-era sanctions.

The Agent

Did the C.I.A. stop an F.B.I. detective from preventing 9/11?

by Lawrence Wright

On October 12, 2000, in the deep-water port of Aden, Yemen, the U.S.S. Cole, a guided-missile destroyer weighing eighty-three hundred tons, was docked at a fuelling buoy. The Cole, which cost a billion dollars to build, was one of the most “survivable” ships in the U.S. Navy, with seventy tons of armor, a hull that could withstand an explosion of fifty-one thousand pounds per square inch, and stealth technology designed to make the ship less visible to radar. As the Cole filled its tank, a fibreglass fishing boat containing plastic explosives approached. Two men brought the skiff to a halt amidships, smiled and waved, then stood at attention. The symbolism of this moment was exactly what Osama bin Laden, the leader of Al Qaeda, had hoped for when he approved a plan to attack an American naval vessel. “The destroyer represented the West,” bin Laden said later. “The small boat represented Muhammad.”

The shock wave from the blast shattered windows onshore. Two miles away, people thought there had been an earthquake. The fireball that rose from the waterline swallowed a sailor who had leaned over the rail to see what the men in the skiff were up to. The blast opened a hole, forty feet by forty feet, in the port side of the ship, tearing apart sailors belowdecks who were waiting for lunch. Seventeen of them perished, and thirty-nine were wounded. Several sailors swam through the blast hole to escape the flames. The great man-of-war looked like a gutted animal.

It was Al Qaeda’s second successful strike against American targets. In August, 1998, operatives had bombed the United States Embassies in Kenya and Tanzania simultaneously, killing two hundred and twenty-four people. Yet an important part of the Cole plot had failed: Fahd al-Quso, a member of A1 Qaeda’s support team in Aden, was supposed to videotape the blast for propaganda purposes, but he slept through a morning alarm and did not set up his camera in time. Quso was in a taxi at the moment of the explosion, and he immediately went into hiding.

Shortly after the attack, Ali Soufan, a twenty-nine-year-old Lebanese-American, was driving across the Brooklyn Bridge when he received a page from the New York office of the F.B.I., where he was employed as a special agent. He was told to report to work at once. At the time, Soufan was the only F.B.I. agent in the city who spoke Arabic, and one of only eight in the country. He had joined the New York office in the fall of 1997, and his talents were quickly spotted by John O'Neill, the head of the F.B.I.’s National Security Division, which is devoted to combatting terrorism. The following February, when bin Laden issued a fatwa declaring war on America, Soufan wrote a trenchant report on Islamic fundamentalism that O’Neill distributed to his supervisors. After the 1998 embassy bombings, Soufan helped assemble the initial evidence linking them to bin Laden. Soufan’s language skills, his relentlessness, and his roots in the Middle East made him invaluable in helping the F.B.I. understand Al Qaeda, an organization that few Americans were even aware of before the embassy bombings. O’Neill, who had joined the F.B.I. twenty-five years earlier, referred to the young agent as a “national treasure.” Despite Soufan’s youth and his relatively short tenure, 0’Neill placed him in charge of the Cole investigation. As it turned out, Soufan became America’s best chance to stop the attacks of September 11th.


Soufan speaks rapidly, and there is still a hint of Lebanon in his voice. He has an open face and an engaging smile, although there are circles under his eyes from too many long nights. Soufan is a Muslim, but he doesn’t follow any particular school of Islam; instead, he is drawn to mystical thought, especially that of Kahlil Gibran, the Lebanese- American poet. He told me that he has an interest in the Kabbalah, because “it appeared at a time when the political environment for the Jews was so harsh that they used this philosophy to escape their anguish.” When he wants to relax, he watches reruns of "Seinfeld”-he’s seen every episode three or four times-or Bugs Bunny cartoons. One of his favorite writers is Karen Armstrong, whose biographies of Muhammad and the Buddha knit together history and religion in a way that makes sense to him.

Soufan grew up in Lebanon during the calamitous civil war, when cities were destroyed and terrorists were empowered by lawlessness and chaos. His father was a journalist in Beirut, and as a child Soufan helped out at the business magazine his father produced, often carrying galleys to the printshop. In 1987, when Soufan was sixteen, the family moved to the United States. Sou fan’s most vivid initial impression of his adopted country was that it was safe. “Also, it allowed me to dream,” he said.

Soufan lived in Pennsylvania, and he never suffered from prejudice because he was a Muslim Arab. In high school, he won many academic awards. He attended Mansfield University, in central Pennsylvania, where he was elected president of the student government. In 1997, he received a master’s degree in international relations from Villanova University, outside Philadelphia. He initially planned to continue his studies in a Ph.D. program. But he had developed a fascination with the U.S. Constitution- in particular, with its guarantees of freedom of speech, religion, and assembly, and the right to a speedy trial. ‘People who are born into this system may take it for granted,” he said. “You - don’t know how important these rights are if you haven’t lived in a country where you can be arrested or killed and not even know why.” Like many naturalized citizens, Soufan felt indebted for the new life he had been given. Although he was poised for an academic career, he decided-”almost as a joke,” he says-to send his resume to the F.B.I. He thought it was nearly inconceivable that the bureau would hire someone with his background. Yet in July, 1997, a letter arrived instructing him to report to the F.B.I. Academy, in Quantico, Virginia, in two weeks.

Upon graduation, Soufan went to the New York bureau. He was soon assigned to the 1-40 squad, which concentrated mainly on the Islamist paramilitary group Hamas, but, in 1998, on the day after the East African embassy bombings, O’Neill drafted him into I-49, which had become the lead unit in the F.B.I.’s investigation of Al Qaeda.

O’Neill was one of a few top managers in the F.B.I. who recognized early the danger that Al Qaeda posed to America. His intensity was unyielding, and his manner was often abrasive; he could be brutal not only to those under him but to superiors who he felt were not fully committed to an investigation. Soufan proved to be a tireless ally, willing to work nights and holidays. “0’Neill adored him, and Ah felt the same way,” Carlos Fernandez, an agent who knew both men well, observed. “They were equals, in many ways. If you say something to All, hell remember it, word for word, ten years from now. John was also great at remembering names and connecting the dots. They could go on for hours, putting things together.” The fact that a novice like Soufan had direct access to O’Neill aroused some resentment among the other agents, but the bureau had nobody else with his skills and dedication. “John and I often talked about the need to clone Ali,” Kenneth Maxwell, an F.B.I. official who was then Soufan’s superior, told me.

The afternoon of the Cole bombing, Soufan and a few dozen other agents flew to Yemen to begin looking for evidence that could be used against A1 Qaeda in court. (A larger contingent, which included O’Neill, was held up in Germany for a week, waiting for permission to enter the country.) Yemen was a particularly difficult place to start a terrorist investigation, as it was filled with active Al Qaeda cells and with sympathizers at very high levels of government. On television, Yemeni politicians called for jihad against America. When the agents landed in Aden, the day after the attack, Soufan looked out at a detachment of the Yemen Special Forces, who wore yellow uniforms with old Russian helmets; each soldier was aiming an AK-47 at the U.S. plane. A jittery, twelve-man hostage-rescue team, which had been sent along to protect the F.B.I. agents, responded by brandishing their M4s and handguns. Soufan realized that everyone might die on the tarmac if he didn’t do something quickly. He opened the plane’s door. One Yemeni soldier was holding a walkie-talkie. Soufan walked directly toward him, carrying a bottle of water as the guns followed him. It was a hundred and ten degrees outside.

“You look thirsty,” Soufan said, in Arabic, to the officer with the walkie-talkie. He handed him the bottle.

“Is it American water?” the officer asked.

Soufan assured him that it was, adding that he had American water for the other soldiers as well. The Yemenis considered the water such a precious commodity that some would not drink it. With this simple act of friendship, the soldiers lowered their weapons.

Soufan divided the agents on the ground into four teams. The first three were responsible for forensics, intelligence, and security, the last was devoted to exchanging information with Yemeni authorities. Just getting permission from the Yemeni government to go to the crime scene-the wounded warship in the Aden harbor-required lengthy negotiations with hostile officials. Security was a great concern, considering that automatic weapons were ubiquitous in the country, especially in rural areas, but Barbara Bodine, the American Ambassador, refused to allow the agents to carry heavy - arms. She was concerned about offending the Yemeni authorities.

When Soufan and the investigators visited the ship, clumps of flesh were strewn belowdecks, amid the tangled mass of wire and metal. F.B.I. divers, hoping to make DNA identifications of the victims and the bombers, netted body parts floating in the waters around the ship. Looking through the huge blast hole, Soufan could see the mountainous, ancient city of Aden, rising above the curved harbor like a classical ampitheatre. He figured that, somewhere in the city, a camera had been set up to record the explosion, since terrorists regularly documented their work. Although the bombers were likely dead, a cameraman might still be at large.

When O’Neill finally arrived in Aden with the other agents, he was puzzled, upon getting off the plane, ti see the Yemeni soldiers saluting. “I told them you were a general,” Soufan explained to him.

Yemen is a status-conscious society, and, because Soufan had promoted O’Neill to “general,” his counterpart was General Ghalib Qamish, the head of Yemeni intelligence. Every night, when the Yemeni authorities did business, Soufan and 0’Neill spent hours pushing for access to witnesses, evidence, and crime scenes. Initially, the Yemenis told them that, since both of the bombers were dead, there was nothing to investigate. But who gave them money? Soufan asked. Who provided the explosives? The boat? He gently prodded the Yemenis to help him.

A few days after the bombing, the Yemenis brought in two known associates of bin Laden’s for questioning. One was named Jamal Badawi; the other was Fahd al-Quso, the man who had failed to videotape the Cole attack. Both men were Yemeni citizens. QUSO, who ran a guesthouse in Aden for jihadis, had turned himself in after family members were questioned. He did not admit his role in the Cole plot, but he and Badawi confessed that they had recently travelled to Afghanistan, and had met there with a one-legged jihadi named Khallad. Badawi said that he had bought a boat for Khallad, who, he explained, had wanted to go into the fishing business. The Yemenis eventually determined that this was the boat used in the Cole bombing.

