Herb Meyer and Doug Feith - Two must reads!

A paper presented by Herb Meyer at the World Economic Forum in Davos, Switzerland which was attended by most of the CEOs from all the major international corporations -- a very good summary of today's key trends and a perspective one seldom sees. It’s long, but worth the time you spend reading it. Most importantly it is rational and lays out, in a very cogent way, why the vituperation from the Left is mis-placed and mis-guided regarding what we are doing vis a vis radical Islamism.

Meyers comments about Western Demographics is something my memo readers know I have highlighted when I first published the CIA's public report on same. His connection with religion and birth rates is outstanding as well as the relationship money and economic success has on birth rates.


Meyer served during the Reagan administration as special assistant to the Director of Central Intelligence and Vice Chairman of the CIA's National Intelligence Council. In these positions, he managed production of the U.S. National Intelligence Estimates and other top-secret projections for the President and his national security advisers. Meyer is widely credited with being the first senior U.S. Government official to forecast the Soviet Union's collapse, for which he later was awarded the U.S. National Intelligence Distinguished Service Medal, the intelligence community's highest honor. Formerly an associate editor of FORTUNE, he is also the author of several books.

In conjunction with this article I highly recommend reading Doug Feith's: War and Decision." It was recently reviewed by this Sunday's speaker - Bret Stephens.
(See 1 below.)

Several days ago I suggested that I thought something was about to break. Friedman's discussion below just ratchets up what I have been saying.

Gen. Petraeus is convinced Iran is behind American deaths in Iraq. The U.S. and Israel will soon be announcing more about the Syrian raid just before the U.S. re-engages the N Koreans regarding the latter's nuclear status and we have the upcoming Olympics which China dearly wants to go off in order to show case their societal changes and growing power. GW's term in office is ending soon and he wants history to write a better one than it might if things remain muddled. (This is why I urge you read Feith's book.) (See 2, 3 and 4 below.)

Iran continues to stick its finger in the West's eyes. Why? Is it because they are testing our resolve? Is it because they are trying to build up their own confidence? Is it because they believe the West is a paper tiger and want to rub the West's nose into the ground? Wars begin over miscalculations between those who neither understand each other's intent nor possible response. (See 5 below.)

For those interested I have published Gen. Petraeus' testitmony. This is the same general Sen. Clinton basically said she could not believe. Sen. Obama also believes he knows more about what we must do in Iraq than the general. These are the two candidates the Democrats will choose between because they are angry at the way GW was elected, claim has made of mess of everything and, according to polls, are hoping the nation agrees. Again my reason for urging you read Feith's book.

GW has made innumerable mistakes but he is far better than the public perceives. GW is a terrible communicator and, like Israel, has done a lousy PR job of selling his accomplishments. He seems indifferent to the fact that if the nation is not behind him he winds up being in the position of pushing on mud. Certainly, Democrats have been successful at tarring GW with their brush.

He needs to take off the gloves and come out fighting if he is capable of doing so. His consistent message is undercut by his passive delivery style.(See 6 below.)

I totally agree with Jay Cost regarding Condi Rice assuming McCain is seriously considering her for his VP. Obama gets the Black vote hands down should he be the nominee because Condi is too White for having been associated with GW. Being a woman doesn't mean a thing if she is the wrong woman and I believe she is because I do not believe she has been awesome as Sec. of State. She might know a few things about Russia but most of her work at State has been inauspicious from my view point. (See 7 below.)

Dick





1) WHAT IN THE WORLD IS GOING ON? A GLOBAL INTELLIGENCE BRIEFING FOR CEOs
By HERBERT MEYER



FOUR MAJOR TRANSFORMATIONS



Currently, there are four major transformations that are shaping political, economic and world events. These transformations have profound implications for American business leaders and owners, our culture and on our way of life.



1. The War in Iraq



There are three major monotheistic religions in the world: Christianity, Judaism and Islam. In the 16th century, Judaism and Christianity reconciled with the modern world. The rabbis, priests and scholars found a way to settle up and pave the way forward. Religion remained at the center of life, church and state became separate. Rule of law, idea of economic liberty, individual rights, human Rights-all these are defining point of modern Western civilization. These concepts started with the Greeks but didn't take off until the 15th and 16th century when Judaism and Christianity found a way to reconcile with the modern world. When that happened, it unleashed the scientific revolution and the greatest outpouring of art, literature and music the world has ever known. Islam, which developed in the 7th century, counts millions of Moslems around the world who are normal people. However, there is a radical streak within Islam. When the radicals are in charge, Islam attacks Western civilization. Islam first attacked Western civilization in the 7th century, and later in the 16th and 17th centuries. By 1683, the Moslems (Turks from the Ottoman Empire) were literally at the gates of Vienna. It was in Vienna that the climatic battle between Islam and Western civilization took place. The West won and went forward. Islam lost and went backward. Interestingly, the date of that battle was September 11. Since them, Islam has not found a way to reconcile with the modern world.

Today, terrorism is the third attack on Western civilization by radical Islam. To deal with terrorism, the U.S. is doing two things. First, units of our armed forces are in 30 countries around the world hunting down terrorist groups and dealing with them. This gets very little publicity. Second we are taking military action in Afghanistan and Iraq.

These actions are covered relentlessly by the media. People can argue about whether the war in Iraq is right or wrong. However, the underlying strategy behind the war is to use our military to remove the radicals from power and give the moderates a chance. Our hope is that, over time, the moderates will find a way to bring Islam forward into the 21st century. That's what our involvement in Iraq and Afghanistan is all about.

The lesson of 9/11 is that we live in a world where a small number of people can kill a large number of people very quickly. They can use airplanes, bombs, anthrax, chemical weapons or dirty bombs. Even with a first-rate intelligence service (which the U.S. does not have), you can't stop every attack. That means our tolerance for political horseplay has dropped to zero. No longer will we play games with terrorists or weapons of mass destructions.

Most of the instability and horseplay is coming from the Middle East.

That's why we have thought that if we could knock out the radicals and give the moderates a chance to hold power, they might find a way to reconcile Islam with the modern world. So when looking at Afghanistan or Iraq, it's important to look for any signs that they are modernizing.

For example, women being brought into the work force and colleges in Afghanistan is good. The Iraqis stumbling toward a constitution is good.


People can argue about what the U.S. is doing and how we're doing it, but anything that suggests Islam is finding its way forward is good.



2. The Emergence of China

In the last 20 years, China has moved 250 million people from the farms and villages into the cities. Their plan is to move another 300 million in the next 20 years. When you put that many people into the cities, you have to find work for them. That's why China is addicted to manufacturing; they have to put all the relocated people to work. When we decide to manufacture something in the U.S., it's based on market needs and the opportunity to make a profit. In China, they make the decision because they want the jobs, which is a very different calculation.

While China is addicted to manufacturing, Americans are addicted to low prices. As a result, a unique kind of economic codependency has developed between the two countries. If we ever stop buying from China, they will explode politically. If China stops selling to us, our economy will take a huge hit because prices will jump. We are subsidizing their economic development; they are subsidizing our economic growth.

Because of their huge growth in manufacturing, China is hungry for raw materials, which drives prices up worldwide. China is also thirsty for oil, which is one reason oil is now at $100 a barrel. By 2020, China will produce more cars than the U.S. China is also buying its way into the oil infrastructure around the world. They are doing it in the open market and paying fair market prices, but millions of barrels of oil that would have gone to the U.S. are now going to China. China's quest to assure it has the oil it needs to fuel its economy is a major factor in world politics and economics.

We have our Navy fleets protecting the sea lines, specifically the ability to get the tankers through. It won't be long before the Chinese have an aircraft carrier sitting in the Persian Gulf as well. The question is, will their aircraft carrier be pointing in the same direction as ours or against us?



