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Why 95% of Traders Fail

Is The War In Afghanistan About Terror, Or Heroin?

Politics / Afghanistan Jan 31, 2010 - 04:07 AM GMT

By: Andrew_Butter


Diamond Rated - Best Financial Markets Analysis ArticleNo one knows how much the “War on Terror” cost so far, but if you add up the actual direct expenditure plus the economic damage, plus the cost of all the extra security, it wouldn’t surprise me if it came to more than the credit crunch cost. Of course it didn’t happen all in one go, but I just wonder whether the current malaise in USA might have something to do with that cost.

The first time I came across the modern variety of “Terror” was the 1998 Nairobi US Embassy Bombings where exactly twelve Americans were killed (I looked it up on Wikipedia). There is no record that I could find of how many Kenyans were killed, apparently that’s because no one bothered to count, but friend of mine who was there and helped pull the wounded (and dead) from the rubble told me it was easily over one hundred.

I remember wondering, why would anyone want to blow up over one hundred Kenyans, many of whom probably wouldn’t be able to point out Israel, America or Saudi Arabia on a map (those are the protagonists as far as I can understand)? Someone said, “if the bastard wants to have a fight with Americans, why doesn’t he go to America?” And then he did.

I remember also, after 9/11 how quickly it was decided that Osama Bin Laden was the mastermind; and how quickly it was decided that the Taliban were complicit in the terrorist operations of Al Qaeda. I also remember that the Taliban offered to put Bin Laden on trial for the crimes that were alleged; at the time I thought that was a pretty reasonable suggestion, but it was rejected. No one talks about that anymore, but it’s documented.

I had assumed that at some point, some evidence would be produced that Bin Laden was the master-mind and that the Taliban had somehow aided and abetted that attack. All I ever saw was a scruffy video allegedly of Bin Laden that I watched with a mate who translated, it didn’t sound convincing; what everyone told me was that Bin Laden might have financed something; that made sense to me, that’s how those guys work.

Personally I would have liked to see a trial, with evidence, and I still don’t understand what was wrong with the Taliban’s offer, given that in any counter-insurgency, the key is to know where the bad-guys are, like a GPS co-ordinate is real helpful. If George Bush didn’t like the way the Taliban ran their courts, well he could have just blown them and bin Laden up, at least he would have known where he was. Eight years later, no one knows where he is.

Eight years later, I’m still waiting; sure that’s the conventional story, but then you see something like the BBC documentary saying that perhaps Al Qaeda does not exist.

And you reflect on the fact that the “intelligence” that claimed there were WMD in Iraq was hopelessly flawed; and then there are the little things, like the dates in the background of the photo taken of Saddam’s rat-hole, taken supposedly in December. Well I know dates, those were July dates, trees don’t have dates on them in December and you can’t help thinking, well “what if it wasn’t like that?”

So far the “war on terror” has cost over $1 trillion and in my non-expert innocence as far as I can see it has achieved little or perhaps nothing in terms of “payback”, apart perhaps from revenge on people, many of whom who had nothing to do with 9/11. That’s a lot of money, and you would think that after spending that amount of money, there would be proof, if only for some of the victims, who would really like to know what really happened; that’s the nice thing about courts.

And I can’t help thinking that compared to all the other Al Qaeda operations, 9/11 was incredibly slick, that required real planning, co-ordination, discipline and team-work. It’s one thing to fill a truck up with explosives which are not hard to come by, drive it to a place and press a button, or to give some lunatic a pair of explosive boots, or the latest thing, explosive underpants, but 9/11 was slick, really slick.

I never met Bin Laden, but I met one of his brothers once, (interestingly in a bar, he was drunk, and he talked a lot); guys like that don’t think things through, not in my experience, unless they have a consultant, working out all the details for them. And team work? Well if you ever watched the Saudi’s playing football, you will know what I’m talking about.

Some analysts think once all the unfunded liabilities are added up, that by the time the music stops, the bill could be $3 trillion.