When Soufan heard that Quso had mentioned the name Khallad, he was startled: he had heard it from a source he had recruited a few years earlier, in Afghanistan. The source had told him that he had met a fighter in Kandahar with a metal leg who was one of bin Laden’s top lieutenants. When Soufan asked to speak to Quso and Badawi, the Yemenis told him that the men had sworn on a Koran that they were innocent of any crime. For them, that settled the matter.

Soufan and O’Neill knew that General Qamish represented their best hope of gaining any cooperation. He was a small, gaunt man whose face reminded Soufan of Gandhi’s. Despite the tensions between the two sides, Qamish had begun calling his American colleagues Brother John and Brother Ali. One night, O’Neill and Soufan spent many hours asking Qamish for passport photographs of suspected plotters, especially that of Khallad. He said repeatedly that the F.B.I. was not needed on the case, but O’Neill and Soufan pointed out that the sooner they could interrogate suspects linked to the Cole bombing the sooner they might obtain intelligence that could destroy Al Qaeda. The following night, Qamish announced, “I have your photos for you.” Soufan immediately sent Khallad’s photo to the C.I.A. He also faxed it to an F.B.I. agent in Islamabad, Pakistan; the agent showed it to Soufan’s source in Afghanistan, who identified the man as Khallad, the Al Qaeda lieutenant. This suggested strongly that Al Qaeda was behind the Cole attack.

Another break came that same evening, when a twelve-year-old boy named Hani went to the local police. He said that he had been fishing on a pier when the bombers placed their skiff in the water. One of the men had paid the boy a hundred Yemeni riyals—about sixty cents—to watch his Nissan truck and boat trailer, but he never returned. When the police heard Hani’s story, they locked him in jail and arrested his father as well.

After repeated requests, the Americans got permission to interview the boy and to examine the launch site. Hani was scared, but he provided a description of the bombers: one was heavy, and the other was “handsome.” An Arabic-speaking naval investigator named Robert McFadden offered the boy some candy. He then said that the bombers had invited him and his family to take a ride in the boat, which was white, with red carpeting on the floor. When Soufan heard this, he deduced that the bombers had been trying to determine how much weight the skiff could carry.

The abandoned truck and trailer were still at the launch site. It was a major mistake on the part of Al Qaeda not to have retrieved them. By checking registration records, investigators connected the truck and trailer to a house in a neighborhood of Aden called Burayqah. When Soufan went to the house, which was surrounded by a wall and a gate, he had an eerie feeling: this residence had a striking resemblance to the house in Nairobi where the bomb for the 1998 embassy attack had been made. Inside, in the master bedroom, there was a prayer rug oriented to the north, toward Mecca. The bathroom sink was full of body hair, the bombers had shaved and performed ritual ablutions before going to their deaths. Soufan’s men collected a razor and hair samples, which might provide the F.B.I. with the DNA evidence necessary to establish the identity of the killers. (So far, the investigators at the Cole site had found only a couple of bone fragments that didn’t belong to American sailors.)

Investigators found that another house in Aden had been rented by the terrorists; it was registered to “Abda Hussein Muhammad.” The name was dimly familiar to Soufan. At one point during the Nairobi investigation, a witness had mentioned an Al Qaeda operative named Nasheri who had proposed attacking an American vessel in Aden. Soufan did some research and discovered that Nasheri’s full name was Abdul Rahim Muhammad Hussein Abda al-Nasheri. The middle names were the same, just reversed. Soufan’s hunch paid off when American agents discovered a car in Aden that was registered to Nasheri. It was another strong link between A1 Qaeda and the Cole attack.


couple of weeks after the bombing, Yemeni authorities placed Badawi A and Quso, the two Al Qaeda operatives, under arrest, apparently as a precaution. Soufan continued to press General Qamish to let him interrogate the men directly, and finally, after several weeks, Qamish relented.

Soufan spent hours preparing for the encounters, with the goal of finding some common ground with his subjects. Often, the bond centered on religion. “Ali was very spiritual,” Carlos Fernandez recalled. “In Yemen, he was reading the Koran at night. He would talk to these guys about their beliefs. Sometimes, he would actually convince them that their understanding of Islam was all wrong.”

In the interrogation of Badawi, Soufan learned that the skiff had been purchased in Saudi Arabia. Soufan questioned Quso over the course of several days. Quso was small, wiry, and insolent, with a wispy beard that he kept tugging on. Before Soufan could even begin, a local intelligence official came into the room and kissed Quso on both cheeks—a shocking signal that the security services were sympathetic to the jihadis. McFadden, who participated in the interrogations, recalled that Soufan was not intimidated. He said, “Ali was a natural interviewer, and he was able to dislodge Quso from his circle of comfort.” Eventually, Quso began to open up. He had been in Afghanistan, and boasted that he had fought beside bin Laden. He said that bin Laden had inspired him with his speeches about expelling the infidels from the Arabian peninsula-in particular, American troops stationed in Saudi Arabia.

Soufan asked if Quso ever planned to get married. A shy, embarrassed smile appeared. “Well, then, help yourself out,” Soufan urged him. “Tell me something.”

Finally, Quso admitted that he was supposed to film the bombing but had overslept. (The Yemenis later found a video camera at his sister’s house.) He also said that several months before the Cole attack he and one of the bombers had delivered thirty-six thousand dollars to Khallad, the one-legged Al Qaeda lieutenant, in Bangkok. The money, Quso added, was meant only to buy Khallad a new prosthesis.

Soufan was suspicious of this explanation. Why had Al Qaeda sent money out of Yemen just before the Cole bombing took place? Money always flowed toward an operation, not away from it. He wondered if Al Qaeda had a bigger plot under way.

The C.I.A. had officials in Yemen to collect intelligence about Al Qaeda, and Soufan asked them if they knew anything about a new operation, perhaps in Southeast Asia. They professed to be as puzzled as he was. In November, 2000, a month after the Cole bombing, Soufan sent the agency the first of several official queries. On Soufan’s behalf, the director of the F.B.I. sent a letter to the director of the C.I.A., formally asking for information about Khallad, and whether there might have been an A1 Qaeda meeting somewhere in Southeast Asia before the bombing. The agency said that it had nothing. Soufan trusted this response; he thought that he had a good working relationship with the agency.

Quso had told Soufan that when he and the Cole bomber went to Bangkok to meet Khallad they had stayed in the Washington Hotel. F.B.I. agents went through phone records to verify his story. They found calls between the hotel and Quso’s house, in Yemen. They also noticed that there were calls to both daces 1 from a pay phone in Kuala Lumpur, Malaysia. In April, 2001, Soufan sent another official teletype to the C.I.A., along with the passport photo of Khallad. He asked whether the telephone numbers had any significance, and whether there was any connection between the numbers and Khallad. The C.I.A. said that it could not help him.

In fact, the C.I.A. knew a lot about Khallad and his ties to Al Qaeda. The F.B.I. and the C.I.A. have long quarrelled over bureaucratic turf, and their mandates place them at odds. The ultimate goal of the bureau in gathering intelligence is to gain convictions for crimes; for the agency, intelligence itself is the object. If the agency had responded candidly to Soufan’s requests, it would have revealed its knowledge of an A1 Qaeda cell that was already forming inside the United States. But the agency kept this intelligence to itself.


“I come from a generation of F.B.I. agents who have always worked closely with the C.I.A.,” Soufan told me. At the time he joined the bureau, law enforcement had become internationalized. In the nineteen-nineties, his mentor, O’Neill, had established close relations with foreign police services, an approach that sometimes encroached on the C.I.A.’s territory. In 1999, 0’Neill sent Soufan and his supervisor, Pasquale D’Amuro, to Jordan, where authorities had discovered that jihadis linked to A1 Qaeda were plotting to bomb tourist sites and hotels. Information that the Jordanians shared with Soufan made him realize that the intelligence that the C .LA. was reporting was deeply flawed. His analysis forced local C.I.A. representatives to withdraw twelve cables that they had sent to agency headquarters. On the floor of the C.I.A.’s station in Amman, Soufan discovered a box of evidence that had been given to the agency by Jordanian intelligence. Such evidence is what the F.B.I. needs in order to mount prosecutions, and no one had examined the box’s contents or turned it over to the bureau. In the box, Soufan found a map of the proposed bomb sites, which proved crucial in the prosecutions of twenty-eight plotters in Jordan, twenty-two of whom were convicted. Soufan’s success embarrassed the C.I.A., deepening the rift between the two institutions. “The C.I.A. people couldn’t stand the fact that Ali’s opinion and analysis were correct,” an F.B .I. counterterrorism official who worked with Soufan told me. “He was an Arabic speaker and an F.B.I. agent on the ground who was running circles around them.”

Nevertheless, the C.I.A. recognized Soufan’s abilities and repeatedly tried to recruit him. “Come over to the Dark Side,” an agency operative once said to him. “You know you’re interested.” Soufan said that he just laughed.

Indeed, some of the C.I.A.’s best information about Al Qaeda came from the F.B.I. In 1998, F.B.I. investigators found an essential clue—a phone number in Yemen that functioned as a virtual switchboard for the terror network. The bombers in East Africa called that number before and after the attacks; so did Osama bin Laden. The number belonged to a jihadi named Ahmed al-Hada. By combing through the records of all the calls made to and from that number, F.B.I. investigators constructed a map of Al Qaeda’s global organization. The phone line was monitored as soon as it was discovered. But the C.I.A., as the primary organization for gathering foreign intelligence, had jurisdiction over conversations on the Hada phone, and did not provide the F.B .I, with the information it was getting about Al Qaeda’s plans.

A conversation on the Hada phone at the end of 1999 mentioned a forthcoming meeting of Al Qaeda operatives in Malaysia. The C.I.A. learned the name of one participant, Khaled al-Mihdhar, and the first name of another: Nawaf. Both men were Saudi citizens. The C.I.A. did not pass this intelligence to the F.B.I.