3. Shifting Demographics of Western Civilization

Most countries in the Western world have stopped breeding. For a civilization obsessed with sex, this is remarkable. Maintaining a steady population requires a birth rate of 2.1 In Western Europe, the birth rate currently stands at 1.5, or 30 percent below replacement.

In 30 years there will be 70 to 80 million fewer Europeans than there are today. The current birth rate in Germany is 1.3.Italy and Spain are even lower at 1.2. At that rate, the working age population declines by 30 percent in 20 years, which has a huge impact on the economy. When you don't have young workers to replace the older ones, you have to import them.

The European countries are currently importing Moslems. Today, the Moslems comprise 10 percent of France and Germany, and the percentage is rising rapidly because they have higher birthrates. However, the Moslem populations are not being integrated into the cultures of their host countries, which is a political catastrophe. One reason Germany and France don't support the Iraq war is they fear their Moslem populations will explode on them. By 2020, more than half of all births in the Netherlands will be non-European.

The huge design flaw in the postmodern secular state is that you need a traditional religious society birth rate to sustain it. The Europeans simply don't wish to have children, so they are dying. In Japan, the birthrate is 1.3. As a result, Japan will lose up to 60 million people over the next 30 years. Because Japan has a very different society than Europe, they refuse to import workers. Instead, they are just shutting down. Japan has already closed 2,000 schools, and is closing them down at the rate of 300 per year. Japan is also aging very rapidly. By 2020, one out of every five Japanese will be at least 70 years old. Nobody has any idea about how to run an economy with those demographics.

Europe and Japan, which comprise two of the world's major economic engines, aren't merely in recession, they're shutting down. This will have a huge impact on the world economy, and it is already beginning to happen. Why are the birthrates so low? There is a direct correlation between abandonment of traditional religious society and a drop in birth rate, and Christianity in Europe is becoming irrelevant.

The second reason is economic. When the birth rate drops below replacement, the population ages. With fewer working people to support more retired people, it puts a crushing tax burden on the smaller group of working age people. As a result, young people delay marriage and having a family. Once this trend starts, the downward spiral only gets worse. These countries have abandoned all the traditions they formerly held in regard to having families and raising children.

The U.S. birth rate is 2.0, just below replacement. We have an increase in population because of immigration. When broken down by ethnicity, the Anglo birth rate is 1.6 (same as France) while the Hispanic birth rate is 2.7. In the U.S., the baby boomers are starting to retire in massive numbers. This will push the elder dependency ratio from 19 to 38 over the next 10 to 15 years. This is not as bad as Europe, but still represents the same kind of trend.

Western civilization seems to have forgotten what every primitive society understands-you need kids to have a healthy society. Children are huge consumers. Then they grow up to become taxpayers. That's how a society works, but the postmodern secular state seems to have forgotten that. If U.S. birth rates of the past 20 to 30 years had been the same as post-World War II, there would be no Social Security or Medicare problems.

The world's most effective birth control device is money. As society creates a middle class and women move into the workforce, birth rates drop. Having large families is incompatible with middle class living.

The quickest way to drop the birth rate is through rapid economic development. After World War II, the U.S. instituted a $600 tax credit per child. The idea was to enable mom and dad to have four children without being troubled by taxes. This led to a baby boom of 22 million kids, which was a huge consumer market. That turned into a huge tax base. However, to match that incentive in today's dollars would cost $12,000 per child.

China and India do not have declining populations. However, in both countries, there is a preference for boys over girls, and we now have the technology to know which is which before they are born. In China and India, families are aborting the girls. As a result, in each of these countries there are 70 million boys growing up who will never find wives. When left alone, nature produces 103 boys for every 100 girls. In some provinces, however, the ratio is 128 boys to every 100 girls.

The birth rate in Russia is so low that by 2050 their population will be smaller than that of Yemen. Russia has one-sixth of the earth's land surface and much of its oil. You can't control that much area with such a small population. Immediately to the south, you have China with 70 million unmarried men who are a real potential nightmare scenario for Russia.



4. Restructuring of American Business

The fourth major transformation involves a fundamental restructuring of American business. Today's business environment is very complex and competitive. To succeed, you have to be the best, which means having the highest quality and lowest cost. Whatever your price point, you must have the best quality and lowest price. To be the best, you have to concentrate on one thing. You can't be all things to all people and be the best.

A generation ago, IBM used to make every part of their computer. Now Intel makes the chips, Microsoft makes the software, and someone else makes the modems, hard drives, monitors, etc. IBM even out sources their call center. Because IBM has all these companies supplying goods and services cheaper and better than they could do it themselves, they can make a better computer at a lower cost. This is called a fracturing of business. When one company can make a better product by relying on others to perform functions the business used to do itself, it creates a complex pyramid of companies that serve and support each other.

This fracturing of American business is now in its second generation.

The companies who supply IBM are now doing the same thing - outsourcing many of their core services and production process. As a result, they can make cheaper, better products. Over time, this pyramid continues to get bigger and bigger. Just when you think it can't fracture again, it does.

Even very small businesses can have a large pyramid of corporate entities that perform many of its important functions. One aspect of this trend is that companies end up with fewer employees and more independent contractors. This trend has also created two new words in business, integrator and complementor. At the top of the pyramid, IBM is the integrator. As you go down the pyramid, Microsoft, Intel and the other companies that support IBM are the complementors. However, each of the complementors is itself an integrator for the complementors underneath it.

This has several implications, the first of which is that we are now getting false readings on the economy. People who used to be employees are now independent contractors launching their own businesses. There are many people working whose work is not listed as a job. As a result, the economy is perking along better than the numbers are telling us.

Outsourcing also confused the numbers. Suppose a company like General Motors decides to outsource all its employee cafeteria functions to Marriott (which it did). It lays-off hundreds of cafeteria workers, who then get hired right back by Marriott. The only thing that has changed is that these people work for Marriott rather than GM. Yet, the media headlines will scream that America has lost more manufacturing jobs. All that really happened is that these workers are now reclassified as service workers. So the old way of counting jobs contributes to false economic readings. As yet, we haven't figured out how to make the numbers catch up with the changing realities of the business world.

Another implication of this massive restructuring is that because companies are getting rid of units and people that used to work for them, the entity is smaller. As the companies get smaller and more efficient, revenues are going down but profits are going up. As a result, the old notion that revenues are up and we're doing great isn't always the case anymore. Companies are getting smaller but are becoming more efficient and profitable in the process.


IMPLICATIONS OF THE FOUR TRANSFORMATIONS

1. The War in Iraq

In some ways, the war is going very well. Afghanistan and Iraq have the beginnings of a modern government, which is a huge step forward. The Saudis are starting to talk about some good things, while Egypt and Lebanon are beginning to move in a good direction. A series of revolutions have taken place in countries like Ukraine and Georgia.

There will be more of these revolutions for an interesting reason. In every revolution, there comes a point where the dictator turns to the general and says, Fire into the crowd. If the general fires into the crowd, it stops the revolution. If the general says No, the revolution continues. Increasingly, the generals are saying No because their kids are in the crowd.


Thanks to TV and the Internet, the average 18-year old outside the U.S. is very savvy about what is going on in the world, especially in terms of popular culture. There is a huge global consciousness, and young people around the world want to be a part of it. It is increasingly apparent to them that the miserable government where they live is the only thing standing in their way. More and more, it is the well-educated kids, the children of the generals and the elite, who are leading the revolutions.

