Friday News Roundup — September 20, 2019
Attacks on Saudi Oil Infrastructure; Political Critiques of Central Banks; A New Opportunity for the State Department?; Talking Compromise on Constitution Day; Plus News You May Have Missed
Good Friday morning to you from Washington, D.C., where we’ve had a week jam-packed with developments inside the Beltway, across the country, and around the globe. On Capitol Hill, there was high drama and political posturing as the House Judiciary Committee called Trump confidant, and possible GOP Senate candidate, Corey Lewandowski to testify on the findings of the Mueller Report. At the same time, President Trump named Robert O’Brien to be the fourth National Security Advisor of his first term, while many others strained to read the tea leaves for signs that the former holder of that post, John Bolton, is ready to unload about his time in office. The Houston area is facing severe flooding as what was Tropical Depression Imelda came ashore — another reminder that even comparatively weak storms, by tropical standards, are having a greater and greater impact. In the latest trade talks with China, negotiators are trying to lay the groundwork for further talks in October, while trying to find near-term wins on agriculture purchases and halting fentanyl smuggling. In a serious geopolitical development, both oil prices and the risk of conflict in the Persian Gulf spiked following a series of strikes on Saudi oil infrastructure — attacks being blamed on Iran by U.S. and Saudi officials.
This week at CSPC, we hosted another meeting in our series of U.S.-Japan “Track 1.5” cybersecurity dialogues. Working with our partners at the Auburn University McCrary Institute for Cyber & Critical Infrastructure Security, these roundtables have brought together corporate cybersecurity leaders to discuss the shared challenges and best practices for cybersecurity leaders, as well as to foster closer cybersecurity cooperation with a vital U.S. ally.
Given all the news to cover, it’s all hands on deck for this week’s roundup: Joshua leads off with a thorough analysis of the drone and cruise missile strikes on the Saudi petroleum sector, and what it tells us about tensions in the region and the changing nature of conflict. Dan looks at some of the critiques leveled at central bankers and suggests that politicians deserve more of the blame for economic uncertainty. With the appointment of Robert O’Brien as National Security Advisor, Erica covers what this development means for the role of the State Department in the Trump administration’s foreign policy. With this week marking the 232nd birthday for the U.S. Constitution, Chris looks at how we can learn from the founders’ lessons on compromise to help fix today’s politics. As always, we wrap with stories that you may have missed.
A Game of Drones in Saudi Arabia?
On Saturday, 15 September, Saudi Arabian oil facilities in Khurais and Abqaiq came under a large and sophisticated aerial attack by as of this writing unclear weapons platforms and by an uncertain adversary. What is clear is that this marks a fascinating development in international security.
Abqaiq is largest oil processing facility and crude oil stabilization plant in the world, capable of processing more than 7 million barrels per day (bpd). Khurais is the second largest oil field in the Saudi Arabia, producing about 1.5 million bpd. Immediately following the attacks, London’s Brent futures rose $12 on opening, later falling to about a $6 increase.
You know nothing…
Yemen’s Houthi rebels claimed responsibility for the attacks which struck 17 targets at the two sites, but this almost certainly untrue. The Houthis have used drones and small cruise missiles in the past, but these previous strikes were much smaller and less sophisticated by comparison. While many analysts believe that these rebels have received help from Iran, which is backing the insurgency, launching such a coordinated strike on 17 targets (with other drones/missiles failing to reach their target) is beyond the capabilities of the Houthis. The targets struck are roughly 500 miles from the border with Yemen, which is beyond the range of weapons systems currently used by the Houthis.
Moreover, images released following the attacks show a consistent strike pattern suggesting high precision. Analysts are suggesting that the consistency, number, and recovered wreckage suggests a combination of cruise missiles and drones. Here too, such a blend of weapons platforms suggests proficiency not yet demonstrated by the Houthi rebels, or at least the rebels on their own.
The originating point for the strikes is also uncertain. Secretary of State Mike Pompeo laid blame for the attacks at the feet of the Iranians, but the administration has not yet said from where the attacks actually originated. U.S. officials reported that as of yet unreleased photos show an Iranian Revolutionary Guards Corps (IRGC) base readying the missiles for the strike.