However, the C.I.A. did share the information with Saudi authorities, who told the agency that Mihdhar and a man named Nawaf al-Hazmi were members of Al Qaeda. Based on this intelligence, the C.I.A. broke into a hotel room in Dubai where Mihdhar was staying, en route to Malaysia. The operatives photocopied Mihdhar’s passport and faxed it to Alec Station, the C.I.A. unit devoted to tracking bin Laden. Inside the passport was the critical information that Mihdhar had a U.S. visa. The agency did not alert the F.B.I. or the State Department so that Mihdhar’s name could be put on a terror watch list, which would have prevented him from entering the US.

The C.I.A. asked Malaysian authorities to provide surveillance of the meeting in Kuala Lumpur, which took place on January 5,2000, at a condominium overlooking a golf course designed by Jack Nicklaus. The condo was owned by a Malaysian businessman who had ties to Al Qaeda. The pay phone that Soufan had queried the agency about was directly in front of the condo. Khallad used it to place calls to Quso in Yemen. Although the C.I.A. later denied that it knew anything about the phone, the number was recorded in the Malaysians’ surveillance log, which was given to the agency.

At the time of the Kuala Lumpur meeting, Special Branch, the Malaysian secret service, photographed about a dozen Al Qaeda associates outside the condo and visiting nearby Internet cafés. These pictures were turned over to the C.I.A. The meeting was not wiretapped; had it been, the agency might have uncovered the plots that culminated in the bombing of the Cole and the September 11, 2001, attacks. On January 8th, Special Branch notified the C.I.A. that three of the men who had been at the meeting—Mihdhar, Hazmi, and Khallad—were travelling together to Bangkok. There Khallad met with Quso and one of the suicide bombers of the Cole. Quso gave Khallad the thirty-six thousand dollars, which was most likely used to buy tickets to Los Angeles for Mihdhar and Hazmi and provide them with living expenses in the U.S. Both men ended up on planes involved in the September 11th attacks.

In March, the C.I.A. learned that Hazmi had flown to Los Angeles two months earlier, on January 15th. Had the agency checked the flight manifest, it would have noticed that Mihdhar was travelling with him. Once again, the agency neglected to inform the F.B.I. or the state Department that at least one Al Qaeda operative was in the country.

Although the C.I.A. was legally bound to share this kind of information with the bureau, it was protective of sensitive intelligence. The agency sometimes feared that F.B.I. prosecutions resulting from such intelligence might compromise its relationships with foreign services, although there were safeguards to protect confidential information. The C.I.A. was particularly wary of O’Neill, who demanded control of any case that touched on an F.B.I. investigation. Many C.I.A. officials disliked him and feared that he could not be trusted with sensitive intelligence. “O'Neill was duplicitous,” Michael Scheuer, the official who founded Alec Station but has now left the C.I.A., told me. “He had no concerns outside of making the bureau look good.” Several of O’Neill’s subordinates suggested that the C.I.A. hid the information out of personal animosity. “They hated John,” the F.B.I. counterterrorism official assigned to Alec Station told me. “They knew that John would have marched in there and taken control of that case.”

The C.I.A. may also have been protecting an overseas operation and was afraid that the F.B.I. would expose it. Moreover, Mihdhar and Hazmi could have seemed like attractive recruitment possibilities—the C.I.A. was desperate for a source inside Al Qaeda, having failed to penetrate the inner circle or even to place someone in the training camps, even though they were largely open to anyone who showed up. However, once Mihdhar and Hazmi entered the United States they were the province of the F.B.I. The C.I.A. has no legal authority to operate inside the country.

In the end, the C.I.A.’s failure to inform the F.B.I. may be best explained by the fact that the agency was drowning in a flood of threats and warnings, and simply did not see the pivotal importance of this intelligence. Whatever the reason for the C.I.A.’s lapse, many F.B.I. investigators remain furious that they were not informed of the presence of Al Qaeda operatives inside America. Mihdhar and Hazmi arrived twenty months before September 11th. Kenneth Maxwell, Soufan’s former supervisor, told me, “Two Al Qaeda guys living in California—are you kidding me? We would have been on them like white on snow: physical surveillance, electronic surveillance, a special unit devoted entirely to them.” Of course, the F.B.I. had other opportunities to prevent September 11th. In July, 2001, an F.B.I. agent in Phoenix suggested interviewing Arabs enrolled in American flight schools; a month later, the bureau’s Minnesota office requested permission to aggressively investigate Zacarias Moussaoui, who later confessed to being an Al Qaeda associate. Both proposals were rejected by F.B.I. supervisors. But Mihdhar and Hazmi were directly involved in the September 11th conspiracy. Because of their connection to bin Laden, who had a federal indictment against him, the F.B.I. had all the authority it needed to use every investigative technique to penetrate and disrupt the Al Qaeda cell. Instead, the hijackers were free to develop their plot until it was too late to stop them.


In Yemen, the security situation deteriorated rapidly. Soufan and the other F.B.I. agents were quartered at the Aden Hotel, crammed in with other U.S. military and government employees, including Marine guards, and billeted three and four to a room; several dozen slept on bedrolls in the hotel ballroom. Gunfire erupted outside the hotel so frequently that the agents slept in their clothes, with their weapons at their sides. Agents learned from a mechanic in Aden that, after the bombing, some men brought to his shop a truck similar to the one used by the bombers; the men wanted to have metal plates installed in such a way that they could direct the force of an explosion. Certainly, the most tempting target for such a bomb would be the Aden Hotel. It wasn’t clear that the Yemeni government troops who were guarding the hotel with machine-gun nests would truly protect the Americans. “We were prisoners,” an agent recalled.

One night, shots were fired on the street while O'Neill was running a meeting inside the hotel. The marines and the hostage-rescue team adopted defensive positions. Soufan ventured out, unarmed, to talk to the Yemeni troops.

“Hey, Ali!” O’Neill called out. “Be careful!” He raced down the steps of the hotel to make sure Soufan was wearing his flak jacket. Frustration, stress, and danger, along with the enforced intimacy of their situation, had brought the two men even closer. O'Neill had begun to describe Soufan as his “secret weapon.” Speaking to the Yemenis, he called him simply “my son.”

Snipers covered Soufan as he approached a Yemeni officer, who assured him that everything was O.K.

“If everything is O.K., why are there no cars on the street?” Soufan asked.

The officer said that there must be a wedding nearby. Soufan looked around and saw that the hotel was surrounded by a large number of men in traditional dress-some in Jeeps, all carrying guns. They were civilians, not soldiers. They could be intelligence officers, or a tribal group bent on revenge. In either case, they easily outnumbered the Americans. Soufan was reminded of the 1993 uprising in Somalia, which ended with eighteen American soldiers dead, and one of the bodies being dragged through the streets of Mogadishu. The hotel backed up to the harbor, and the Americans were essentially trapped.

After Soufan went inside and offered his assessment of the situation, O’Neill ordered the marines to deploy two armored vehicles to block the street in front of the hotel. The night passed without further incident, but the next day O'Neill moved the investigators to the U.S.S. Duluth, stationed ten miles away, in the Bay of Aden. That proved to be a dangerous mistake. The next morning, when O'Neill and Soufan were flying back to town, their helicopter suddenly lurched into violent evasive maneuvers. The pilot 1 reported that an SA-7 missile had locked in on them. O'Neill decided to send most of the investigators home; those who remained returned to the deserted hotel.

Just before Thanksgiving, the F.B.I. pulled O'Neill out of Yemen, apparently as a concession to Ambassador Bodine, who felt that the F.B.I. presence was straining diplomatic relations between America and Yemen. Soufan stayed on, but the threats in Aden became so acute that he and the other agents moved to the American Embassy in Sanaa, Yemen’s capital. The investigation was losing its momentum.

In the spring of 2001, Tom Wilshire, a C.I.A. liaison at F.B.I. headquarters, in Washington, was studying the relationship between Khaled al-Mihdhar, the Saudi Al Qaeda operative, and Khallad, the one-legged jihadi. Because of the similarity of the names, the C.I.A. had thought that they might be the same person, but, thanks in part to AL Soufan’s investigations in Yemen, the agency now knew that they were not, and that Khallad had orchestrated the Cole attack. “O.K. This is important,” Wilshire said of Khallad, in an e-mail to his supervisors at the C.I.A. Counterterrorist Center. “This is a major-league killer.” Wilshire alr

Fear factor and soaring demand blamed for crude price leap

By Kevin Morrison and Stephen Schurr
FINANCIAL EXPRESS

LONDON: Since the price of oil began its rocky but seemingly inexorable climb above $40 a barrel in 2003, there has been widespread debate about what is driving it.

Crude bears have contended higher energy prices are heavily influenced by a "risk premium" amid fears of terrorist or political disruptions to supply. Bulls, conversely, acknowledge a premium, but say it is far less important than the soaring demand from developed and developing countries amid ever-tightening supply. So far, the bears have been punished mightily, while the bulls have been among the best-compensated investors in the world.

"Clearly, there is some risk premium," said James Melcher, manager of Balestra Capital, a New York-based hedge fund that has notched up strong returns in recent years in part thanks to energy related bets. "If the Israeli-Palestinian mess simmers down, Venezuela settles down and the Iran situation progresses in a benign way, I think oil will come down to maybe $55 or $60 -- but it isn't going back to the $40s."

There has been no shortage of events to fuel the fear factor. Notwithstanding the failed attack on Saudi Arabia's Abqaiq facility, Nigerian militants closed significant parts of the country's production early this year. There are the continued attacks on Iraqi oil infrastructure and the nuclear stand-off continues between Iran and the west. All of which have kept oil traders busy, and stoked concerns about future oil supplies, which has helped push oil prices to more than $70 a barrel this week.

For hedge fund managers such as Mr Melcher, there are plenty of ways to profit from higher energy prices without a direct investment in crude.

For instance, Balestra has 80 per cent of its energy holdings in oil service companies. "With prices at higher levels, margins for these companies are exploding," said Mr Melcher.

