Wednesday, April 05, 2006

Iraq: Getting the Hell out of Dodge - Apr 5

It is looking more and more likely that the U.S. is getting serious concerning withdrawal from Iraq. Not just the military, but multi-nationals as well. Is Babylon, in fact, rising? Too soon to tell I'd say.

The Man in Black

Stratfor -- Predictive, Insightful, Global Intelligence

Iraq: Leaving the Green Zone
Apr 05, 2006

By Fred Burton

The U.S. government recently has ordered several multinational corporations operating in Baghdad to begin reducing their presence in the area known as the "Green Zone." In essence, corporations have been advised to attempt to reduce their staffs and to seek locations outside the sector, which currently is protected by U.S. military troops.

Orders for a corporate downsizing from the "Green Zone" (or, as it is formally known, the "International Zone") fit perfectly with the political objectives of both the Bush administration and the nascent Iraqi government. A significant U.S. military drawdown is anticipated in the coming months, and that movement of troops will have deep implications for many -- not least of which will be the multinationals and other corporations that have been sheltered inside the Green Zone and that now will be factoring increasingly significant security considerations into their operational planning.

Hundreds of foreign companies -- ranging from giant infrastructure companies like Halliburton's Kellogg, Brown and Root to food and consumer-product companies like Coca-Cola Co. and Nokia -- currently operate in Iraq. Though many corporations fulfill their government contracts in Iraq through subcontractors, all of them require protection from insurgents, terrorists and common criminals. This need will take on increasing urgency as employees move beyond the bounds of the Green Zone -- a district where it can be difficult even for military troops to retain a sense of what conditions are like in other parts of Baghdad or Iraq.

Leaving the Green Zone: Political Implications

The Green Zone is a section of prime Baghdad real estate, measuring about four square miles, that is cradled by a bend of the Tigris River. The name "green zone" derives from military terminology reflecting the threat of enemy activity in the area; a "red zone" would entail high risks of enemy activity, while danger levels in "green zones" are much lower. In Baghdad, the Green Zone houses Iraqi government offices, the headquarters of the U.S.-led military coalition, and offices of many of the companies involved in reconstruction efforts and support to military troops. It also remains home to many Iraqis who were living in the neighborhood before it was cordoned off by soldiers and secured with walls, barricades and checkpoints.

The recent eviction notice to corporations can be viewed as a sign that the United States is preparing to scale back its presence in the capital and the rest of Iraq -- a move that would meet with several political objectives for both Washington and Baghdad.

From a U.S. perspective, reducing the military footprint in the Green Zone would be a very effective way of showing that it is reducing its presence in the country as a whole. The area is, after all, the location of all the most important political players concerned with Iraq, and it is intimately familiar to the foreign journalists covering those issues. Conveying a sense, if not an overt message, that the U.S. presence is being reduced will be important for the Bush administration and Republican Party -- particularly as November's midterm congressional elections draw nearer.

The move also is likely to play well with the military itself; the U.S. Army has sought to extricate itself from Green Zone security burdens for quite some time. For example, approximately 800 troops, more than a full battalion, were dedicated to security in the Green Zone in August 2004, and the leadership of an entire brigade spent about 60 percent of its time dealing with security there -- not to mention the additional resources (including Navy SEALs, military police and other personnel) tasked with security for Iraqi political leaders. At that time, the Army proposed turning over portions of the zone to Iraqi control -- hoping to free up units for other duties, such as fighting insurgents.

The Iraqis certainly are not averse to such proposals; because the Green Zone is the primary seat of government within Baghdad, who controls the area is an issue with high symbolic implications. Having Iraqis providing protection would improve the government's image as a legitimate authority and reduce the sense that the area is under U.S. occupation.

Scaling back the Green Zone -- both in terms of U.S. presence and the area's physical size -- also would remove a source of considerable irritation to the residents of Baghdad. Given the existence of multiple checkpoints and tight security, entering and leaving the Green Zone can take hours for ordinary Iraqis. Several important roads that pass through the Green Zone are closed, including one of the main bridges connecting downtown Baghdad with the southern part of the city. Eliminating these inconveniences would remove a source of tension between coalition forces and locals.

Eviction Notice: Business Implications

For the businesses that have based significant operations from the Green Zone, the implications are altogether different.

The first concern, of course, is security -- both for employees and for operations. This is not a new concern; violence and Iraq are hardly strangers. But the nature of the violence in the country is shifting and will continue to do so as the political process unfolds. Jihadist activity and the Sunni insurgency can be expected to decline over time, but threats to corporations from crime will remain -- and probably grow, incorporating former insurgents.