The Saudi Arabian government displayed parts of recovered drones and cruise missiles, which resemble Iranian designs suggesting involvement by Tehran in one form or fashion. Colonel Turki al-Malki, a spokesman for the Saudi Arabian Ministry of Defence asserted that the attacks—involving 18 drones and seven cruise missiles, three of which failed—originated in the “north”, but added that “we are working to know the exact launch point.”
Some of the debris recovered was north of the impact sites suggesting a possible point of origin. The impact sites also suggest the launch originated in the west or northwest, possibly Iraq or Iran. However, this too is uncertain as cruise missiles and drones are able to fly complex patterns and attack from multiple directions and flight paths.
What is clear is that this is a staggering failure for Saudi Arabia’s defense network. In 2018 Riyadh spent $67.6 billion on arms, behind just China and the United States, owning some of the most advanced air defense systems in the world. Saudi Arabia owns and operates the American Patriot missile system as well as systems from Germany and France. It will soon own and operate the Terminal High Altitude Air Defense system (THAAD) made by Lockheed Martin.
But, it is important to keep in mind a few things on air and missile defense networks. First, there is no “magic air defense shield” and many of the systems deployed were not designed for these kinds of threats. The THAAD system, for example, is designed to interdict short- to- medium range theatre ballistic missiles. The Patriot missile system, for is part, has a rocky history of intercepting similar missiles and has proven capable of taking down drones (in the hands of the Israelis).
These systems were not designed to handle low-flying drones or cruise missiles flying nap of the earth altitudes, or that were coming in from unanticipated directions. Reporting suggests that these systems were installed and oriented to the east, toward Iran, and not the north or south.
Second, and perhaps most importantly, all the systems in the world are useless if they are not operated by trained, attentive, and effective personnel. In an interview with CNBC, Jack Watling of the Royal United Services Institute said “The Saudis have a lot of sophisticated air defense equipment. Given their general conduct of operations in Yemen, it is highly unlikely that their soldiers know how to use it”. He added that the KSA forces suffer from, “low readiness, low competence, and are largely inattentive.”
Becca Wasser of the RAND Corporation also pointed out that the organization of Saudi Arabia’s defense and security posture likely complicated any interdiction efforts. In a series of tweets, she noted that most of America’s air defense sales have gone to the Saudi Arabian Armed Forces and not the Ministry of the Interior which is responsible for oil field and infrastructure security.
Both the United States and Saudi Arabia have yet to respond to the strikes. While Secretary of State Pompeo blamed the Iranians calling it an “act of war”, no response has been forthcoming.
President Donald Trump ordered new sanctions on Iran and signaled caution on any kinetic response, suggesting a reluctance to engage in overt military activities. “It’s very easy to attack,” the president said, but added: “How did going into Iraq work out?” He did, however, warn that he has “plenty of time to do some dastardly things” to Iran. This follows earlier tweets in which he warned that America was “locked and loaded” but waiting on Riyadh on how to proceed.
For its part, on Thursday, in an interview with CNN, Iran’s foreign minister Javad Zarif warned of “all-out war” in response to any Saudi or American aggression. Zarif added, “I make a very serious statement about defending our country. I am making a very serious statement that we don’t want to engage in a military confrontation,”
What does it mean?
If reports are true that the order for the attacks originated with Ayatollah Khamenei on the condition that Iran’s involvement be deniable, this marks a considerable escalation in the over/covert conflict in the Gulf. It highlights Iran’s asymmetrical capabilities to raise the temperature in the region without tipping its hand outright. This is similar to Russia’s “little green men” in Crimea — officially deniable, but undoubtedly acting on Moscow’s behalf.
On the weapons platform side, the use of multiple cruise missiles and drones highlights the extent to which these technologies are changing the way conflicts are fought. Why bother with a conventional strike with a “return to sender” label when you can deploy multiple, fairly (by comparison) cheap platforms and achieve a considerable effect.
While many commentators have argued that this represents a “new way of war”, this is stretching the notion. It is certainly an escalation in the use of cruise missiles and drones in scale and complexity, but it is not a “new way of war”. Rather, it is an escalation of asymmetrical tactics against a large scale target, one that should have been better defended, but that ultimately was still a “soft target”.