But geopolitics is just one of several factors affecting oil prices. More mundane ones include oil demand, the level of oil inventories, and refining constraints. Francisco Blanch, head of commodity research at Merrill Lynch, says that a closer look at the oil market shows that oil supplies have not been disturbed to any great extent. In fact oil held in storage in developed countries is at its highest level in more than 20 years, even higher than in 1998, when big inventories contributed to the oil price falling to $10 a barrel.

Moreover, Iraqi oil exports this month are expected to rise to their highest level since October 2004, as oil from the northern Kirkuk oil field starts to flow again for the first time since September. The shutdown of about 500,000 barrels a day of Nigerian production by rebels has been partially offset by production from the new Bonga field.

"I think the geopolitical situation is probably a bit better than the general perception," said Mr Blanch. Even the likelihood of Iran using oil as a strategic weapon in its nuclear negotiations is remote, he adds, given that the country is actually dependent on foreign imports of petrol as a result of insufficient refining capacity.

The Secret Treaty of Fort Hunt

[Originally published in Covert Action Information Bulletin, Fall, 1990]

An article by Carl Oglesby

William Shirer closed his 1960 masterpiece, The Rise and Fall of the Third Reich, with the judgment that the Nazi regime "had passed into history,"¹ but we cannot be so confident today. On the contrary, the evidence as of 1990 is that World War II did not end as Shirer believed it did, That Nazism did not surrender unconditionally and disappear, that indeed it finessed a limited but crucial victory over the Allies, a victory no less significant for having been kept a secret from all but the few Americans who were directly involved.

The Odessa and its Mission

Hitler continued to rant of victory, but after Germany's massive defeat in the battle of Stalingrad in mid-January 1943, the realists of the German General Staff (OKW) were all agreed that their game was lost. Defeat at Stalingrad meant, at a minimum, that Germany could not win the war in the East that year. This in turn means that the Nazis would have to keep the great preponderance of their military forces tied down on the eastern front and could not redeploy them to the West, where the Anglo-American invasion of Italy would occur that summer. Apparently inspired by the Soviet victory, President Franklin Delano Roosevelt and Prime Minister Winston Churchill announced at Casablanca, on January 24, 1943, their demand for Germany's unconditional surrender and the complete de-Nazification of Europe.²

Within the German general staff two competing groups formed around the question of what to do: one led by Heinrich Himmler the other by Martin Bormann.³

Himmler was chief of the SS (Schutzstaffel, "protective echelon"), the blackshirted core of the Nazi party that emerged as Hitler's bodyguard in the late 1920s and grew into the most powerful of the Nazi political institutions. After the failure of the attempted military coup of July 20, 1944, which wounded but did not kill Hitler, the SS seized all power and imposed a furious blood purge of the armed services in which some seven thousand were arrested and nearly five thousand.⁴ The SS was at that point the only organ of the Nazi state.

Himmler's plan for dealing with the grim situation facing Nazism found its premise in Hitler's belief that the alliance between "the ultra-capitalists" of the U.S. and "the ultra-Marxists" of the Soviet Union was politically unstable. "Even now they are at loggerheads," said Hitler. "If we can now deliver a few more blows, this artificially bolstered common front may suddenly collapse with a gigantic clap of thunder."⁵ Himmler believed that this collapse would occur and that the U.S. would then consider the formation of a new anti-soviet alliance with Nazi Germany. The Nazis Would then negotiate "a separate peace" with the United States, separate from any peace with the USSR, with which Germany would remain at war, now joined against the Soviets by the United States.

But Martin Bormann, who was even more powerful than Himmler, did not accept the premise of the separate-peace idea. Bormann was an intimate of Hitler's, the deputy fuhrer and the head of the Nazi Party, thus superior to Himmler in rank. Bormann wielded additional power as Hitler's link to the industrial and financial cartels that ran the Nazi economy and was particularly close to Hermann Schmitz, chief executive of I.G. Farben, the giant chemical firm that was Nazi Germany's greatest industrial power.

With the support of Schmitz, Bormann rejected Himmler's separate-peace strategy on the ground that it was far too optioptimistic.⁶ The Allied military advantage was too great, Bormann believed, for Roosevelt to be talked into a separate peace. Roosevelt, after all, had taken the lead in proclaiming the Allies' demand for Germany's unconditional surrender and total de-Nazification. Bormann reasoned, rather, that the Nazi's best hope of surviving military defeat lay within their own resources, chief of which was the cohesion of tens of thousands of SS men for whom the prospect of surrender could offer only the gallows.

Bormann and Schmitz developed a more aggressive self-contained approach to the problem of the looming military defeat. the central concept of which was that large numbers of Nazis would have to leave Europe and at least for a time, find places in the world in which to recover their strength. There were several possibilities in Latin America, most notably Argentina and Paraguay; South Africa, Egypt, and Indonesia were also attractive rear areas in which to retreat.⁷

After the German defeat in the battle of Normandy in June 1944, Bormann took the First external steps toward implementing concrete plans for the Nazis' great escape.

An enormous amount of Nazi treasure had to be moved out of Europe and made safe. This treasure was apparently divided into several caches, of which the one at the Reichsbank in Berlin included almost three tons of gold (much of it the so-called tooth-gold from the slaughter camps) as well as silver, platinum, tens of thousands of carats of precious stones, and perhaps a billion dollars in various currencies.⁸

There were industrial assets to be expatriated, including large tonnages of specialty steel and certain industrial machinery as well as blue-prints critical to the domination of certain areas of manufacturing.

Key Nazi companies needed to be relicensed outside Germany in order to escape the reach of war-reparations claims.

And tens of thousands of Nazi war criminals, almost all of them members of the SS, needed help to escape Germany and safely regroup in foreign colonies capable of providing security and livelihoods.

For help with the first three of these tasks, Bormann convened a secret meeting of key German industrialists on August 10, 1944, at the Hotel Maison Rouge in Strasbourg.⁹ One part of the minutes of this meeting states:

The [Nazi] Party is ready to supply large amounts of money to those industrialists who contribute to the post-war organization abroad. In return, the Party demands all financial reserves which have already been transferred abroad or may later be transferred, so that after the defeat a strong new Reich can be built.¹⁰

The Nazi expert in this area was Hitter's one-time financial genius and Minister of the Economy, Dr. Hjalmar Horace Greeley Schacht, available to Bormann even though he was in prison on suspicion of involvement in the anti-Hitler coup of 1944. According to a U.S. Treasury Department report of 1945, at least 750 enterprises financed by the Nazi Party had been set up outside Germany by the end of the war. These firms were capable of generating an annual income of approximately $30 million, all of it available to Nazi causes.¹¹ It was Schacht's ability to finesse the legalities of licensing and ownership that brought this situation about.¹²

Organizing the physical removal of the Nazis' material assets and the escape of SS personnel were the tasks of the hulking Otto Skorzeny, simultaneously an officer of the SS, the Gestapo and the Waffen SS as well as Hitler's "favorite commando."¹³ Skorzeny worked closely with Bormann and Schacht in transporting the Nazi assets to safety outside Europe and in creating a network of SS escape routes ("rat lines") that led from all over Germany to the Bavarian city of Memmingen, then to Rome, then by sea to a number of Nazi retreat colonies set up in the global south.

The international organization created to accommodate Bormann's plans is most often called "The Odessa," a German acronym for "Organization of Veterans of the SS." It has remained active as a shadowy presence since the war and may indeed constitute Nazism's most notable organizational achievement. But we must understand that none of Bormann's, Skorzeny's, and Schacht's well-laid plans would have stood the least chance of success had it not been for a final component of their organization, one not usually associated with the Odessa at all but very possibly the linchpin of the entire project.

Enter Gehlen

This final element of the Odessa was the so-called Gehlen Organization (the Org), the Nazi intelligence system that sold itself to the U.S. at the end of the war. It was by far the most audacious, most critical, and most essential part of the entire Odessa undertaking. The literature on the Odessa and that on the Gehlen Organization, however, are two different things. No writer in the field Of Nazi studies has yet explicitly associated the two, despite the fact that General Reinhard Gehlen was tied politically as well as personally with Skorzeny and Schacht. Moreover, Gehlen's fabled post-war organzation was in large part staffed by SS Nazis who are positively identified with the Odessa, men such as the infamous Franz Alfred Six and Emil Augsburg of the Wannsee Institute. An even more compelling reason for associating Gehlen with the Odessa is that, withought his organization as a screen, the various Odessa projects would have been directly exposed to American intelligence. If the Counter Intelligence Corps (CIC) and the Office of Strategic Services (OSS) had not been neutralized by the Gehlen ploy, the Odessa's great escape scheme would have been discovered and broken up.

At 43, Brigadier General Reinhard Gehlen was a stiff, unprepossessing man of pounds when he presented himself for surrender at the U.S. command center in Fischhausen. But there was nothing small about his ego. "I am head of the section Foreign Armies East in German Army Headquarters," he announced to the GI at the desk. "I have information to give of the highest importance to your government." The GI was not impressed, however, and Gehlen spent weeks stewing in a POW compound before an evident Soviet eagerness to find him finally aroused the Americans' attention.¹⁴

Gehlen became chief of the Third Reich's Foreign Armies East (FHO), on April 1, 1942. He was thus responsible for Germany's military intelligence operations throughout Eastern Europe and the Soviet Union. His FHO was connected in this role with a number of secret fascist organizations in the countries to Germany's east. These included Stepan Bandera's "B Faction" of the Organization of Ukrainian Nationalists (OUN/B),¹⁵ Romania's Iron Guard,¹⁶ the Ustachis of Yugoslavia,¹⁷ the Vanagis of Latvia¹⁸ and, after the summer of 1942, "Vlassov's Army,"¹⁹ the band of defectors from Soviet Communism marching behind former Red hero General Andrey Vlassov. Later on in the war, Gehlen placed one of his top men in control of Foreign Armies West, which broadened his power; and then after Admiral Wilhelm Canaris was purged and his Abwehr intelligence service cannibalized by the SS, Gehlen became in effect Nazi Germany's over-all top intelligence chief.