At the same time, not all is well with the war. The level of violence in Iraq is much worse and doesn't appear to be improving. It's possible that we're asking too much of Islam all at one time. We're trying to jolt them from the 7th century to the 21st century all at once, which may be further than they can go. They might make it and they might not.

Nobody knows for sure. The point is, we don't know how the war will turn out. Anyone who says they know is just guessing.

The real place to watch is Iran. If they actually obtain nuclear weapons it will be a terrible situation. There are two ways to deal with it. The first is a military strike, which will be very difficult. The Iranians have dispersed their nuclear development facilities and put them underground. The U.S. has nuclear weapons that can go under the earth and take out those facilities, but we don't want to do that.

The other way is to separate the radical mullahs from the government, which is the most likely course of action. Seventy percent of the Iranian population is under 30. They are Moslem but not Arab. They are mostly pro-Western. Many experts think the U.S. should have dealt with Iran before going to war with Iraq. The problem isn't so much the weapons, it's the people who control them. If Iran has a moderate government, the weapons become less of a concern.

We don't know if we will win the war in Iraq. We could lose or win. What we're looking for is any indicator that Islam is moving into the 21st century and stabilizing.



2. China


It may be that pushing 500 million people from farms and villages into cities is too much too soon. Although it gets almost no publicity, China is experiencing hundreds of demonstrations around the country, which is unprecedented. These are not students in Tiananmen Square. These are average citizens who are angry with the government for building chemical plants and polluting the water they drink and the air they breathe.

The Chinese are a smart and industrious people. They may be able to pull it off and become a very successful economic and military superpower. If so, we will have to learn to live with it. If they want to share the responsibility of keeping the world's oil lanes open, that's a good thing. They currently have eight new nuclear electric power generators under way and 45 on the books to build. Soon, they will leave the U.S. way behind in their ability to generate nuclear power.

What can go wrong with China? For one, you can't move 550 million people into the cities without major problems. Two, China really wants Taiwan, not so much for economic reasons, they just want it. The Chinese know that their system of communism can't survive much longer in the 21st century. The last thing they want to do before they morph into some sort of more capitalistic government is to take over Taiwan.

We may wake up one morning and find they have launched an attack on Taiwan. If so, it will be a mess, both economically and militarily. The U.S. has committed to the military defense of Taiwan. If China attacks Taiwan, will we really go to war against them? If the Chinese generals believe the answer is no, they may attack. If we don't defend Taiwan, every treaty the U.S. has will be worthless. Hopefully, China won't do anything stupid.



3. Demographics

Europe and Japan are dying because their populations are aging and shrinking. These trends can be reversed if the young people start breeding. However, the birth rates in these areas are so low it will take two generations to turn things around. No economic model exists that permits 50 years to turn things around. Some countries are beginning to offer incentives for people to have bigger families. For example, Italy is offering tax breaks for having children. However, it's a lifestyle issue versus a tiny amount of money. Europeans aren't willing to give up their comfortable lifestyles in order to have more children.

In general, everyone in Europe just wants it to last a while longer.

Europeans have a real talent for living. They don't want to work very hard. The average European worker gets 400 more hours of vacation time per year than Americans. They don't want to work and they don't want to make any of the changes needed to revive their economies.

The summer after 9/11, France lost 15,000 people in a heat wave. In August, the country basically shuts down when everyone goes on vacation.

That year, a severe heat wave struck and 15,000 elderly people living in nursing homes and hospitals died. Their children didn't even leave the beaches to come back and take care of the bodies. Institutions had to scramble to find enough refrigeration units to hold the bodies until people came to claim them. This loss of life was five times bigger than 9/11 in America, yet it didn't trigger any change in French society.

When birth rates are so low, it creates a tremendous tax burden on the young. Under those circumstances, keeping mom and dad alive is not an attractive option. That's why euthanasia is becoming so popular in most European countries. The only country that doesn't permit (and even encourage) euthanasia is Germany, because of all the baggage from World War II.

The European economy is beginning to fracture. Countries like Italy are starting to talk about pulling out of the European Union because it is killing them. When things get bad economically in Europe, they tend to get very nasty politically. The canary in the mine is anti- Semitism.

When it goes up, it means trouble is coming. Current levels of anti-Semitism are higher than ever.

Germany won't launch another war, but Europe will likely get shabbier, more dangerous and less pleasant to live in.

Japan has a birth rate of 1.3 and has no intention of bringing in immigrants. By 2020, one out of every five Japanese will be 70 years old. Property values in Japan have dropped every year for the past 14 years. The country is simply shutting down.

In the U.S. we also have an aging population. Boomers are starting to retire at a massive rate. These retirements will have several major impacts:

Possible massive sell off of large four-bedroom houses and a movement to condos.

An enormous drain on the treasury. Boomers vote, and they want their benefits, even if it means putting a crushing tax burden on their kids to get them. Social Security will be a huge problem. As this generation ages, it will start to drain the system. We are the only country in the world where there are no age limits on medical procedures.

An enormous drain on the health care system. This will also increase the tax burden on the young, which will cause them to delay marriage and having families, which will drive down the birth rate even further.

Although scary, these demographics also present enormous opportunities for products and services tailored to aging populations. There will be tremendous demand for caring for older people, especially those who don't need nursing homes but need some level of care. Some people will have a business where they take care of three or four people in their homes. The demand for that type of service and for products to physically care for aging people will be huge.

Make sure the demographics of your business are attuned to where the action is. For example, you don't want to be a baby food company in Europe or Japan. Demographics are much underrated as an indicator of where the opportunities are. Businesses need customers. Go where the customers are.



4. Restructuring of American Business

The restructuring of American business means we are coming to the end of the age of the employer and employee. With all this fracturing of businesses into different and smaller units, employers can't guarantee jobs anymore because they don't know what their companies will look like next year. Everyone is on their way to becoming an independent contractor.

The new workforce contract will be: Show up at the my office five days a week and do what I want you to do, but you handle your own insurance, benefits, health care and everything else. Husbands and wives are becoming economic units. They take different jobs and work different shifts depending on where they are in their careers and families. They make trade offs to put together a compensation package to take care of the family.

This used to happen only with highly educated professionals with high incomes. Now it is happening at the level of the factory floor worker.

Couples at all levels are designing their compensation packages based on their individual needs. The only way this can work is if everything is portable and flexible, which requires a huge shift in the American economy.

The U.S is in the process of building the world's first 21st century model economy. The only other countries doing this are U.K. and Australia. The model is fast, flexible, highly productive and unstable in that it is always fracturing and re-fracturing. This will increase the economic gap between the U.S. and everybody else, especially Europe and Japan.

At the same time, the military gap is increasing. Other than China, we are the only country that is continuing to put money into their military. Plus, we are the only military getting on-the-ground military experience through our war in Iraq. We know which high-tech weapons are working and which ones aren't. There is almost no one who can take us on economically or militarily.

There has never been a superpower in this position before. On the one hand, this makes the U.S. a magnet for bright and ambitious people. It also makes us a target. We are becoming one of the last holdouts of the traditional Judeo-Christian culture. There is no better place in the world to be in business and raise children. The U.S. is by far the best place to have an idea, form a business and put it into the marketplace.

We take it for granted, but it isn't as available in other countries of the world. Ultimately, it's an issue of culture. The only people who can hurt us are ourselves, by losing our culture. If we give up our Judeo-Christian culture, we become just like the Europeans.

The culture war is the whole ballgame. If we lose it, there isn't another America to pull us out.

2) Graphic for Geopolitical Intelligence Report
By George Friedman

The Arab-Israeli region of the Middle East is filled with rumors of war. That is about as unusual as the rising of the sun, so normally it would not be worth mentioning. But like the proverbial broken clock that is right twice a day, such rumors occasionally will be true. In this case, we don’t know that they are true, and certainly it’s not the rumors that are driving us. But other things — minor and readily explicable individually — have drawn our attention to the possibility that something is happening.