Imagine if that money had been deployed to help dig a way out of the hole the shadow banks dug for the financial system? And the haemorrhaging shows no clear sign of abating, a recent report showed that the Taliban have a “permanent presence” in 80% of the country, even Kabul which is about the only place that Karzai can claim to completely control, is not safe.

British Foreign Secretary David Miliband recently announced that the new strategy in Afghanistan would be to deploy $140 million to persuade a portion of the estimated 25,000 Taliban fighters to give up the $300 a month income that they get for doing whatever it is they do (more on that later), and become “our son’s of bitches”.
That would make sense, after all the US and NATO forces are set to spend $50 billion fighting those 25,000 Taliban this year, so that would be a cheap solution. Particularly since the numbers of body-bags appears to be directly correlated with the troop numbers:

I looked at that chart and I thought, “that’s funny”, two things, the first is that the way it’s supposed to work if you are fighting a “normal” war, the more troops you have, the less casualties you get because you get control.

Those lines look like the troops are just targets flapping around without any real aim or strategy. In those situations the more you got, the more casualties you end up with.

The other thing is that what happens in the summer is different from the winter, and what happens then is (a) there is more cover and (b) that’s when the opium is harvested and transported, perhaps there is a link there, like at those times, it’s the time to create diversions?

There is certainly a good correlation between “summer” casualties and deployment (84%), by that metric in 2010 the USA will have about 700 casualties; I’m still trying to figure out, for what?

Also in the London Conference, President Karzi proclaimed that there can never be a solution in Afghanistan unless the Taliban are on board.

Also the British have been starting to say things like that, so has the new General McChrystal who looks like he has his head well and truly screwed on, and I was impressed to hear that he got in a row with his commander in chief about relying on bombing civilians to “win” the war (all that does is create a bigger stock of potential suicide bombers), although I wonder how long he will last?

But those new brainwaves raise some interesting questions. Not least the question that since no clear evidence has ever been found linking the Taliban to the terrorism activities of Osama bin Laden, what exactly were USA and its allies hoping to achieve in Afghanistan for the past eight years, fighting the Taliban? Particularly since it appears that after eight years it’s been discovered that there are some “Good Taliban”.

Particularly also seeing as in 2001 the Taliban had achieved control of 90% of the country and a level of law and order that had not been seen since 1973, that’s hardly a definition of a “failed state”. Sure they were brutal and the less said about their social graces particularly on the subject of treating a lady properly, the better; but they were not corrupt, which is more than can be said for Karzai’s government, on reflection, that sounds like more of a failed state than what was in place when the whole thing started.

Evidence of the effectiveness of the Taliban control up to 2001 is that after they decided to ban the cultivation of opium, the production plummeted from 5,000 tons in 1999 to 204 tons in 2001. Cultivation of opium is also banned in Afghanistan by the Karzai government, yet in 2007 over 8,000 tons were produced.

This is a timeline of the comparative contribution of Afghani opium to the world supply (Source UN), with some important milestones added.

By the way you need about 10 tons of dry opium to make one ton of heroin, so the 8,000 tons or so of opium produced in Afghanistan in 2007 represents about 800 tons of heroin (compared to an annual world-wide demand of about 500 tons).

Here is another number, the industry producing and distributing heroin from farm-gate-wet-opium to one-gram bags on street corners is a $20 billion dollar a year business with an EBITA of about 70%. That’s a well proven business model, demand is healthy, and there are high barriers to entry for competition, if it was listed it might have a trailing P/E valuation of 15 easy.

So that’s a market cap of about $200 billion; i.e. about the same size as Microsoft.

Did The Taliban Take a Step Too Far?

So I’m thinking to myself, OK so somewhere there are people who jointly own an industry that is worth $200 billion. Everything is going fine, until one day a bunch of lunatic-religious-freaks get it in their head to close down your business, by banning opium cultivation.

That’s motive. And it wouldn’t be the first time there was a war about opium, the Brits had a war with China about that.

On the other hand I can’t see any motive or percentage for the Taliban to help Bin Laden make trouble, particularly since one of their big backers (via the Pakistan Secret Service), was Saudi Arabia. And in fact in 1998 they were talking to the Saudis about handing him over, that was until Bill Clinton sent over 60 cruise missiles, which apparently resulted in the Taliban negotiator being “rude” to his Saudi counterpart, who broke off the negotiations in a fit of pique.