The Great Escape

In December 1943, at the latest, Gehlen reached the same conclusion about the war that had come upon Bormann, Schacht, Skorzeny, and Himmler. Germany was losing and could do nothing about it. Several months later, Gehlen says, he began quietly discussing the impending loss with a few close associates. As he writes in his memoir: "Early in-October 1944 I told my more intimate colleagues that I considered the war was lost and we must begin thinking of the future. We had to think ahead and plan for the approaching catastrophe."²¹

Gehlen's strategic response to Gotterdammerung was a kind of fusion of Himmler's philosophy with Bormann's more pessimistic Odessa line: "My view," he writes, "was that there would be a place even for Germany in a Europe rearmed for defense against Communism. Therefore we must set our sights on the Western powers, and give ourselves two objectives: to help defend against Communist expansion and to recover and reunify Germany's lost territories."²²

Just as Bormann, Skorzeny, and Schacht were beginning to execute their escape plans, so too was Gehlen: "Setting his sights on the Western powers," and in particular on the United States, Gehlen pursued the following strategic rationale: When the alliance between the United States and the USSR collapsed, as it was bound to do upon Germany's defeat, the United States would discover a piercing need for a top-quality intelligence service in Eastern Europe and inside the Soviet Union. It did not have such a service of its own, and the pressures of erupting East-West conflict would not give it time to develop one from scratch. Let the United States therefore leave the assets assembled by Gehlen and the FHO intact. Let the United States not break up Gehlen's relationship with East European fascist groups. Let the United States pick up Gehlen's organization and put it to work for the West, the better to prevail in its coming struggle against a Soviet Union soon to become its ex-ally.

Gehlen brought his top staff people into the planning for this amazing proposal. Together, during the last months of the war, while Hitler was first raging at Gehlen for his "defeatist" intelligence reports, then promoting him to the rank of brigadier general, then at last firing him altogether (but promoting into the FHO directorship one of Gehlen's co-conspirators), Gehlen and his staff carefully prepared their huge files on East Europe and the Soviet Union and moved them south into the Bavarian Alps and buried them. At the same time, Gehlen began building the ranks of the FHO intelligence agents. The FH0 in fact was the only organization in the whole of the Third Reich that was actually recruiting new members as the war was winding down.²³ SS men who knew they would be in trouble when the Allied forces arrived now came flocking to the FHO, knowing that it was the most secure place for them to be when the war finally ended.²⁴

When Gehlen's plans were complete and his preparations all concluded, he divided his top staff into three separate groups and moved them (as Skorzeny was doing at the same time) into prearranged positions in Bavaria. Gehlen himself was in place before the German surrender on May 7, hiding comfortably in a well-stocked chalet in a mountain lea called Misery Meadow. Besides Gehlen, there were eight others in the Misery Meadow group, including two wounded men and three young women. For three weeks, maintaining radio contact with the two other groups, Gehlen and his colleagues stayed on the mountain, waiting for the American army to appear in the valley far below. "These days of living in the arms of nature were truly enchanting," he wrote. "We had grown accustomed to the peace, and our ears were attuned to nature's every sound."²⁵

Destruction of the OSS

Gehlen was still communing with nature when William Donovan, chief of the Office of Strategic Services (OSS), arrived in Nuremberg from Washington, dispatched by the new president to assist Supreme Court Justice Robert Jackson. Harry S. Truman had made Jackson the United States's chief prosecutor with the International Military Tribunal (IMT), established to try the Nazis' principal military leaders. Donovan's OSS was to function as an investigative arm of the IMT.

By the last half of the war if not before, President Roosevelt and Donovan were convinced that the U.S. needed a permanent intelligence service and that this service, like the OSS, should be civilian rather than military. They were convinced too that the OSS should be its foundation. On October 31, 1944, Roosevelt directed Donovan to prepare a memo on how such a service should be organized.²⁶

Donovan consulted on this assignment with his colleague Allen Dulles, a force unto himself as wartime chief of OSS operations in Bern. Dulles advised Donovan to placate the military by proposing that the new agency be placed automatically under military command in time of war.²⁷ Donovan's proposal incorporated this idea,²⁸ but only in order to state all the more strongly the case for civilian control and for making the OSS the basis of the new organization. As he wrote in his memo to Roosevelt of November 18, 1944, "There are common-sense reasons why you may desire to lay the keel of the ship at once.... We now have [in the OSS] the trained and specialized personnel needed for such a task, and this talent should not be dispersed."²⁹

Donovan proposed establishment of a civilian intelligence service responsible directly to the President and the Secretary of State, the chief mission of which would be to support the President in foreign policy. Except for the civilian Secretaries of War and the Navy, Donovan's plan did not even include a place for military representation on the advisory board, and he was careful to specify that the advisory board would merely advise and not control. The new service was to be all-powerful in its field, being responsible for "coordination of the functions of all intelligence agencies of the Government." The Donovan intelligence service, in other words, would directly and explicitly dominate the Army's G-2 and the Navy's ONI.³⁰

Naturally, therefore, the Donovan plan drew an intense attack from the military. One G-2 officer called it "cumbersome and Possibly dangerous."³¹ Another referred to the OSS as "a bunch of faggots."³² Nor was the FBI's J. Edgar Hoover silent. Hoover had fought creation of the OSS perhaps more bitterly than the military and had insisted throughout the war on maintaining an FBI intelligence network in Latin America despite the fact that this was supposed to be OSS turf.³³

Certain elements within Army intelligence were not only opposed to Donovan's plan but were also beginning to formulate their own notions of what a post-war intelligence system should be like.

Roosevelt sent the Joint Chiefs of Staff ultra-secret copies of Donovan's proposal along with Roosevelt's own draft executive order to implement it. On January 1, 1945, the Chiefs formally reported to Roosevelt their extreme dissatisfaction with this scheme and leaked Donovan's memo to four right-wing newspapers, which leapt to the attack with blaring headlines accusing FDR and Donovan of conspiring to create "a super Gestapo." This attack put the Donovan plan on hold, and the death of FDR on April 12, 1945 destroyed it.³⁴

In early May 1945, president for less than a month, Truman made the OSS the American component of the investigative arm of the IMT. It is one of the fascinating conjunctions of this story that Donovan should have left for Nuremberg just as Gehlen was coming down from his mountain. It is one of its riper ironies that Donovan would soon resign from Jackson's staff in a disagreement over trying German officers as war criminals, which Donovan objected to but Jackson and Truman sup- ported.³⁵ Had Donovan lent his energies to the trial of Nazis within the German officer corps, he might have confronted the very adversaries who would shortly take his place in the American intelligence system, not only militarizing it, but Nazifying it as well.

Gehlen Makes his Move

Gehlen had been on the mountain for exactly three weeks and the war had been over for almost two weeks when he decided on May 19 that it was time to make contact. He left the three women and the two wounded men at Misery Meadow and with his four aides began the decent to the valley town of Fischhausen on Lake Schliersee.

On the same day Soviet commissioners far to the north at Flensburg demanded that the United States hand over Gehlen as well as his files on the USSR. This was the first the U.S. command had heard of Gehlen.³⁶

Gehlen and company took their time, staying three days with the parents of one of his aides and communicating by radio with those who had remained at Misery Meadow. On May 22, Gehlen at last decided the moment was right. He and his aides marched into the Army command center and represented themselves to the desk officer, a Captain John Schwarzwalder, to whom Gehlen spoke his prepared speech:

"I am head of the Section Foreign Armies East in German Army headquarters. I have information to give of the highest importance to your government." Schwarzwalder had Gehlen and his group jeeped to Miesbach where there was a[n] OSS detachment. There Gehlen once again gave his speech, this time to a Captain Marian Porter: "I have information of the greatest importance for your supreme commander." Porter replied, "So have they all," and shunted him and his cohorts off to the prison camp at Salzburg.

Gehlen's disappointment at this reception was keen and his biographers all say he never forgot it, "lapsing," as one puts it, "into near despair" as he "presented the strange paradox of a spy-master thirsting for recognition by his captors."³⁷

Recognition was inevitable, however, since the CIC was trying to find him. By mid June at the latest, his name was recognized by a G-2 officer, Colonel William H. Quinn, who had Gehlen brought to Augsburg for his first serious interrogation. Quinn was the first American to whom Gehlen presented his proposal and told of his staff dispersed at several camps in the mountains as well as the precious buried archives of the FHO. Unlike Captain Porter, Colonel Quinn was impressed. He promptly passed Gehlen up the command chain to General Edwin L. Sibert.

Sibert later recalled, "I had a most excellent impression of him at once." Gehlen immediately began educating him as to the actual aims of the Soviet Union and its display of military might." As Sibert told a journalist years later, "With her present armed forces potential, he [Gehlen] continued, Russia could risk war with the West and the aim of such a war would be the occupation of West Germany."³⁸

Acting without orders, Sibert listened to Gehlen for several days before informing Eisenhower's chief of staff, General Walter Bedell Smith.³⁹ Smith and Sibert then continued to develop their relationship with Gehlen secretly, choosing not to burden Eisenhower with knowledge of what they were doing "in order not to compromise him in his relations with the Soviets."⁴⁰ Eisenhower in fact had strictly forbidden U.S. fraternization with Germans.

Gehlen was encouraged to resume contact with his FHO comrades who were still at large in Bavaria, releasing them from their vow of silence. Gehlen was sufficiently confident of his American relationships by this time that he dug up his buried files and, in special camps, put his FH0 experts to work preparing detailed reports on the Red Army for his American captors. Well before the end of June he and his comrades were "discharged from prisoner of war status so that we could move around at will."⁴² They were encouraged to form a unit termed a "general staff cell" first within G-2's Historical Research Section, then later in the Seventh Army's Intelligence Center in Wiesbaden, where they worked in private quarters and were treated as VIPs.⁴³

Indeed, a partly declassified CIA document recapitulated this story in the early 1970s, noting at this time:

Gehlen met with Admiral Karl Dognitz, who had been appointed by Hitler as his successor during the last days of the Third Reich. Gehlen and the Admiral were now in a U.S. Army VIP prison camp in Wiesbaden; Gehlen sought and received approval from Doenitz too!⁴⁴

In other words, the German chain of command was still in effect, and it approved of what Gehlen was doing with the Americans.