The first thing that drew our attention was a minor, routine matter. Back in February, the United States started purchasing oil for its Strategic Petroleum Reserve (SPR). The SPR is a reserve of crude oil stored in underground salt domes. Back in February, it stood at 96.2 percent of capacity, which is pretty full as far as we are concerned. But the U.S. Department of Energy decided to increase its capacity. This move came in spite of record-high oil prices and the fact that the purchase would not help matters. It also came despite potential political fallout, since during times like these there is generally pressure to release reserves. Part of the step could have been the bureaucracy cranking away, and part of it could have been the feeling that the step didn’t make much difference. But part of it could have been based on real fears of a disruption in oil supplies. By itself, the move meant nothing. But it did cause us to become thoughtful.

Also in February, someone assassinated Imad Mughniyah, a leader of Hezbollah, in a car bomb explosion in Syria. It was assumed the Israelis had killed him, although there were some suspicions the Syrians might have had him killed for their own arcane reasons. In any case, Hezbollah publicly claimed the Israelis killed Mughniyah, and therefore it was expected the militant Shiite group would take revenge. In the past, Hezbollah responded not by attacking Israel but by attacking Jewish targets elsewhere, as in the Buenos Aires attacks of 1992 and 1994.

In March, the United States decided to dispatch the USS Cole, then under Sixth Fleet command, to Lebanese coastal waters. Washington later replaced it with two escorts from the Nassau (LHA-4) Expeditionary Strike Group (ESG), reportedly maintaining a minor naval presence in the area. (Most of the ESG, on a regularly scheduled deployment, is no more than a few days sail from the coast, as it remains in the Mediterranean Sea.) The reason given for the American naval presence was to serve as a warning to the Syrians not to involve themselves in Lebanese affairs. The exact mission of the naval presence off the Levantine coast — and the exact deterrent function it served — was not clear, but there they were. The Sixth Fleet has gone out of its way to park and maintain U.S. warships off the Lebanese coast.

Hezbollah leaders being killed by the Israelis and the presence of American ships off the shores of Mediterranean countries are not news in and of themselves. These things happen. The killing of Mughniyah is notable only to point out that as much as Israel might have wanted him dead, the Israelis knew this fight would escalate. But anyone would have known this. So all we know is that whoever killed Mughniyah wanted to trigger a conflict. The U.S. naval presence off the Levantine coast is notable in that Washington, rather busy with matters elsewhere, found the bandwidth to get involved here as well.

With the situation becoming tense, the Israelis announced in March that they would carry out an exercise in April called Turning Point 2. Once again, an Israeli military exercise is hardly interesting news. But the Syrians apparently got quite interested. After the announcement, the Syrians deployed three divisions — two armored, one mechanized — to the Lebanese-Syrian border in the Bekaa Valley, the western part of which is Hezbollah’s stronghold. The Syrians didn’t appear to be aggressive. Rather, they deployed these forces in a defensive posture, in a way walling off their part of the valley.

The Syrians are well aware that in the event of a conventional war with Israel, they would experience a short but exciting life, as they say. Thus, they are hardly going to attack Israel. The deployment therefore seemed intended to keep the Israelis on the Lebanese side of the border — on the apparent assumption the Israelis were going into the Bekaa Valley. Despite Israeli and Syrian denials of the Syrian troop buildup along the border, Stratfor sources maintain that the buildup in fact happened. Normally, Israel would be jumping at the chance to trumpet Syrian aggression in response to these troop movements, but, instead, the Israelis downplayed the buildup.

When the Israelis kicked off Turning Point 2, which we regard as a pretty interesting name, it turned out to be the largest exercise in Israeli history. It involved the entire country, and was designed to test civil defenses and the ability of the national command authority to continue to function in the event of an attack with unconventional weapons — chemical and nuclear, we would assume. This was a costly exercise. It also involved calling up reserves, some of them for the exercise, and, by some reports, others for deployment to the north against Syria. Israel does not call up reserves casually. Reserve call-ups are expensive and disrupt the civilian economy. These appear small, but in the environment of Turning Point 2, it would not be difficult to mobilize larger forces without being noticed.

The Syrians already were deeply concerned by the Israeli exercise. Eventually, the Lebanese government got worried, too, and started to evacuate some civilians from the South. Hezbollah, which still hadn’t retaliated for the Mughniyah assassination, also claimed the Israelis were about to attack it, and reportedly went on alert and mobilized its forces. The Americans, who normally issue warnings and cautions to everyone, said nothing to try to calm the situation. They just sat offshore on their ships.

It is noteworthy that Israeli Defense Minister Ehud Barak canceled a scheduled visit to Germany this week. The cancellation came immediately after the reports of the Syrian military redeployment were released. Obviously, Barak needed to be in Israel for Turning Point 2, but then he had known about the exercise for at least a month. Why cancel at the last minute? While we are discussing diplomacy, we note that U.S. Vice President Dick Cheney visited Oman — a country with close relations with Iran — and then was followed by U.S. Secretary of Defense Robert Gates. By itself not interesting, but why the high-level interest in Oman at this point?

Now let’s swing back to September 2007, when the Israelis bombed something in Syria near the Turkish border. As we discussed at the time, for some reason the Israelis refused to say what they had attacked. It made no sense for them not to trumpet what they carefully leaked — namely, that they had attacked a nuclear facility. Proving that Syria had a secret nuclear program would have been a public relations coup for Israel. Nevertheless, no public charges were leveled. And the Syrians remained awfully calm about the bombing.

Rumors now are swirling that the Israelis are about to reveal publicly that they in fact bombed a nuclear reactor provided to Syria by North Korea. But this news isn’t all that big. Also rumored is that the Israelis will claim Iranian complicity in building the reactor. And one Israeli TV station reported April 8 that Israel really had discovered Saddam Hussein’s weapons of mass destruction, which it said had been smuggled to Syria.

Now why the Bush administration wouldn’t have trumpeted news of the Syrian reactor worldwide in September 2007 is beyond us, but there obviously were some reasons — assuming the TV report is true, which we have no way of establishing. In fact, we have no idea why the Israelis are choosing this moment to rehash the bombing of this site. But whatever their reason, it certainly raises a critical question. If the Syrians are developing a nuclear capability, what are the Israelis planning to do about it?

No one of these things, by itself, is of very great interest. And taken together they do not provide the means for a clear forecast. Nevertheless, a series of rather ordinary events, taken together, can constitute something significant. Tensions in the Middle East are moving well beyond the normal point, and given everything that is happening, events are moving to a point where someone is likely to take military action. Whether Hezbollah will carry out a retaliatory strike or Israel a pre-emptive strike in Lebanon, or whether the Israelis’ real target is Iran, tensions systematically have been ratcheted up to the point where we, in our simple way, are beginning to wonder whether something has to give.

All together, these events are fairly extraordinary. Ignoring all rhetoric — and the Israelis have gone out of their way to say that they are not looking for a fight — it would seem that each side, but particularly the Americans and Israelis, have gone out of their way to signal that they are expecting conflict. The Syrians have also signaled that they expect conflict, and Hezbollah always claims there is about to be conflict.

What is missing is this: who will fight whom, and why, and why now. The simple explanation is that Israel wants a second round with Hezbollah. But while that might be true, it doesn’t explain everything else that has happened. Most important, it doesn’t explain the simultaneous revelations about the bombing of Syria. It also doesn’t explain the U.S. naval deployment. Is the United States about to get involved in a war with Hezbollah, a war that the Israelis should handle themselves? Are the Israelis going to topple Syrian President Bashar al Assad — and then wind up with a Sunni government, or worse, an Israeli occupation of Syria? None of that makes a lot of sense.