As it stands now, most of the violence in Baghdad stems from the activities of criminal gangs -- robbery, smuggling, kidnappings, sectarian killings -- rather than from political insurgents (though the insurgency gets most of the public's attention). The security challenge is complex; ordinary criminals have picked up paramilitary capabilities and even can be armed with mortars and improvised explosive devices, making it difficult to distinguish them from insurgents. Under any circumstances, it is doubtful that Iraqi security forces will be able to control the situation after a major U.S. withdrawal, and things easily could get worse.

All of which means that corporations that have relied on the protection of U.S. military troops, both within and beyond the Green Zone, will face new and heightened risks once the drawdown begins in earnest. And there are few quick -- or cheap -- solutions.

The most logical step, of course, would appear to be hiring private security contractors to fill the void left by U.S. troops. However, private U.S. security firms are despised in the Muslim world because they are viewed as playing a role in abuses of Muslim prisoners in Iraq and Afghanistan -- and this makes them a target for militants of many descriptions. As the presence of security contractors in Iraq grows, their risk quotient will rise in tandem -- and that concern will be factored into contracts and passed along as a cost to their customers.

In general, corporations and NGOs operating in or around Iraq can expect to see their operating costs go up -- and these are not inconsiderable at present. Security must be provided for facilities, personnel and transportation of commercial goods. Private security firms have been known to charge $700 for a single seat in a convoy from Baghdad International Airport to the Green Zone. Pay scales for private security contractors are another factor to consider. Western security contractors are seen as preferable to Iraqi security forces, whose loyalties -- for tribal and cultural reasons -- can be suspect, but the supply of skilled employees in this industry is small. Salaries exceeding $100,000 per year, with housing and food supplied, are not unusual, and competition for skilled employees likely will only push the costs upward as the need for security services grows.

Insurance needs also will have to be considered from a number of angles. Ancillary costs -- such as hazard pay or bonuses to employees who sign "hold harmless" waivers -- are nothing new, but kidnap-and-ransom insurance and life insurance premiums could escalate. Moreover, insurance carriers -- who have the option of refusing to provide coverage at any price -- might choose to do so as the security environment in Iraq shifts and troops withdraw. And all of these considerations -- including competitive pay scales to retain employees -- could become particularly acute if large numbers of contractors were to be killed or injured in a strike by insurgents.

Transportation of goods and people, to and from Baghdad and other parts of the region, also must be taken into account. In Iraq, helicopters -- flying low and fast -- are considered the safest way to travel between fortified coalition bases. The military has allowed civilian contractors to hitch rides on its helicopters as space permits, but as the military presence is reduced, corporations increasingly will be forced to arrange -- and pay for -- secure transport themselves. Meanwhile, overland transportation -- the primary means of moving commercial cargo throughout the country -- will take on new importance.

The Shift to Soft Targets

To be sure, there are opportunities amid the risks, and these will ripple across a number of industries as multinationals and others adjust to the new realities in Baghdad.

Apart from the private security industry, the opportunities may be particularly evident in areas bordering Iraq -- in places like Amman, Kuwait City and Dubai.

Many Western companies, in the face of the Iraqi insurgency, already have pulled expatriates back to these areas, and the trend is likely to intensify now that the U.S. government has issued its guidance to the Green Zone's corporate residents. But that certainly will not mean a cessation of reconstruction efforts in Iraq; so long as the benefits of lucrative government contracts continue to outweigh the costs of operations, the multinationals will remain in the region. Rather, it could translate into increased demand for communications infrastructure, housing and transportation for new waves of foreign workers coming into these or other cities.

Viewed from another angle, however, the movement of corporate assets could simply mean a geographic shift for certain kinds of security threats -- particularly those from jihadists. Jordan, the birthplace of Abu Musab al-Zarqawi, has been the target in several thwarted plots, and al-Zarqawi himself took note of the Western business presence in Amman when he claimed responsibility for the bombings of three hotels there last November. Other countries in the region -- such as Kuwait, Oman and the United Arab Emirates -- are not known as playgrounds for jihadists, but militants could be tempted to strike in such places if they are viewed as being rich with important targets.

In short, the exodus from the Green Zone can be seen as the continuation of a larger trend in the U.S. war against al Qaeda: Over time, government policy increasingly has pushed the security risks away from hard targets, such as military installations, toward "soft targets" like private businesses and transportation infrastructure.

The nature of violence in Iraq is changing, but the country can be expected to remain unstable following the U.S. military drawdown. Whether the threat comes from jihadists or street criminals, there will be no shortage of weapons, ordnance and actors in play. Foreign corporations -- even if their primary facilities are not physically located in Iraq -- will feel the effects.

Copyright 2006 Strategic Forecasting Inc. All rights reserved.

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