Gehlen's biographers are under the impression that it took six weeks for someone in European G-2 to notice and recognize Gehlen in the POW cage, that Sibert did not tell Smith about finding him until the middle of August, and that it was much later still before Sibert and Smith conspired to circumvent Eisenhower to communicate their excitement about Gehlen to someone at the Pentagon presumably associated with the Joint Chiefs of Staff.⁴⁵ But documents released in the 1980s show that this part of Gehlen's story raced along much more quickly. Already on June 29, in fact, the Pentagon had informed Eisenhower's European command that the War Department wanted to see Gehlen in Washington.⁴⁶

It was a fast time. By no later than August 22, one of Gehlen's top associates, Hermann Baum was forming what would become the intelligence and counterintelligence sections of Gehlen's new organization. Gehlen himself, with retinue, was departing for Washington in General Bedell Smith's DC-3 for high-level talks with American military and intelligence officials. And the whole concept of the deal he was about to offer his conquerors had been approved by a Nazi chain of command that was still functioning despite what the world thought and still does think was the Nazis' unconditional surrender.⁴⁷

Gehlen arrived in Washington on August 24 with six of his top FHO aides and technical experts in tow.⁴⁸ World War II had been over about a week, the war in Europe about three and a half months.

The Secret Treaty of Fort Hunt

As Gehlen and his six men were en route from Germany to Washington, Donovan's OSS troubles became critical. On August 23, Admiral William Leahy, chief of the JCS, the President's national security adviser and a man who despised Donovan, advised Truman to order his budget director Harold Smith to begin a study of the intelligence question. Stating "this country wanted no Gestapo under any guise or for any reason."⁴⁹ Truman may not have known that the Gestapo's Odessa heirs were landing in the lap of the Pentagon even as he spoke. Smith in any case responded to Truman's directive by asking Donovan for his OSS demobilization plans. Now, too late. Donovan tried to fight. The Gehlen party, "Group 6," was checking out its very comfortable accommodations at Fort Hunt at the very moment at which Donovan, writing from a borrowed Washington office, fired back a memo to Smith defending the OSS and its right to live:

Among these assets [of the OSS] was establishment for the first time in our nation's history of a foreign secret intelligence service which reported information as seen through American eyes. As an integral and inseparable part of this service, there is a group of specialists to analyze and evaluate the material for presentation to those who determine national policy."⁵⁰

Much more significant than the question of the adequacy of U.S. intelligence on the Soviet Union, however, was the question of civilian versus military control of the intelligence mission. Germany and England had fought this battle in the 19th century, the military capturing the intelligence role in Germany and the civilians maintaining a position in England. Throughout the summer and fall of 1945, this same battle raged in the U.S. government.⁵¹ The battle for intelligence control was indeed the background for the arrival of Gehlen and his six aides at Fort Hunt, where Gehlen's party was housed and Gehlen himself provided with an NCO butler and several white-jacket order lies.⁵²

A momentous relationship was established at Fort Hunt, one that had the profoundest effects on the subsequent evolution of United States foreign policy during an exceptionally difficult passage of world history. The period of the Cold War as a whole, and more especially its early, formative years - from Gehlen's coming aboard the American intelligence service until he rejoined the West German republic in 1955 -- was laden with the peril of nuclear war. On at least one occasion, in 1948,⁵³ Gehlen almost convinced the United States that the Soviet Union was about to launch a war against the West and that it would be in the U.S. interest to preempt it.

Clearly it is important to know who made and authorized the decisions that led to our national dependency on a network of underground Nazis, yet because the relevant documents are still classified this central part of the Gehlen story still cannot be reconstructed.

From the handful of published books about the Gehlen affair (none of which cite their sources on this point) we can list only seven Americans who were said to be involved with Gehlen at Fort Hunt:

• Admiral William D. Leahy, chief of staff end Truman's national security advisor.
• Allen Dulles, OSS station chief in Bern during the war.
• Sherman Kent, head of OSS Research and Analysis Branch and a Yale historian.
• General George V. Strong, head of Army G-2.
• Major General Alex H. Bolling of G-2.
• Brigadier General John T. Magruder, first head of the Army's Strategic Services Unit, a vulture of OSS.
• Loftus E. Becker, a lawyer assc. with G-2 and the Nuremberg war-crimes operation; the CIA's first deputy director.

We do not know if these people were involved as a committee, if they talked with Gehlen and his six aides a lot or a little, separately or all at once, or if they sent their own aides to work out the details. We do not know how a POW-interrogation was transformed into a bargaining process. Above all, we do not know what kind of communication the U.S. participants in the Fort Hunt-Gehlen talks had with the political authorities to whom they were responsible. Leahy is the only one who had obvious contact with President Truman. But there is nothing in the revealed record to indicate that he ever discussed Gehlen or the Fort Hunt deal with Truman, or took the least trouble to explain to Truman the implications of hiring a Nazi spy network. We have no idea, for that matter, how Leahy himself saw it.

What we do know is the outlines of the Gehlen deal itself, however it was hammered out and however it was or was not ratified by legal, political authority. That is because Gehlen himself laid out its terms in his autobiography, The Service. Gehlen says in this work (which has been attacked for its inaccuracies) that the discussion ended with "a gentleman's agreement," that the terms of his relationship with the United States were "for a variety of reasons never set down in black and white." He continues, "Such was the element of trust that had been built up between the two sides during this year of intensive personal contact that neither had the slightest hesitation in founding the entire operation on a verbal agreement and a handshake."⁵⁴

According Gehlen, this agreement consisted of the following six basic points. His language is worth savoring. "I remember the terms of the agreement well," he wrote:

"1. A clandestine German intelligence organization was to be set up. using the existing potential to continue information gathering in the East just as we had been doing before. The basis for this was our common interest in a defense against communism."

"2. This German organization was to work not 'for' or 'under' the Americans, but 'jointly with the Americans."

"3. The organization would operate exclusively under German leadership, which would receive its directives and assignments from the Americans until a new government was established in Germany."

"4. The organization was to be financed by the Americans with funds which were not to be part of the occupation costs, and in return the organization would supply all its intelligence reports to the Americans." (The Gehlen Organization's first annual budget is said have been $3.4 million.⁵⁵)"

"5. As soon as a sovereign German government was established, that government should decide whether the organization should continue to function or not. but that until such time the care and control (later referred to as 'the trusteeship') of the organization would remain in American hands."

"6. Should the organization at any time find itself in a position where the American and German interests diverged, it was accepted that the organization would consider the interests of Germany first."⁵⁶

Gehlen acknowledges that the last point especially might "raise some eyebrows" and make some think that the U.S. side "had one overboard in making concessions to us." He assures his readers that actually "this point demonstrates better than any other Sibert's great vision: he recognized that for many years to come the interests of the United States and West Germany must run parallel."⁵⁷

Gehlen and his staff left Fort Hunt for Germany on July 1, 1946, having been in the United States for almost a year. They were temporarily based at Oberursel then settled into a permanent base in a walled-in, self-contained village at Pullach near Munich. Gehlen set up his headquarters in an estate originally built by Martin Bormann.⁵⁸ There a start-up group of 50 began to turn the "gentlemen's agreement" of Fort Hunt into reality. The first order of business being staff, Gehlen's recruiters were soon circulating among the "unemployed mass" of "former" Nazi SS men, the Odessa constituency, to find more evaluators, couriers and informers.⁵⁹ Gehlen had "solemnly promised in Washington not to employ SS and Gestapo men,"⁶⁰ although it will be noted that Gehlen includes no such provision in his list of terms. There is not the least question that he did recruit such men, supplying them with new names when necessary.

Two of the worst of them were Franz Six and Emil Augsburg. Six was a key Nazi intellectual, and both Six and Augsburg were associated with the Wannsee Institute, the Nazi think-tank in Berlin where SS leader Reinhard Heydrich, in January 1942, announced "the Final Solution to the Jewish Question." Both of them had commanded extermination squads roving in East Europe in pursuit of Jews and communists. and both had gone underground with the Odessa when the Third Reich crumbled. Augsburg hid in Italy, then returned in disguise when Gehlen called. Six was actually captured by Allied intelligence, tried at Nuremberg and imprisoned, only to be sprung to work with Augsburg running Gehlen's networks of East European Nazis.⁶¹

From the edge of total defeat Gehlen now moved into his vintage years, more powerful, influential and independent than he had been even in the heyday of the Third Reich. Minimally supervised first by the War Department's Strategic Services Unit under Fort Hunt figure Major General John Magruder, and then by the SSU's follow-on organization, the Central Intelligence Group under Rear Admiral Sidney Souers,⁶² the Org grew to dominate the entire West German intelligence service. Through his close ties to Chancellor Konrad Adenauer's chief minister, Hans Globke, Gehlen was able to place his men in positions of control in West Germany's military intelligence and the internal counterintelligence arm. When NATO was established he came to dominate it too. By one estimate "some 70 percent" of the total intelligence take flowing into NATO'S military committee and Allied headquarters (SHAPE) on the Soviet Union, the countries of East Europe, the rest of Europe, and indeed the rest of the world was generated at Pullach.⁶³

Not even the establishment of the CIA in 1947 and the official transfer of the Pullach operation into the West German government in 1955 (when it was retitled the Federal Intelligence Service, BND) lessened the reliance of American intelligence on Gehlen's product.⁶⁴ From the beginning days of the Cold War through the 1970s and beyond, the United State's, West Germany's, and NATO's most positive beliefs about the nature and intentions of the Soviet Union, the Warsaw Pact, and world communism would be supplied by an international network of utterly unreconstructed SS Nazis whose primary purposes were to cover the escape of the Odessa and make the world safe for Naziism.