In truth, all of this may dissolve into nothing much. In intelligence analysis, however, sometimes a set of not-fully-coherent facts must be reported, and that is what we are doing now. There is no clear pattern; there is no obvious direction this is taking. Nevertheless, when we string together events from February until now, we see a persistently escalating pattern of behavior. In fact, what we can say most clearly is that there is escalation, without being able to say what is the clear direction of the escalation or the purpose.

We would like to wrap this up with a crystal clear explanation and forecast. But we can’t. The motives of the various actors are opaque; and taken separately, the individual events all have quite innocent explanations. We are not prepared to say war is imminent, nor even what sort of war there would be. We are simply prepared to say that the course of events since February — and really since the September 2007 attack on Syria — have been startling, and they appear to be reaching some sort of hard-to-understand crescendo.

The bombing of Syria symbolizes our confusion. Why would Syria want a nuclear reactor and why put it on the border of Turkey, a country the Syrians aren’t particularly friendly with? If the Syrians had a nuclear reactor, why would the Israelis be coy about it? Why would the Americans? Having said nothing for months apart from careful leaks, why are the Israelis going to speak publicly now? And if what they are going to say is simply that the North Koreans provided the equipment, what’s the big deal? That was leaked months ago.

The events of September 2007 make no sense and have never made any sense. The events we have seen since February make no sense either. That is noteworthy, and we bring it to your attention. We are not saying that the events are meaningless. We are saying that we do not know their meaning. But we can’t help but regard them as ominous.

3) Petraeus and Crocker stress Iran’s destructive role in Iraq at Senate hearing

In his progress report to the Senate Armed Services Committee, the US Iraq commander, Gen. David Petraeus, called for a pause after the next US troop drawdown in July. Progress in Iraq, he said, is definite – Iraqi security forces now number 540,000, with over 100 combat battalions – but still fragile and reversible. Iran’s influence on Iraq’s Special Groups (insurgent militias) remains the gravest long-term threat to the country. Resisting Iran’s encroachments in Iraq is vital to sustainable stability in Iraq and the region and global security, the general stressed.

Ambassador Ryan Crocker warned a "major departure from our current engagement would bring failure".

He said that "al-Qaeda's leaders are looking for every opportunity they can to hang on... we cannot allow [al-Qaeda] a second chance".

Gen. Petraeus attributed the progress achieved both to the American and the Iraqi troop surge in the past year, Iraq’s greater involvement in combat, to Moqtada Sadr’s ceasefire, and the increasing rejection of al Qaeda's ideology by Iraqis. He praised the role of the Sons of Iraq, the 91,000-strong Sunni and Shiite Awakening Councils dedicated to fighting al Qaeda alongside US troops.

Gen Petraeus and Crocker were due later Tuesday to appear before the Senate Foreign Relations Committee, where Democratic presidential hopeful Barack Obama serves. His rival Hillary Clinton is on the Armed Services Committee.

4) Israel’s five-day missile defense exercise exposes unready home front

Military sources report that the 19 o’clock warning siren Tuesday, April 3 – day three of the nationwide missile defense exercise – was not heard in many parts of Israel, including the Knesset – as criticism of the exercise spread.

Most people did not know where to find public shelters – none were marked - and were given no answers about protection against chemical or biological missile warfare. While the drill aimed at improving the warning system to gain time for reaching shelters, most Israeli homes and workplaces do not have shelters.

IDF officers told sources the drill, organized by deputy defense minister Matan Vilnai, has had two consequences: It exposed the home front as no readier for missile attack than it was when Hizballah launched its rocket blitz in 2006; and, second, it infected the entire region with war fever.

Yet prime minister Ehud Olmert never tires of saying that, since 2006, Israel’s armed forces have restored their deterrent strength and the nation has never been more secure.

If that is so, who needs a nationwide missile defense exercise? And why did the defense cabinet, playing its role in the practice, talk about setting up tent cities [presumably for refugees from blasted or contaminated towns]?

Security experts point out that the evacuation of tens or hundreds of thousands of people from their homes to temporary shelter is a non-starter. Home front officers say that no one has thought of organizing a system to accommodate tent cities: no vehicles to evacuate distressed people, water, electricity, food or medical facilities have been laid on.

And anyway the country is too small for alternative sites to be safe from attack. Would Tel Aviv inhabitants be better off in the Negev under flimsy canvas within range of Gaza?


Military sources agree that the five-day missile exercise is not much better than a charade and far from demonstrating to friend or foe that Israel is better protected now than it was in the summer of 2006. But the question most ask is this: Instead of wasting time, energy and money on a pointless drill, why does the Olmert government not pull itself out of its fatal inertia and finally use the armed forces for its key preventive mission, which is to wipe out the tens of thousands of missiles and rockets piled up on Israel’s borders by Iran and Syria before it is too late? There was more than one opportunity to bombard the convoys carrying weapons for Hizballah from Syria and Hamas' smuggling routes into Gaza.

5) 'We've tested centrifuge that'll up enrichment rate 5-fold'
By GIL HOFFMAN

Iran has for the first time tested an improved centrifuge that works five times faster than the current version, President Mahmoud Ahmadinejad said Tuesday evening, following his earlier announcement that Iran had begun installing 6,000 new centrifuges at its uranium enrichment plant in Natanz.

Ahmadinejad claims Iran now has 6000 new centrifuges

Ahmadinejad toured the Natanz facility in ceremonies marking the second anniversary of the day Iran first enriched uranium in 2006. On that day, "Iran stepped into a path that will put the country in a more deserving position in the world," Ahmadinejad said, according to state-run television.

"The president announced the start of the phase of installing 6,000 new centrifuges in Natanz," state television reported.

Later in a nationally televised speech, he announced the testing of the new, more effective centrifuge.


Ahmadinejad said a "new machine was put to test" that is smaller but five times more efficient than the P-1 centrifuges that are currently in operation at Natanz. He provided no further details on the new device or on how many Iran had.

He called the development a "breakthrough" and the "beginning of a speedy trend to eliminate the big powers" dominance in nuclear energy.

The Iranian president lauded Iran's achieved proficiency in the cycle of nuclear fuel despite UN sanctions and pressures imposed by the world's big powers
The announcement of the installation of the new centrifuges, which Western officials said could not be immediately confirmed, represented a major bid to expand enrichment, a process that can produce either fuel for a nuclear reactor or material for a warhead. Iran currently operates 3,000 centrifuges at its underground nuclear facility in Natanz.

A diplomat following Iran's nuclear program at the Vienna, Austria-based International Atomic Energy Agency, said Ahmadinejad's statement appeared to be "a lot of sound and fury signifying nothing." "It seems to be little more than a publicity stunt," said the diplomat, who spoke on condition of anonymity because he was not authorized comment publicly.

But Western nations appeared divided on how to respond. France called for UN sanctions already imposed on Iran to be "reinforced."

But Russia, an ally of Iran, said the West should instead put forward a new package of economic incentives aimed at persuading Teheran to halt enrichment. Teheran rejected one such European package last week.

A source in the Prime Minister's Office responded by calling on the world to take whatever steps were necessary to prevent the nuclearization of Iran.

"Unfortunately the reckless language of the Iranian leadership is matched by their reckless behavior," the source said. "The international community must act today. Iran must not be allowed to develop nuclear weapons."

US Secretary of State Condoleezza Rice urged Iran to accept a deal and halt enrichment.