This asymmetric capability affords Iran a strategic advantage — deniability while achieving the goal of ratcheting up tensions and pressure without an IRGC label; a label that would make a response much easier, clearer, and more palatable in the court of public opinion. What does Iran hope to achieve? Iran is signaling that if it wants, it can strike critical nodes that would exert a disproportionate amount of pain on the United States and its regional allies.
Will the United States and Saudi Arabia respond in kind or kinetically? That remains to be seen, but it is less likely. An overt kinetic response would simply accelerate the escalation dynamic — a chaotic ladder that from which it is difficult to climb down. More likely is a covert response using cyber or other means paired with increased economic pressure.
Don’t Break the Bank
This week on Wall Street, attention turned to a little-covered market, as rates spiked for repurchase agreements, referred to as “repos.” This market serves the needs of banks, hedge funds, and brokers for short-term loans, generally from money market funds, to cover the costs of investments and market activities. Given that the repo market sent similar signals in the lead up to the 2008 financial crisis, some took this as another sign that the markets could soon be going haywire. Cooler heads looked at the confluence of events — including a major auction of a new tranche of U.S. treasuries, quarterly payments for corporate taxes coming due, and a bank holiday in Japan — to suggest that the turbulence in the repo market was due to a short-term bottleneck in available funds, leading to a limited liquidity crunch.
Because of this, the Federal Reserve intervened in repo markets for the first time since the 2008 financial crisis, pushing $53 billion into repo markets on Tuesday morning, and another $75 billion each on Wednesday and Thursday morning. It appeared likely that the Fed would intervene today as well. While this intervention seems to have calmed repo markets for now, it raised another warning sign about the health of financial markets and the economic outlook. Whether further intervention by the Fed is warranted remains to be seen, but it does presage a return of the Fed buying bonds to address distortions in this important market.
At the same time, the Fed announced a quarter-percent interest rate cut, responding to continued weakness in the global economic picture despite the continued strength of the U.S. economy. Focused on his 2020 re-election prospects, President Trump decried the Fed’s cut as insufficient, tweeting, “Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!” This comes on the heels of previous tweets where he called for the Fed to match other central banks in cutting interest rates to zero, calling Powell naive and a “bonehead,” as well as his open query whether Xi Jinping or Jay Powell was a greater enemy to the United States.
While President Trump has made his disdain for the Fed apparent — and the Fed can’t fire back — the former vice chairman of the Federal Open Markets Committee, Bill Dudley, did fire back, writing an op-ed in Bloomberg entitled “The Fed Shouldn’t Enable Donald Trump.”
This back-and-forth raises the specter of a politicized Fed, acting in favor or opposition to political policies. Yet, it couldn’t be further from the truth at this point, as the Fed continues to operate in a data-driven manner, pursuing its twin goals of price stability and maximum employment. Yet, as politicians exacerbate global economic uncertainty, it is central banks — not the politicians — who find themselves in the rhetorical crosshairs.
Since the 2008 financial crisis, central banks have longed to return to the pre-crisis normalcy, raising interest rates and drawing down balance sheets to ensure that the “powder is dry” for the next major downturn. Yet, while central banks made sure to provide support for economies via monetary policy, politicians have not undertaken the necessary fiscal and structural measures to bolster economies.
It is politicians, not central bankers, who have failed to come to agreement on investments in infrastructure and reforms to modernize our education system. Central bankers haven’t started trade wars, advocated for No Deal Brexit, slowed EU common market integration, balked at labor market reforms, or raised geopolitical risk in world hot spots.
Nor will central bankers be able to address myriad challenges — present and looming — that require politicians’ attention. How we ensure that capitalism works for everyone, and address a major driver of populism on the left and right, requires political solutions, not monetary. Furthermore, as we continue to move to an economy that is based on digital technology and the service sector, it will require political leadership to reform economic policies and social programs that better reflect the 20th century than the 21st.
The Fed’s job — or that of any reputable central bank — isn’t to have “guts,” or to enable or punish political policies, but rather to meet macroeconomic goals via monetary policy. Rather than trying to break the central banks for their own ends, politicians should be asking themselves what they’re doing to help the economic outlook.