The Cost of the Fort Hunt Treaty

Gehlen's story has may branchings beyond this point. These include several spy scandals that exposed his operation as dangerously vulnerable to Soviet penetration. They include the pitiful spectacle of U.S. CIC agents pursuing Nazi fugitives on war-crimes charges only to see them summarily pardoned and hired by Gehlen. They include the dark saga of Klaus Barbie, the SS "Butcher of Lyon" who worked with the Gehlen Organization and boasted of being a member of the Odessa. They include assets of Operation Paperclip, in which right-wing forces in the U.S. military once again savaged the concept of de-Nazification in order to smuggle scores of SS rocket scientists into the United States. They include continuation of the civilian-vs.-military conflict over the institution of secret intelligence and the question of politically motivated covert action within the domestic interior. They include above all the story of the enormous victory of the Odessa in planting powerful Nazi colonies around the world -- in such countries as South Africa where the enactment of apartheid laws followed; or several countries in Latin America that then became breeding grounds for the Death Squads of the current day; and indeed even in the United States where it now appears that thousands of wanted Nazis were able to escape justice and grow old in peace.

In making the Gehlen deal, the United States did not acquire for itself an intelligence service. That is not what the Gehlen group was or was trying to be. The military intelligence historian Colonel William Corson put it most succinctly, "Gehlen's organization was designed to protect the Odessa Nazis. It amounts to an exceptionally well-orchestrated diversion."⁶⁵ The only intelligence provided by the Gehlen net to the United States was intelligence selected specifically to worsen East-West tensions and increase the possibility of military conflict between the U.S. and the Soviet Union. It was exactly as the right-wing pairs had warned in 1945 when they were aroused by Donovan's proposal for a permanent intelligence corps, warning their readers that a "super spy unit" could "determine American foreign policy by weeding out, withholding or coloring information gathered at his direction."⁶⁶ It was exactly as Truman had warned when he demobilized the OSS with the observation that the U.S. had no interest in "Gestapolike measures." The fact that this lively concern for a police-state apparatus should have been focused on the relatively innocuous OSS while at the same time the red carpet was being rolled out for Gehlen's gang of SS men must surely count as one of the supreme wrenching ironies of the modern period.

Another dimension of the cost the Gehlen deal is the stress it induced within American institutions, weakening them incalculably. The Gehlen Organization was the antithesis of the Allied cause, its sinister emergence on the scene of post-war Europe the very opposite of what the western democracies thought they had been fighting for.

Perhaps at least we can say that, despite Gehlen and despite the military, the United States did after all finally wind up with a civilian intelligence service. The National Security Act of 1947 did embody Donovan's central point in creating a CIA outside the military. But in fact the Gehlen Org substantially pre-empted the CIA's civilian character before it was ever born. The CIA was born to be rocked in Gehlen's cradle. It remained dependent on the Org even when the Org turned into the BND. Thus, whatever the CIA was from the standpoint of the law, it remained from the standpoint of practical intelligence collection a front for a house of Nazi spies.

The Org was not merely military, which is bad, not merely foreign, which is much worse, and not merely Nazi, which is intolerable; it was not even professionally committed to the security of the U.S. and Western Europe. It was committed exclusively to the security of the Odessa. All the Gehlen Org ever wanted the U.S. to be was anti-communist, the more militantly so the better. It never cared in the least for the security of the United States, its Constitution or its democratic tradition.

It is not the point of this essay that there would have been no Cold War if the Odessa had not wanted it and had not been able, through the naive collaboration of the American military Right to place Gehlen and his network in a position that ought to have been occupied by a descendant of the OSS. But it was precisely because the world was so volatile and confusing as of the transition from World War II to peacetime that the U.S. needed to see it, as Donovan put it in his plaintive appeal to Truman in the summer of 1945, "through American eyes." No Nazi eyes, however bright, could see it for us without deceiving us and leading us to the betrayal of our own national character.

Second, there was no way to avoid the Cold War once we had taken the desperate step of opening our doors to Gehlen. From that moment on, from the summer of 1945 when the Army brought him into the United States and made a secret deal with him, the Cold War was locked in. A number of Cold War historians on the left (for example D.F. Fleming and Gabriel Kolko) have made cogent arguments that from the Soviet point of view the Cold War was thrust upon us by an irrational and belligerent Stalin. The story of the secret treaty of Fort Hunt exposes this "history" as a self-serving political illusion. On the contrary, the war in the Pacific was still raging and the United States was still trying to get the Soviet Union into the war against Japan when General Sibert was already deep into his relation ship with Gehlen.

The key point that comes crashing through the practical and moral confusion about this matter, once one sees that Gehlen's Organization was an arm of the Odessa, is that, whether it was ethical or not, the U.S. did not pick up a Gift Horse in Gehlen at all; it picked up a Trojan Horse.

The unconditional surrender the Germans made to the Allied command at the little red schoolhouse in Reims was the surrender only of the German armed services. It was not the surrender of the hard SS core of the Nazi Party. The SS did not surrender, unconditionally or otherwise, and thus Nazism itself did not surrender. The SS chose rather, to seek other means of continuing the war while the right wing of the United States military establishment, through fears and secret passions and a naivete of its own, chose to facilitate that choice. The history that we have lived through since then stands witness to the consequences.

References

Carl Oglesby is the author of several books, notably The Yankee and Cowboy War. He has published a variety of articles on political themes. In 1965 he was the President of Students for a Democratic Society. He is the director of The Institute for Continuing de-Nazification. For information on the Institute write to: 294 Harvard Street, #3, Cambridge. MA 02139.