"Iran faces continued isolation in the international community because it will not take a reasonable offer from the international community to have another way," she said in Washington. "The six parties have put forward, I think, a very generous set of incentives should Iran agree to live up to the obligations that any state has when a Security Council resolution is passed."

Gregory Schulte, the US representative to the Vienna-based International Atomic Energy Agency, said Tuesday's announcement by Iran "reflects the Iranian leadership's continuing violation of international obligations and refusal to address international concerns."

"This approach has not brought Iran international respect or accolade, but rather increasing censure and sanction," he said in a written statement.

The UN has passed three sets of sanctions against Iran for its refusal to suspend uranium enrichment. Teheran insists its nuclear program is focused on the peaceful production of energy, not the development of weapons as claimed by the US and many of its allies.

French Foreign Minister Bernard Kouchner called the announcement of new centrifuges "dangerous" and said UN sanctions should be increased.

"If that continues, we must reinforce sanctions, but we also must continue dialogue," Kouchner told a news conference in Paris. "I fear that we will have to continue on the road toward sanctions if we do not encounter responses from the Iranians."

But Russia's foreign minister, Sergey Lavrov, said there was no need for new sanctions. Instead, he told Ekho Moskvy radio that diplomats from the US, Russia, China, Britain and France, along with Germany, would offer Iran new economic, energy and security incentives to halt uranium enrichment.

"We must focus on drafting new positive proposals now," Lavrov said.

He also reaffirmed Moscow's strong warning opposing the use of force against Iran, saying that it would exacerbate the crisis in the Middle East and make a peace settlement impossible.

"A negotiated settlement is the only possibility," Lavrov said. "Any attempt to use force will trigger a series of unsustainable crises in the Middle East."

Britain's Foreign Office said Iran had "chosen to ignore the will of the international community," accusing Teheran of "making no effort to restore international confidence in its intentions."

The workhorse of Iran's enrichment program is the P-1 centrifuge, which is run in cascades of 164 machines. But Iranian officials confirmed in February that they had started using the IR-2 centrifuge, which can churn out enriched uranium at more than double the rate.

Iranian state television didn't say if the installation of the 6,000 new centrifuges included the older P-1 or the advanced IR-2 centrifuges.

A total of 3,000 centrifuges is the commonly accepted figure for a nuclear enrichment program that is past the experimental stage and can be used as a platform for a full industrial-scale program that could produce enough enriched material for dozens of nuclear weapons.

Iran says it plans to move toward large-scale uranium enrichment that ultimately will involve 54,000 centrifuges.

6) Gen. Petraeus' Testimony to the Senate Armed Services Comm.
By David Petraeus

General David H. Petraeus, Commander, Multi-National Force-Iraq

Testimony to Senate Armed Services Committee


GEN. PETRAEUS: Thank you, Mr. Chairman, Ranking Member, members of the committee. Thank you for the opportunity to provide an update on the security situation in Iraq and to discuss the recommendations I recently provided to my chain of command.

Since Ambassador Crocker and I appeared before you seven months ago there has been significant but uneven security progress in Iraq.

Since September, levels of violence and civilian deaths have been reduced substantially, Al Qaeda-Iraq and a number of other extremist elements have been dealt serious blows, the capabilities of Iraqi security force elements have grown, and there has been noteworthy involvement of local Iraqis in local security.

Nonetheless, the situation in certain areas is still unsatisfactory and innumerable challenges remain. Moreover, as events in the past two weeks have reminded us and as I have repeatedly cautioned, the progress made since last spring is fragile and reversible.

Still, security in Iraq is better than it was when Ambassador Crocker and I reported to you last September, and it is significantly better than it was 15 months ago when Iraq was on the brink of civil war and the decision was made to deploy additional forces to Iraq.

A number of factors have contributed to the progress that has been made.

First, of course, has been the impact of increased numbers of coalition and Iraqi forces. You're well aware of the U.S. surge. Less recognized is that Iraq has also conducted a surge, adding well over 100,000 additional soldiers and police to the ranks of its security forces in 2007 and slowly increasing its capability to deploy and employ these forces.

A second factor has been the employment of coalition and Iraqi forces in the conduct of counterinsurgency operations across the country, deployed together to safeguard the Iraqi people, to pursue Al Qaeda-Iraq, and to combat criminal elements and militia extremists, to foster local reconciliation, and to enable political and economic progress.

Another important factor has been the attitudinal shift among certain elements of the Iraqi population. Since the first Sunni Awakening in late 2006, Sunni communities in Iraq increasingly have rejected Al Qaeda-Iraq's indiscriminate violence and extremist ideology. These communities also recognize that they could not share in Iraq's bounty if they didn't participate in the political arena. Over time, Awakenings have prompted tens of thousands of Iraqis, some former insurgents, to contribute to local security as so-called Sons of Iraq.

With their assistance and with relentless pursuit of Al Qaeda- Iraq, the threat posed by AQI, while still lethal and substantial, has been reduced significantly.

The recent flare-up in Basra, southern Iraq, and Baghdad underscored the importance of the cease-fire declared by Muqtada al- Sadr last fall, another factor in the overall reduction in violence.

Recently, of course, some militia elements became active again. Though a Sadr stand-down resolved the situation to a degree, the flare-up also highlighted the destructive role Iran has played in funding, training, arming and directing the so-called special groups, and generated renewed concern about Iran in the minds of many Iraqi leaders. Unchecked, the special groups pose the greatest long-term threat to the viability of a democratic Iraq.

As we look to the future, our task, together with our Iraqi partners, will be to build on the progress achieved and to deal with the many challenges that remain.

I do believe that we can do this while continuing the ongoing drawdown of the surge forces.

In September, I described the fundamental nature of the conflict in Iraq as a competition among ethnic and sectarian communities for power and resources. This completion continues, influenced heavily by outside actors. And its resolution remains the key to producing long- term stability in Iraq.

Various elements push Iraq's ethno-sectarian competition toward violence. Terrorists, insurgents, militia extremists and criminal gangs pose significant threats.

Al Qaeda's senior leaders, who still view Iraq as the central front in their global strategy, send funding, direction and foreign fighters to Iraq.

Actions by neighboring states compound Iraq's challenges. Syria has taken some steps to reduce the flow of foreign fighters through its territory, but not enough to shut down the key network that supports Al Qaeda-Iraq. And Iran has fueled the violence, as I noted, in a particularly damaging way through its lethal support to the special groups.

Finally, insufficient Iraqi government capacity, lingering sectarian mistrust and corruption add to Iraq's problems.

These challenges and recent weeks' violence notwithstanding, Iraq's ethno-sectarian competitions in many areas is now taking place more through debate and less through violence.

In fact, the recent escalation of violence in Baghdad and southern Iraq was dealt with, temporary (sic) at least, by most parties acknowledging that the rational way ahead is through political dialogue rather than street fighting.

As I stated at the outset, though Iraq remains a violent country, we do see progress in the security arena.

As this chart illustrates, for nearly six months, security incidents have been at a level not seen since early to mid 2005, though the level did spike in recent weeks as a result of the fighting in Basra and Baghdad. The level of incidents has, however, begun to turn down again, though the period ahead will be a sensitive one.

As our primary mission is to help protect the population, we closely monitor the number of Iraqi civilians killed due to violence.

As this chart reflects, civilian deaths have decreased over the past year to a level not seen since the February 2006 Samarra mosque bombing that set off the cycle of sectarian violence that tore the very fabric of Iraqi society in 2006 and early 2007.

This chart also reflects our increasing use of Iraqi-provided reports, with the top line reflecting coalition and Iraqi data, and the bottom line reflecting coalition-confirmed data only.

No matter which data is used, civilian deaths due to violence have been reduced significantly, though more work clearly needs to be done.