With Bolton Out, Can Pompeo Return the State Department to Center Stage?
This week, President Trump announced Robert O’Brien as his pick to replace John Bolton as National Security Advisor. O’Brien, who Trump recently dispatched to Sweden to secure the release of jailed U.S. rapper A$AP Rocky, currently serves as the Special Presidential Envoy for Hostage Affairs at the State Department. He will be President Trump’s fourth National Security Advisor, following dramatic exits by each of his three predecessors.
Secretary of State Mike Pompeo reportedly eagerly supported O’Brien’s candidacy. With John Bolton, a critical adversary, gone, Pompeo stands to become the most influential advisor on foreign policy and national security issues within the administration. Pompeo’s ascension could signal an unexpected reversal of fortunes for the State Department, which has struggled since the early days of the Obama administration to retain its influence vis-à-vis the National Security Council over the policy-making process. It would be a welcome return to a balance of power between the two institutions.
Each president constructs the National Security Council as they see fit, but since the NSC was first established by Congress in 1947, the historical trend has moved towards an increasingly bigger institution with more centralized power. This evolution reached its zenith in the Obama administration, with the NSC ballooning to nearly 400 employees. Frustrated members of Congress threatened to legally mandate staffing caps in an attempt to reign it in. Observers frequently criticized the administration for utilizing the NSC both as a decision-maker and policy implementer — moving beyond its traditional role as a coordinating body — with limited input from agencies.
Among government agencies, the State Department has suffered the most from the growth of the NSC. It cannot offer presidents the speed, agility, or control that the NSC does. In the age of the internet and the 24-hour news cycle, the bureaucratic State Department often seems anachronistic. Gone are the days of Washington eagerly awaiting reports from post about issues or events in foreign countries.
Despite its rapid growth over the past two decades, the NSC remains nimble in relation to the State Department. This feature has given the NSC a tremendous advantage in the policy process. In a highly politicized environment, Obama chose to keep the most important foreign policy issues within a small network of trusted advisors. Key policies like the diplomatic opening to Cuba were both decided and managed by the White House.
The decline of the State Department’s influence has come at a cost. Despite its challenges, the State Department offers a wealth of expertise in the form of thousands of foreign and civil service employees who maintain their positions regardless of the administration. These employees provide the best hope of retaining institutional knowledge, key relationships, and policy continuity on the vast set of national security issues that do not swing wildly from administration to administration.
Now, given a perfect storm of events, the State Department looks poised to regain its position as the preeminent body on U.S. foreign policy and national security within the government. The NSC has suffered from an endless shuffle of personnel at the top. Bolton, who came to the position with long-held views on a variety of policy issues and found little need for the interagency process, leaves behind a stunted organization. He never attempted the “honest broker” model championed by former National Security Advisor Brent Scowcroft. As a result, the traditional functions of the NSC were upended. Instead, Bolton and Pompeo battled for influence, a behind-the-scenes fight that often took center stage in the press.
Pompeo ultimately won out, understanding that his ability to stay in lockstep with the President would grant him longevity in the administration. And now Pompeo has helped select Bolton’s successor. By championing a relatively unknown candidate with limited foreign policy experience, Pompeo ensured that he would not have a foe leading the NSC. O’Brien lacks the stature or prior rapport with the president to compete with Pompeo for influence, and he owes the Secretary, in part, for his job. With Mattis out at the Pentagon, Pompeo is the last man standing from Trump’s original national security team. He has all but guaranteed that he will be the most important voice in the administration, other than Trump himself, on matters of national security.
If, like Bolton, Pompeo sees the job as personal advisor rather than a spokesperson for the agency he leads, the institution as a whole will have power on paper only. Thus far, Pompeo has built a much stronger relationship with the Department than his predecessor, Rex Tillerson. However, in an administration where advisors can fall out of grace at any time, Pompeo has remained in place by allowing little daylight between himself and the President. Given Trump’s often unpredictable decision-making, it is unlikely that the State Department’s rank and file personnel will be in lockstep with the president’s policy goals. It is an open question whether a State Department remade in Trump’s image retains institutional power or merely exists as a salesman for the President’s policy choices.