1. William Shirer, The Rise and Fall of the Third Reich (New York: Simon & Schuster, 1960), p. 1140.
2. Ibid., p. 1033 fn. Enunciation of this policy surprised and upset some U.S. military leaders who feared it would prolong the war. See, for example, William R. Corson (USMC ret.), The Armies of Ignorance: The Rite of the American Intelligence Empire (New York: Dial Press, 1977), pp. 8-10.
3. William Stevenson, The Bormann Brotherhood: A New Investigation of the Escape and Survival of Nazi War Criminals (New York: Harcourt Brace Jovanovich, 1973).
4. Op. cit. n. 1, p. 1072.
5. Ibid., pp. 1091-92
6. This discussion of Bormann's strategy is based mainly on Glenn B. Infield, Skorzeny: Hitler's Commando (New York: St. Martin's Press, 1981); and op. cit., n. 3.
7. My summary of the Nazi survival plan is based on op. cit., n. 3; Infield, op. cit., n. 6; Ladislas Farago, Aftermath: Martin Bormann and the Fourth Reich (New York: Simon & Schuster, 1974); Charles Higham, American Swastika (New York: Doubleday, 1985); Brian Bunting, The Rise of the South African Reich (New York: Penguin, 1964); and Simon Wiesenthal, The Murderers Among Us (New York: McGraw-Hill, 1967). On "neo-Nazi" colonies in the Near and Middle East and South America, see Wiesenthal, pp. 78-95.
8. Infield, op. cit., n. 6. p. 192.
9. Ibid., p. 179; and Wiesenthal, op. cit., n. 7. pp. 87-88.
10. Wiesenthal, op. cit., n. 7, p. 88. Also quoted in Infield, op. cit., n. 6, p. 183.
11. Infield, op. cit., n. 6, p. 183.
12. Schacht, who had lost favor with Hitler in 1938, was acquitted of war-crimes charges by the Nuremberg Tribunal. He was later convicted of being a "chief Nazi offender" by the German de-Nazification court at Baden-Wurttemberg, but his conviction was overturned and his eight-year sentence lifted on September 2, 1948. Infield, op cit., n. 6.
13. Infield, op cit., n. 6, p. 16.
14. Heinz Hohne and Hermann Zolling, The General Was A Spy (New York: Richard Barry, Coward McCann & Geoghegan, 1973), p. 54; and E.H. Cookridge, Gehlen, Spy of the Century (New York: Random House, 1971), p. 120.
15. Christopher Simpson, Blowback (New York: Weidenfeld and Nicolson, 1988), p. 160 ff. Simpson's is the best book on the Gehlen matter so far published.
16. Ibid., pp. 254-55.
17. Ibid., pp. 180, 193.
18. Ibid., pp. 10, 207-08.
19. Ibid., pp. 18-22. Also see Hohne and Zolling, op. cit., n. 14, pp. 35-37; Cookridge, op. cit., n. 14, pp. 56-58.
20. Cookridge op. cit., n. 14, p. 79.
21. Reinhard Gehlen, The Service (New York: World, 1972), p. 99.
22. Ibid., p. 107.
23. Cookridge, op. cit., n. 14, pp. 103, 106.
24. I do not know of an estimate of the size of the Foreign Armies East (FHO) as of the end of the war. Cookridge, op. cit., n. 14, p. 161, says that by 1948, when the Gehlen Organization was probably back up to war-time speed, its key agents "exceeded four thousand." Each agent typically ran a net of about six informants, Cookridge, op. cit., n. 14, p. 167. Thus, the total Gehlen net might have numbered in the range of 20,000 individuals
25. Op. cit., n. 21, p. 115.
26. Corson, op. cit., n. 2, pp. 6, 20; Anthony Cave Brown, The Last Hero, Wild Bill Donovan (N.Y.: Vintage Books, 1982), p. 625; U.S. Senate, "Final Report of the Select Committee to Study Governmental Operations with Respect to Intelligence Activities," Book IV, Supplementary Staff Reports on Foreign and Military Intelligence (known as, The Church Report), p. 5.
27. Cookridge, op. cit., n. 14, p.130.
28. Brown, op. cit., n. 26, p. 626.
29. Cookridge, op. cit., n. 14, p. 131.
30. William M. Leary, ed., The Central Intelligence Agency: History and Documents (Atlanta: University of Atlanta Press, 1984), pp. 123-25; Corson, op cit., n. 2, pp. 214-17; Brown, op. cit., n. 26, p. 625.
31. Brown, op. cit., n. 26, p. 627.
32. Ibid., p. 170.
33. Thomas Powers, The Man Who Kept the Secrets: Richard Helms and the CIA (New York: Pocket Books, 1981), p. 31.
34. Ibid.
35. Brown, op. cit., n. 26, p. 744.
36. This account of Gehlen's surrender is based on Hohne and Zolling, op. cit., n. 14, pp. 52-56; Cookridge, op cit., n. 14, pp. 118-21; op. cit., 3, pp. 89-90; op cit., n. 15, pp. 41-43; and the BBC documentary, Superspy: The Story of Reinhard Gehlen, 1974. There are many trivial discrepancies in these four accounts but they are in perfect agreement as to the main thrust.
37. Cookridge, op. cit., n. 14, p. 120.
38. Hohne and Zolling, op. cit., n. 14, p. 58.
39. As to breaking orders, Gehlen is effusive in his praise of "Sibert's great vision.... I stand in admiration of Sibert as a general who this this bold step -- in a situation fraught with political pitfalls -- of taking over the intelligence experts of a former enemy for his own country.... The political risk to which Sibert was exposed was very great. Anti-German feeling was running high, and he had created our organizations without any authority from Washington and without the knowledge of the War Department." Op. cit., n. 21, p. 123.
40. Hohne and Zolling, op. cit., n. 14, p. 58.
41. Ibid., pp. 58-59.
42. Op. cit., n. 21, p. 120.
43. Hohne and Zolling, op. cit., n. 14, p. 58.
44. Undated CIA fragment with head, "Recent Books," apparently published circa 1972, partly declassified and released in 1986 in response to a Freedom of Information (FOIA) suit.
45. Hohne and Zolling, op. cit., n. 14, pp. 56, 58-59.
46. U.S. Army document SHAEF D-95096, September 15, 1946, declassified FOIA release. The routing of this cable through SHAEF HQ raises a question as to whether Eisenhower was really kept in the dark about Gehlen.
47. As Gehlen was about to leave for the United States, he left a message for Baun with another of his top aides, Gerhard Wessel: "I am to tell you from Gehlen that he has discussed with [Hitler's successor Admiral Karl] Doenitz and [Gehlen's superior and chief of staff General Franz] Halder the question of continuing his work with the Americans. Both were in agreement." Hohne and Zolling, op. cit., n. 14, p. 61.
48. There is variance in the literature concerning how many assistants Gehlen took with him toWashington. John Ranelagh, The Agency: The Rise and Decline of the CIA (New York: Simon and Schuster, 1986), p. 92; Cookridge, op. cit., n. 14, p. 125; and op. cit., n. 15, p. 42, say it was three while Hohne and Zolling, op. cit., n. 14, p. 61, say four. A U.S. Army note of August 28, 1945 (a 1986 FOIA release) refers to "the 7 shipped by air last week" and that no doubt is the correct number. Another FOIA release, an unnumbered Military Intelligence Division document dated September 30, 1945, originated at Fort Hunt, labels the Gehlen party as "Group 6'' and names seven members: Gehlen, Major Alberg Schoeller, Major Horst Hiemenz, Colonel Heinz Herre, Colonel Konrad Stephanus, and two others whose rank is not given, Franz Hinrichs and Herbert Feukner. The number is important for what it says about the nature of Gehlen's trip, Three might be thought of as co-defendants but six constitute a staff. Cookridge, op. cit., n. 14, p. 125, says Gehlen made the trip disguised in the uniform of a one-star American general, his aides disguised as U.S. captains. Hohne and Zolling, op. cit., n. 14, pp. 60-61, inflate the rank to two stars but then call the story spurious. Gehlen's memoir says nothing about it.
49. Corson, op. cit., n. 2, p. 239.
50. Ibid., p. 240.
51. Ranelagh, op. cit., n. 48, p. 102ff.
52. BBC documentary, Superspy, op. cit., n. 36. Corson, in an interview with the author, said the butler and the orderlies must have been CIC agents. Still, the detail rankles.
53. Cookridge, op. cit., n. 14, 203; op. cit., n. 15. p. 136.
54. Op. cit., n. 21, p. 121. Hohne and Zolling, op. cit., n. 14. p. 64, say that the details of this "gentlemen's agreement'' were put into writing by the CIA in 1949.
55. Hohne and Zolling, op. cit., n. 14, p. 65.
56. Op. cit., n. 21, p. 122.
57. Ibid., pp. 122-23.
58. Hohne and Zolling, op. cit., n. 14, p. 119; Cookridge, op. cit., n. 14, p. 155, BBC documentary, Superspy, op. cit., n. 36.
59. Hohne and Zolling, op. cit., n. 14, p. 67.
60. Cookridge, op. cit., n. 14, p. 144.
61. Op. cit., n. 15, pp. 17, 46-47, 166, 225; Cookridge, op. cit., n. 14, pp. 242-43.
62. Hohne and Zolling, op. cit., n. 14, p. 133.
63. Cookridge, op. cit., n. 14, p. 218.
64. Ibid., p. 128.
65. Author's interview with Corson, May, 1986.
66. Cookridge, op. cit., n. 14, p. 131.

(This article was originally from CovertAction Information Bulletin, Fall, 1990)

Islam in Office

If fundamentalist parties take power, how will they do business?

By Stephen Glain

Judeo-Christian scripture offers little economic instruction. The Book of Deuteronomy, for example, is loaded with edicts on how the faithful should pray, eat, bequeath, keep the holy festivals and treat slaves and spouses, but it is silent on trade and commerce. In Matthew, when Christ admonishes his followers to "give to the emperor the things that are the emperor's," he is effectively conceding fiscal and monetary authority to pagan Rome.

Islam is different. The prophet Muhammad—himself a trader—preached merchant honor, the only regulation that the borderless Levantine market knew. In Muslim liturgy, the deals cut in the souk become a metaphor for the contract between God and the faithful. And the business model Muhammad prescribed, according to Muslim scholars and economists, is very much in the laissez-faire tradition later embraced by the West. Prices were to be set by God alone—anticipating by more than a millennium Adam Smith's reference to the "invisible hand" of market-based pricing. Merchants were not to cut deals outside the souk, an early attempt to thwart insider trading.

Today, with a spiritual revival sweeping much of the Muslim world and with the Bush administration still keen on democratizing the region, it is worth asking how an Islamist movement would manage the economy. Since 2001, Islamist parties have made strong showings or won elections in 10 Arab countries (Morocco, Jordan, Lebanon, Turkey, Iraq, Iran, Bahrain, Egypt, Kuwait and Pakistan) and the Palestinian Authority. And none are clashing with the West on free-market economics. In Iraq, the supply-side economic-reform plan submitted in 2003 by former U.S. administrator Paul Bremer has survived with only minor revisions under Baghdad's new Shia-dominated government.

An interesting test came in the January election in Egypt, when the Muslim Brotherhood—the fountainhead of modern Islamism—took a fifth of the seats in Parliament. Now the largest opposition party, much of the brotherhood's appeal rests on its network of hospitals, schools and charities, which are often superior to state services (and help explain why the secular regime cracks down harder on the secular opposition than on the religious one). Fortunately for the reform-minded prime minister, Ahmed Nazif, the brotherhood's economic agenda is largely consistent with his own, albeit with a more populist twist.

The brotherhood embraces free-trade deals in general, but criticizes the government for failing to negotiate better terms for Egyptians. Though Islam tends to frown on tax collection, the brotherhood supports tax reform (not abolition) and opposes a proposed flat tax as regressive. It even endorsed the recent decision to lift budget-busting food and fuel subsidies, but wants to use Egypt's ample natural-gas reserves to finance a less painful transition to market prices. "It must be done gently," says Mohammad Habib, the brotherhood's first deputy chairman, "with the objective of reducing the gap between rich and poor."

In the 1950s, as the brotherhood gained political momentum, it opposed President Gamal Abdel Nasser as much for his decision to nationalize the Egyptian economy as for his fierce secularism. Muhammad, says Yasser Abdo, a Muslim Brotherhood member and a former economist at the International Islamic Bank for Investment and Development in Cairo, "believed in the private sector as the basis of productive activity," with a "limited" state role.

Today, brotherhood parliamentarians remain anti-statist and staunchly antitrust, citing a verse in the Qur'an: "He who brings commodities to the market is good, but he who practices monopolies is evil." Not that any member goes as far as questioning the OPEC cartel. As Cairo University economist Abdel Hamid Abuzaid puts it, Islam promotes "competition of a cooperative" nature, not the "cutthroat" Western kind.

Politically, at least, the objective of fundamentalist Islam is to restore the Islamic caliphate, the unified Muslim kingdom of the 7th to the early 20th centuries that stretched from the Hindu Kush to the Strait of Gibraltar. This rhetoric turns more practical on the subject of trade. "If the ancient caliphate can revive itself," says Habib, who has a U.S. doctorate in geology, "it will happen through regional commerce." A brotherhood in power, says Habib, would respect Cairo's free-trade agreements—though the group appears to be divided over whether it would honor one with Israel.

In the days of the caliphate, Islam developed the most sophisticated monetary system the world had yet known. Today, some economists cite Islamic banking as further evidence of an intrinsic Islamic pragmatism. Though still guided by a Qur'anic ban on riba, or interest, Islamic banking has adapted to the needs of a booming oil region for liquidity.

In recent years, some 500 Islamic banks and investment firms holding $2 trillion in assets have emerged in the Gulf States, with more in Islamic communities of the West. British Chancellor of the Exchequer Gordon Brown wants to make London a global center for Islamic finance—and elicits no howl of protest from fundamentalists. How Islamists might run a central bank is more problematic: scholars say they would manipulate currency reserves, not interest rates.

The Muslim Brotherhood hails 14th century philosopher Ibn Khaldun as its economic guide. Anticipating supply-side economics, Khaldun argued that cutting taxes raises production and tax revenues, and that state control should be limited to providing water, fire and free grazing land, the utilities of the ancient world. The World Bank has called Ibn Khaldun the first advocate of privatization. His founding influence is a sign of moderation. If Islamists in power ever do clash with the West, it won't be over commerce.