Ethno-sectarian violence is a particular concern in Iraq, as it is a cancer that continues to spread if left unchecked. As the box in the bottom left of this chart shows, the number of deaths due to ethno-sectarian violence has fallen since we testified last September.

A big factor has been the reduction of ethno-sectarian violence in Baghdad, density plots for which are shown in the boxes depicting Iraq's capital over time.

Some of this decrease is, to be sure, due to sectarian hardening of certain Baghdad neighborhoods. However, that is only a partial explanation, as countless sectarian fault lines in numerous mixed neighborhoods still exist in Baghdad and elsewhere.

In fact, coalition and Iraqi forces have focused along the fault lines to reduce the violence and enable Sunni and Shia leaders to begin the long process of healing in their local communities.

As this next chart shows, even though the number of high-profile attacks increased in March as Al Qaeda lashed out, the current level of attacks like this remains far below its height a year ago.

Moreover, as we have helped improve security and focused on enemy networks, we have seen a decrease in the effectiveness of such attacks. The number of deaths due to ethno-sectarian violence, in particular, has remained relatively low, illustrating the enemy's inability to date to reignite the cycle of ethno-sectarian violence.

The emergence of Iraqi volunteers to help secure their local communities has been an important development. As this chart depicts, there are now over 91,000 Sons of Iraq, Shia as well as Sunni, under contract to help coalition and Iraqi forces protect their neighborhoods and secure infrastructure and roads.

These volunteers have contributed significantly in various areas, and the savings and vehicles not lost because of reduced violence, not to mention the priceless lives saved have far outweighed the costs of their monthly contracts.

Sons of Iraq have also have contributed to the discovery of improvised explosive devices and weapons and explosive caches. As this next chart shows, in fact we have already found more caches in 2008 than we found in all of 2006.

Given the importance of the Sons of Iraq, we're working closely with the Iraqi government to transition them into the Iraqi security forces or other forms of employment. And over 21,000 have already been accepted into the police or army or other government jobs.

This process has been slow but it is taking place, and we will continue to monitor it carefully.

Al Qaeda also recognizes the significance of the Sons of Iraq, and AQI elements have targeted them repeatedly. However, these attacks, in addition to AQI's use of women, children and the handicapped as suicide bombers, have further alienated Al Qaeda-Iraq from the Iraqi people.

And the tenacious pursuit of AQI, together with AQI's loss of local support in many areas, has substantially reduced its capabilities, numbers, and freedom of movement.

This chart displays the cumulative effect of the effort against Al Qaeda-Iraq and its insurgent allies. As you can see, we've reduced considerably the areas in which Al Qaeda enjoys support and sanctuary, though clearly there is more to be done.

Having noted that progress, Al Qaeda is still capable of lethal attacks. And we must maintain relentless pressure on the organization, on the networks outside of Iraq that support it and on the resource flows that sustain it.

This chart lays out the comprehensive strategy that we, the Iraqis, and our interagency and international partners are employing to reduce what Al Qaeda-Iraq needs.

As you can see, defeating Al Qaeda in Iraq requires not just actions by our elite counterterrorist forces, but also major operations by coalition and Iraqi conventional forces, a sophisticated intelligence effort, political reconciliation, economic and social programs, information operations initiatives, diplomatic activity, the employment of counterinsurgency principles and detainee operations, and many other actions.

Related to this effort, I applaud Congress' support for additional intelligence, surveillance and reconnaissance assets in the upcoming supplemental, as ISR is vital to the success of our operations in Iraq and elsewhere.

As we combat AQI we must remember that doing so not only reduces a major source of instability in Iraq, it also weakens an organization that Al Qaeda's senior leaders view as a tool to spread its influence and foment regional instability. Osama bin laden and Ayman al- Zawahiri have consistently advocated exploiting the situation in Iraq, and we have also seen Al Qaeda-Iraq involved in destabilizing activities in the wider Mideast region.

Together with the Iraqi security forces we have also focused on the special groups. These elements are funded, trained, armed and directed by Iran's Quds Force with help from Lebanese Hezbollah. It was these groups that launched Iranian rockets and mortar rounds at Iraq's seat of government two weeks ago, causing loss of innocent life and fear in the capital, and requiring Iraqi and coalition actions in response.

Iraqi and coalition leaders have repeatedly noted their desire that Iran live up to the promises made by President Ahmadinejad and other senior Iranian leaders to stop their support for the special groups.

However, nefarious activities by the Quds Force have continued and Iraqi leaders now clearly recognize the threat they pose to Iraq. We should all watch Iranian actions closely in the weeks and months ahead as they will show the kind of relationship Iran wishes to have with its neighbor and the character of future Iranian involvement in Iraq.

The Iraqi security forces have continued to develop since September, and we have transferred responsibilities to Iraqi forces as their capabilities and the conditions on the ground have permitted. Currently, as this chart shows, half of Iraq's 18 provinces are under provincial Iraqi control. Many of these provinces, not just the successful ones in the Kurdish regional government area but also a number of southern provinces, have done well.

Challenges have emerged in some other, including of course Basra. Nonetheless, this process will continue and we expect Anbar and Qadisiyah provinces to transition in the months ahead.

Iraqi forces have grown significantly since September, and over 540,000 individuals now serve in the Iraqi security forces.

The number of combat battalions capable of taking the lead in operations, albeit with some coalition support, has grown to well over 100. These units are bearing an increasing share of the burden, as evidenced by the fact that Iraqi security losses have recently been three times our own.

We will, of course, conduct careful after-action reviews with our Iraqi partners in the wake of recent operations, as there were units and leaders found wanting in some cases, and some of our assessments may be downgraded as a result.

Nonetheless, the performance of many units was solid, especially once they get their footing and gained a degree of confluence. And certain Iraqi elements proved quite capable.

Underpinning the advances of the past year has been improvements in Iraq's security institutions.

An increasingly robust Iraqi-run training base enabled the Iraqi security forces to grow by over 133,000 soldiers and police over the past 16 months. And the still-expanding training base is expected to generate an additional 50,000 Iraqi soldiers and 16 army and special operations battalions through the rest of 2008, along with 23,000 police and eight national police battalions.

Additionally, Iraq's security ministries are steadily improving their ability to execute their budgets. As this chart shows, in 2007, as in 2006, Iraq's security ministries spent more on their forces than the United States provided through the Iraqi Security Forces Fund.

We anticipate that Iraq will spend over $8 billion on security this year and $11 billion next year. And this projection enabled us recently to reduce significantly our Iraqi Security Forces Fund request for fiscal year 2009 from $5.1 billion to $2.8 billion.

While improved Iraqi security forces are not yet ready to defend Iraq or maintain security throughout the country on their own, recent operations in Basra highlight improvements in the ability of the Iraqi security forces to deploy substantial numbers of units, supplies and replacements on very short notice. They certainly could not have deployed a division's worth of army and police units on such short notice a year ago. On the other hand, the recent operations also underscored the considerable work still to be done in the area of logistics, force enablers, staff development, and command and control.

We also continue to help Iraq through the U.S. Foreign Military Sales program. As of March 2008, the Iraqi government has purchased over $2 billion worth of equipment and services of American origin through FMS.

Since September, and with your encouragement of the organizations and the FMS progress -- process delivery has improved, as the FMS system has strived to support urgent war-time requirements.

On a related note, I would ask that Congress consider restoring funding for the International Military Education and Training program which supports education for mid- and senior-level Iraqi military and civilian leaders and is an important component of the development of the leaders Iraq will need in the future.

While security has improved in many areas, and the Iraqi security forces are shouldering more of the load, the situation in Iraq remains exceedingly complex and challenging.