If Pompeo is able to carefully steer Trump away from his worst impulses while representing the agency’s interests, he has a unique opportunity to restore the balance of power in the foreign policy process. If the State Department reclaims its role as advisor and chief implementer of foreign policy decisions, the NSC can return to its role of honest broker that helps the president evaluate policy options from a variety of agency players and ensures the president’s directives are carried out with the support and coordination of all relevant players.
The risk is that a much needed rebalance will not come from a conscious decision to level the playing field, but rather from the collapse of the National Security Council as a functioning body. Any benefit to a rebalance in the relationship between the State Department and the NSC will be outweighed by the weakening of the entity charged with organizing an interagency process for decision-making. But for a presidency that is ultimately a one-man show in which policies are made on the fly as a result of gut feelings and a penchant for pageantry, it may not matter much at all.
Securing the Blessings of Liberty
September 17th marked the 232nd anniversary of the signing of the United States Constitution. When the document was originally agreed upon, the Union was in an extremely precarious position. Various insular groups fought for influence in the absence of a unifying national force that Revolution had provided, and Congress provided no leadership. The national government was greatly hampered in action by the Articles of Confederation, which allowed the Continental Congress to make decisions but relied on state governments to enforce and fund the decisions voluntarily. Each state defended their own interests, fighting tooth and nail against the power of others to affect change. Division and infighting filled the vacuum left by Congress.
This situation is rather similar to the one affecting us now, but rather than states fighting for their interests, we see self-interested men doing the same. On this Constitution Day week, perhaps examining the solution the founders employed can assist in finding a modern solution. When the United Kingdom’s American colonies became increasingly cantankerous, much of the people’s ire was focused in local movements against British rule. Perhaps most famous among these is the Sons of Liberty, an organization based in Boston and led by Samuel Adams. These activists resisted British authority in every way aside from open warfare, most famously dumping British tea in Boston harbor. By the time regulars under Thomas Gage marched to Concord to seize American powder and arms, Committees of Correspondence (groups of disaffected citizens) in each state had sent delegates to Philadelphia to discuss unified measures of colonial resistance.
After the Declaration of Independence, the American government operated under this system until 1781. That year, the states ratified the Articles of Confederation, which had been drafted by Congress four years prior. For the next five years, Congress had the authority to print money, but this money was worthless without the power to tax or pay back money borrowed. Most decisions made by the body had to be approved by at least a majority of state legislatures, and any amendments to the Articles had to be unanimously ratified. Although the system held up until the Treaty of Paris in 1783, it soon became evident to figures such as James Madison that the nation would dissolve if it were to continue on this path.
By 1787, the Confederation Congress was utterly paralyzed by limitations imposed by the Articles. Sensing their own helplessness, Congress called a convention for the express purpose of modifying the Articles of Confederation to make the national government more effectual. Some figures, such as James Madison and a young Alexander Hamilton, desired to scrap the Articles altogether and build a new system from the ground up. Once a quorum of delegates was present — 12 out of the 13 states eventually sent delegations — they elected George Washington as the convention’s president. Although almost all of the delegates did not understand their mission as a complete retooling of the government, they eventually came to agree that a new Constitution was necessary. Over the course of the summer, various delegations jockeyed for plans and structures that would benefit their constituent states, which created turmoil among the participants.
James Madison, who took copious notes of the convention that are our only record of its proceedings, proposed the Virginia Plan. Friendly to large states such as Virginia and Pennsylvania, his plan proposed a proportional legislature based entirely on population and an executive appointed by said legislature. William Paterson of New Jersey proposed the New Jersey Plan, which proposed a legislature structured much like the Continental Congress — members would be appointed by state legislatures, and each state would receive one vote in all matters. As the convention wore on, members from each side became frustrated with the process and threatened to leave Philadelphia. In the hope of finding a solution, the convention selected one delegate from each state to draft a final plan for consideration.