 It’s actually quite easy to upset Saudi’s, I’ve done that a number of times, but that does not prove I am a terrorist.

And as far as I know the Taliban as a group never made any threats against USA, nor did any individuals, in fact in 2000 a delegation went to Huston Texas to talk about putting in a gas pipeline in a protracted negotiation that started in December 1997 and was still going on in May 2001. Interestingly the current President Karzai was involved in those negotiations, and interestingly also, they were going on whilst the elaborate 9/11 plan was being hatched.

It’s also intriguing that it is apparently “common knowledge” that the senior Taliban negotiators who travelled to Houston had “links to Al Qaeda”, which these days means you get on a “Dead or Alive” list.

But evidently you are OK if you had links to someone who had links to Al Qaeda, otherwise Karzai would be on the list; which is a relief; otherwise I suppose my drunken conversation with Osama bin Laden’s brother might have got me into trouble.

Reality Check:

I started checking, apparently Osama bin Laden started his dalliance with terror after he was expelled from Saudi Arabia in 1992 for telling everyone that the Saudi Royal family were a bunch of crook who were gouging the country’s oil reserves and were only in power because of the “protection” of the Americans; that ruffled a few feathers and in fact they sent someone across to Sudan to take his passport away from him in 1994.

But he did all that plotting and organizing in Sudan which is a long way from Afghanistan which he left after the Soviets pulled out in 1989.

Actually the story I heard from his brother was he hardly ever went to Afghanistan and he spent most of the war in a villa in an upscale neighbourhood in Peshawar, what he did was co-ordinate financing for an organisation called Maktab al-Khadamat which operated independently from the main source of arms which was managed by the Pakistan Secret Service (funded by the Saudis and the US); channelling money from private sources in Saudi.

Those guys had some forward logistics bases inside Afghanistan but their role was logistics and they used freelancers for the actual transport (there was good money in that and you could bring heroin back on the return trip).

I also heard from someone else that the story of the Arabs having a role in fighting the Soviets was a myth, they were considered as “tourists” by the mujahedeen, like a bunch of trust-fund-kids on their “world tour”, and that they were a complete liability in combat, un-disciplined, disorganised, and prone to run away whenever anyone started shooting back.

Anyway, Osama’s main “activities” in Sudan were initially via connections with the Egyptian Islamic Jihad (EIJ), and his modus operandi then, and probably still is, was to provide financing for broadly independent groups of terrorists.

Interestingly also no direct command/control link has ever been established between Osama and 9/11 and he only claimed responsibility for the attacks in 2004. Why did it take him so long to “admit” it?

Bin Laden went back to Afghanistan in 1996 after he found out that the Sudanese were thinking of handing him over to the Saudis, he went on a chartered jet (presumably he didn’t have a lot of options since didn’t have a passport); and set up a compound in Jalalabad where he hooked up with about 200 or so Arab leftovers from the Soviet insurgency, who basically were not welcome in the countries they came from. So he was in Afghanistan, the Taliban tolerated him (he had money), but does that make them the guilty partners in crime?

Well I don’t know how that happened, but I do know that none of the hijackers on 9/11 were from Afghanistan, most were Saudis; so does that make Saudi complicit? And what about the Sudanese, they allowed him to stay for almost five years during which time he is known to have been active promoting terrorism? Why pick on the Taliban?

Apparently the reason the Taliban were targeted as the bad-guy allies of Bin Laden who were an essential component of his campaign was because immediately after 9/11 a paid informant showed up and “spilled the beans”. That’s a pretty similar modus operandi to the paid informant who “pinpointed” where all the WMD were hidden in Iraq.

Devil’s Advocate

Just suppose that perhaps the “intelligence” that the Americans acted on might not have been as reliable as they thought, it’s happened before. Perhaps paid informants are prone to over-embellish and don’t always tell the truth, the whole truth and nothing but the truth (like in the scenario that was described in John Le Carré’s book, “The Tailor of Panama”)?