Iraq could face a resurgence of Al Qaeda-Iraq, or additional Shia groups could violate Muqtada al-Sadr's cease-fire order and return to violence. External actors, like Iran, could stoke violence within Iraq and actions by other neighbors could undermine the security situation as well.

Other challenges result, paradoxically, from improved security, which has provided opportunities for political and economic progress and improved services at the local, provincial and national levels.

But the improvements have also created expectations that progress will continue.

In the coming months, Iraq leaders must strengthen governmental capacity, execute budgets, pass additional legislation, conduct provincial elections, carry out a census, determine the status of disputed territories, and resettle internally displaced persons and refugees. These tasks would challenge any government, much less a still-developing government tested by war.

The Commander's Emergency Response Program, the State Department's Quick Response Fund, and USAID programs enable us to help Iraq deal with its challenges. To that end, I respectfully ask that you provide us by June the additional CERP funds requested in the supplemental. These funds have an enormous impact. As I noted earlier, the salaries paid to the Sons of Iraq alone cost far less than the cost savings in vehicles not lost due to the enhanced security in local communities.

Encouragingly, the Iraqi government recently allocated $300 million for us to manage as Iraqi CERP to perform projects for their people, while building their own capacity to do so. The Iraqi government has also committed $163 million to gradually assume Sons of Iraq contracts, $510 million for small-business loans, and $196 million for a joint training and reintegration program.

The Iraqi government pledges to provide more as they execute the budget passed two months ago. Nonetheless, it is hugely important to have our resources continue even as Iraqi funding begins to outstrip ours.

Last month I provided my chain of command recommendations for the way ahead in Iraq. During that process, I noted the objective of retaining and building on our hard-fought security gains, while we draw down to the pre-surge level of 15 brigade combat teams. I emphasized the need to continue work with our Iraqi partners to secure the population and to transition responsibilities to the Iraqis as quickly as conditions permits but without jeopardizing the security gains that have been made.

As in September, my recommendations are informed by operational and strategic considerations. The operational considerations include recognition that: the military surge has achieved progress, but that that progress is reversible; Iraqi security forces have strengthened their capabilities, but still must grow further; the provincial elections in the fall, refugee returns, detainee releases, and efforts to resolve provincial boundaries disputes and Article 140 issues will be very challenging; the transition of Sons of Iraq into the Iraqi security forces or other pursuits will require time and careful monitoring; withdrawing too many forces too quickly could jeopardize the progress of the past year; and performing the necessary tasks in Iraq will require sizable conventional forces, as well as special operation forces and adviser teams.

The strategic considerations include recognition that: the strain on the U.S. military, especially on its ground forces, has been considerable; a number of the security challenges inside Iraq are also related to significant regional and global threats; a failed state in Iraq would pose serious consequences for the greater fight against Al Qaeda, for regional stability, for the already existing humanitarian crisis in Iraq, and for the efforts to counter malign Iranian influence.

After weighing these factors, I recommended to my chain of command that we continue the drawdown in the surge to the combat forces and that upon the withdrawal of the last surge brigade combat team in July, we undertake a 45-day period of consolidation and evaluation. At the end of that period, we will commence a process of assessment to examine the conditions on the ground and over time determine when we can make recommendations for further reductions. This process will be continuous, with recommendations for further reductions made as conditions permit.

This approach does not allow establishment of a set withdrawal timetable, however it does provide the flexibility those of us on the ground need to preserve the still-fragile security gains our troopers have fought so far and sacrifice so much to achieve.

With this approach, the security achievements of 2007 and early 2008 can form a foundation for the gradual establishment of sustainable security in Iraq. This is not only important to the 27 million citizens of Iraq, it is also vitally important to those in the Gulf region, to the citizens of the United States, and to the global community.

It clearly is in our national interests to help Iraq prevent the resurgence of Al Qaeda in the heart of the Arab world, to help Iraq resist Iranian encroachment on its sovereignty, to avoid renewed ethno-sectarian violence that could spill over Iraq's borders and make the existing refugee crisis even worse, and to enable Iraq to expand its role in the regional and global economies.

In closing, I want to comment briefly on those serving our nation in Iraq. We have asked a great deal of them and of their families, and they have made enormous sacrifices.

My keen personal awareness of the strain on them and on the force as a whole has been an important factor in my recommendations.

The Congress, the executive branch and our fellow citizens have done an enormous amount to support our troopers and their loved ones. And all of us are grateful for that.

Nothing means more to those in harm's way than the knowledge that their country appreciates their sacrifices and those of their families. Indeed, all Americans should take great pride in the men and women serving our nation in Iraq and in the courage, determination, resilience and initiative they demonstrate each and every day. It remains the greatest of honors to soldier with them.

Thank you very much.

7) A Bad Choice for Veep
By Jay Cost




That is how I would characterize the thought of putting Condi Rice on the Republican ticket.

I am sympathetic to the idea that McCain needs a veep candidate to satisfy conservatives. I expect most self-identified Republicans will ultimately vote for him in November, but their enthusiasm would be an asset. It would be good if he can firm them up with his veep choice.

However, McCain should not nominate anybody with strong attachments to the Bush administration.

George Bush's job approval rating is in the cellar. It has been in the cellar for two years, and there seems to me to be no reason to think that it will be anywhere but the cellar come Election Day. This means that the "median voter" - the guy or gal right smack dab in the middle of the electorate who will essentially decide the whole thing - disapproves of George W. Bush. If McCain wants to win this election, this is the person whose vote he must win. And nominating Bush's Secretary of State will hinder, rather than help him with this peron.

I can just imagine the announcement of Condi Rice as the nominee at the GOP convention. The next week, the media will revisit all of the foreign policy controversies of this administration. Democrats will supply them with plenty of handy-dandy sound-bites to populate the airwaves. That will be the week after Labor Day - the traditional start of the campaign. This is not what the Republican Party needs then.

The same goes for pretty much any Bush official - even somebody like Colin Powell. In that case, the media will revisit that speech he gave to the UN on Iraq's weapons of mass destruction. Does the GOP really want to have another pre-election conversation about those non-existent WMD's?

After all, nominating a Bush official plays against McCain's natural strengths as a general election candidate. He won the nomination in large part because Republicans who disapprove of George W. Bush supported him. The following chart makes that clear:

McCain's Performance in Early Primaries.gif

Voters in the Republican Party upset with Bush tended to prefer McCain to any other candidate. This is thanks to the image that McCain has cultivated over the last eight years. If McCain were to nominate Rice or any Bush Administration official, he would be acting contrary to this image. This would be a mistake. It is upon this image that the GOP's hope depends. The only way to win with an incumbent president at 33% in the polls is to run away from, if not against, that president. Nominating Condoleeza Rice or Colin Powell or Rob Portman or any other Bush official would impede that strategy.

Another bad idea when it comes to veep choices is the idea of nominating one of the Republican also-rans. I have heard Thompson, Huckabee, and Romney's names trotted out at varying points. All of these are poor selections. Each candidate this year manifested glaring political weaknesses. Thompson was a lousy campaigner. Huckabee was not a believable fiscal conservative. Romney seemed willing to say anything. McCain himself was weak. Above all, his campaign grossly misread the party's mood on immigration reform last year. Luckily for him, the Senate took that issue up last summer, not last fall.

Unfortunately for McCain, the Republican bench is a little old. The pool of Republican politicians has not been thoroughly refreshed since 1994. That's a long time. If McCain were young and inexperienced, this might be an asset, as the vice-presidential nominee would provide gravitas. But he's old. He needs vigor. That limits his choices considerably. In McCain's perfect world, Jeb Bush would have a different last name. But then again, if he had a different name, he'd probably be the nominee.