Roger Sherman of Connecticut proposed a compromise to the delegates, combining certain aspects of both plans. His proposal created a bicameral legislature; one house, the House of Representatives, would be elected directly by the people and membership would be based proportionally on population. The upper chamber, the Senate, would be selected by each state legislature and would consist of two members from each state. Although certain tweaks were made to the Connecticut Plan — Benjamin Franklin added the provision that revenue bills originate in the House to appease larger states — it eventually became the basis for representation in the federal government and was included in the Constitution’s final draft. The Great Compromise, as it came to be known, sutured the divisiones in the convention and created the foundation of our government.
This brings us back to the present. Today, the government created in Philadelphia is at one of its greatest periods of division. Congress has been reduced to a messaging vehicle, where national parties seek only to score political points that they can use in the next election. Congress shirks their place in the constitutional balance of powers, as all decisions are made on political — rather than institutional — grounds. Pressing national issues such as immigration and the budget come no closer to a solution with each passing year, and few members have the courage to address dysfunction. Representatives shout across the aisle, working to undermine the opposition’s objectives rather than address the struggles of the American people. Rather than acting as statesmen for the good of the nation, those in government are incentivized to entrench themselves and throw bombs.
When the Confederation Congress called the Constitutional Convention, they had no idea what their decision would bear. The delegates took their responsibility seriously, sensing the dire nature of the situation the nation faced. They hammered out a compromise despite intense division not because it was what they wanted to do, but for the good of the Union and the people. Without this type of courage again, we may tear ourselves asunder as Madison and Hamilton feared we would.
News You May Have Missed
As of Thursday, seven people have died from a lung ailment connected to vaping. 530 people nationwide have developed confirmed cases of an unknown lung condition from using some form of the product, and the FDA has begun an investigation into the industry. Their goal is twofold: first, discover why the products are causing this illness. Second, they seek to investigate the supply chain that led each of these cases to buy the same tainted product, hopefully stemming the flow to more consumers. Many patients have admitted to using illicit forms of the product that contain THC or other substances, indicating that they may be acquiring the tainted substance from an illicit source. Even more confounding is the fact that no one product or ingredient links all of the cases of the disease. Whatever the case may be, the CDC expects the number of cases to climb until the source can be found.
Reports indicate that the Trump administration may be testing the viability of a universal background check bill among Republicans in the Senate. Long a favored policy of some GOP Senators like Sen. Pat Toomey, a memo has been circulating which supports expanded background checks whenever a consumer purchases a firearm. The proposal contains two provisions: first, every sale will produce a bill of sale that records all the details of the transaction. Next, the seller and buyer will receive a confirmation that a successful background check has been completed. If the buyer fails the background check, federal law enforcement is notified, which may be a sticking point for staunch Second Amendment advocates. At the very least, the proposal is careful to not create a federal firearms registry that would be anathema to much of the GOP.
With study results leaving them stunned, scientists announced that the bird population in the United States and Canada has decreased by an estimated 3 billion birds since population measurements began in 1970. Scientists believe a range of factors are to blame, including habitat loss, increased pesticide use, nighttime light pollution, climate change, and hunting by feral cats. Scientists noted that much of the population decline came amongst smaller songbirds, while populations of raptors and waterfowl have improved, based on improved conservation measures for protected species such as the Bald Eagle and efforts by sportsmen to improve waterfowl habitat and populations to support hunting.
Amazon Founder Jeff Bezos announced on Thursday that his company would make a large purchase of 100,000 electric delivery vans from the vehicle startup Rivian. The vehicle manufacturer is a potential rival to Elon Musk’s electric vehicle venture Tesla, which has thus far cornered the market nationally on electric vehicles. With such a large order before the company has even started production, Rivian investor Jeff Bezos has provided a good foundation for the company to grow. Bezos asserts that the purchase is part of Amazon’s initiative to become carbon neutral by 2040; the new vans will begin making deliveries in 2021 and will all be in use by 2024 if all goes according to plan.
While Blink 182 is more often associated with the angst of one’s high school years, the band’s guitarist Tom DeLonge is also a celebrity among UFO watchers. This week, the U.S. Navy confirmed that footage that DeLonge released of U.S. Navy pilots intercepting “unidentified” phenomena is authentic. The Navy spokesman also voiced his concerns about how DeLonge came to be in the possession of the recordings, considered sensitive, and suggested that the result of further investigations into the phenomena will likely be classified.
Views of contributors are their own, and not that of CSPC.