Could it be that was a plant by the people who wanted the Taliban out, because they had banned opium cultivation?

I have absolutely no evidence to support that notion. But adding up all the pieces it could makes sense, certainly those guys would be perfectly capable of planning an operation as sophisticated as 9/11, with Osama and Egyptian Islamic Jihad providing the “soldiers”, and using Osama as the fall-guy; perhaps the reason it took him so long to claim responsibility was because he didn’t know the details prior to the event, that would have made sense, need-to-know, if you know what I mean.

Sure Khalid Sheikh Mohammed, who is soon to go on trail in USA claims it was all his idea and that he planned the whole thing and executed it, but perhaps he had a bit of help, and encouragement, and perhaps he lied a bit. Funny how happy he was to shop Bin Laden, but then allegedly he was tortured, and of course, like getting paid informants, torture is an unreliable way to extract information.

Funny also how he came out with the story that his interrogators wanted to hear, that’s another thing that happens when you torture people. Although significantly, he didn’t say anything about the Taliban either being involved in the plot or having anything to do with it.

And if being the government of a country where a plot was hatched, which you knew nothing about, is a crime under “The New World Order” then Saudi Arabia, Kuwait, UAE, and Germany are as “guilty” as the Taliban regime.

Significantly the 9/11 Commission report commissioned in November 2002 did not implicate the Taliban in any of Bin Laden’s terrorist activities, apart from giving him freedom of movement, which he paid for: (Page 65):

According to the reporting, Iraqi officials offered Bin Ladin a safe haven in Iraq. Bin Ladin declined, apparently judging that his circumstances in Afghanistan remained more favorable than the Iraqi alternative. The reports describe friendly contacts and indicate some common themes in both sides’ hatred of the United States. But to date we have seen no evidence that these or the earlier contacts ever developed into a collaborative operational relationship. Nor have we seen evidence indicating that Iraq cooperated with al Qaeda in developing or carrying out any attacks against the United States.76

Bin Ladin eventually enjoyed a strong financial position in Afghanistan, hanks to Saudi and other financiers associated with the Golden Chain. Through his relationship with Mullah Omar—and the monetary and other benefits that it brought the Taliban—Bin Ladin was able to circumvent restrictions; Mullah Omar would stand by him even when other Taliban leaders raised objections.

So the Taliban were duped, like some other people. If being duped is a crime then the FBI and the CIA are as “guilty” as the Taliban.

So, no one suggests that the Taliban collaborated with Bin Laden, but perhaps someone else did?  

I can believe that an organization that transports 250 tons of heroin into USA year-in year-out, and then distributes it under the noses of the CIA, the FBI, and the DEA, could organise something like that. And if the argument against that notion is that no one found any “evidence”, well, Err…that’s the whole point.

Regardless of who or how; the invasion was great for the “industry”, in 2002 the crop went up to a healthy 3,700 tons, by 2007 it was 8,200 tons.

If that was the real story, then it’s probably going to take a lot more than $140 million in pay-outs to Taliban soldiers, plus another 30,000 “targets” to stop it. Particularly since the farm-gate price for 8,000 tons of opium is easily $500 million, and that’s just the start of the chain, FOB (loaded on a donkey or a pickup before going across the border after being turned into heroin), it’s worth upwards of $3 billion; and that’s just the start.

Either way, one thing that I don’t think is going to work is Richard Holbrooke’s idea to persuade the Afghan poppy farmers to plant pomegranate trees instead, which was the grand-new “plan” that he outlined on Bloomberg the other day.

But perhaps I’m being unfair; perhaps he has some “intelligence”?
But it was interesting to see today that Mullah Omar sent a message in response to Karzai’s saying that he would be happy to renounce the links he had with Al Qaeda (which presumably became stronger after they were both attacked and put in the same boat – and in any case the Al Qaeda “army” is estimated to be less than a hundred scattered desperados).

Predictably the US was quick to say that Mullah Omar was not included in Karzai’s offer.

Here we go around the mulberry bush again, or should I say the pomegranate bush, lucky the Americans have lots of money to burn; it could be a long haul.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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