Militarised Multinationals?

Why the decline in State Security forces is leaving the private sector to provide its own security.

Since the 1990’s Immanuel Kant’s perpetual peace thesis, nowadays better known as the Democratic Peace Theory, has returned with a vengeance. The theory, for those who were spared having to actually read Kant (a good save there) is that Democracies do not fight democracies and so as the world has become more democratic it has become less violent.

Now admittedly this topic has primarily stayed as a bitter debate in the academic world of International Relations, but what is important for those without MA’s and PhD’s in Political theory is that the nature of warfare and violence has been changing.

Since the 1990’s (and well before too) there has unquestionably been a dramatic rise in violence conducted by non-state actors, with the most famous contemporary group being probably Al Qaeda (with the IRA, FARC, MEND and ETA all being close contenders too). But the problem with saying the world is less violent because less states fight each other is that this argument becomes a political cover for politicians to cut defence spending, and contrary to popular belief this is a problem.

Taking aside the ridiculously expensive F-35 programme (at over $200 million a jet on current estimates) and the Trident nuclear submarine project (at £100 Billion for 4 submarines over 25 years), the British armed forces has never been smaller. By 2015 the Air force and Navy will number under 70,000 on current estimates with only 120 fighter jets (the same number as Belgium) and 80,000 members of the army across all disciplines (engineers, artillery, infantry, armour). And Britain is not alone.

Only 5 members in NATO managed to keep to the charters 2% of GDP on defence spending in 2012 and this may fall even lower in 2013.

So why is this relevant and how does it fit into this articles premise? Quite simply, I want to argue that as governments reduce their ability to provide physical security against the threats of violence by non-state actors, businesses will take their personal security into their own hands. And in fact this is already happening.

Marine Piracy and the Private Sector:

Piracy since 2007 has largely been internationally associated with one word, “Somalia”. In a country where the state has not technically had an Armed Forces since 1991 and where the UN and USA have been forced to pledge commitments of around $390 Million to the AMISOM mission it is perhaps not surprising that piracy has been able to flourish. What had been so surprising was its success.

With certain vessels like the Samho Dream being released after the payment of $9.5 million (2011) and an estimated $135 million being netted in ransom payments in 2011, it is hardly surprising that piracy groups proliferated and became so well equipped at such a fast level. Combine that with an area of over 3.4 Million km2 at risk (IISS) and the fact that round 22,000 vessels pass through the Gulf of Aden each year and it’s not hard to see why 802 people had been taken hostage by pirates in 2011 on the East and West coasts of Africa.

In fact between 2008 and 2010, NATO claim that 131 vessels were hijacked and 315 vessels were physically attacked by pirates. As a direct consequence of this an estimated $7.5 billion is now being spent by navies from across the world under 3 separate multinational missions, which would seem to emphasise that the issue is being taken pretty seriously.

Sadly though it is not the response of governments that seem to have led to the much lauded reductions since 2012. According to data from Lloyd’s List there was nearly a 65% reduction in piracy attacks in 2012 and what people are saying behind the scenes (and seeing in the budget sheets) is that this change all comes down to one main reason, Armed Guards.

Since the advent of Armed Guards there has been a significant drop in successful piracy attacks and then you have Typhoon. Typhoon is a private security firm that provides close quarter support for convoys of vessels traveling through the Gulf of Aden and is being rolled out in collaboration with Glencore. The firm aims to replicate the tactics of pirates by using smaller fast response, armed patrol boats, launched from mother ships to counter the pirates using their own tactics. By using this method Typhoon believe they can deliver a more robust and effective deterrent to would-be attackers in a far cheaper and more advantageous way than the Royal Navy can.

In effect, the private sector has the flexibility to adapt rapidly to demand where there is a personal financial gain. Armed forces and certainly naval forces cannot.

Whilst Typhoon is just limited to the Gulf of Aden it is important to note that the highest region in the world for piracy historically and in 2012 is actually Indonesia. In addition West Africa and many of the Littoral South-East Asian states experience significant piracy threats, in particular in the Malacca straits. With an increasing amount of global trade going through more politically insecure areas and the value of vessels increasing (think of the ransom on an 18,000 TEU Maersk C-Class vessel) the relative success of Typhoon will be watched closely and almost certainly emulated in some form.

Most significantly in this rise of privatised security arrangements are the terms of engagement these new actors adhere to. Yet again the lead in this respect has been left to a variety of non-governmental bodies like the International Maritime Bureau to listen to the concerns of their members (shipping companies largely) and then recommend best practises. The reality however is very complicated.

As the demand for armed guards has soared, the cost and quality for these PMSC’s[1] has continued to diverge and the lack of reporting when arms have been discharged is a growing concern for those maritime forces operating in the region. In essence the issue is becoming one of which the PMSC’s are able to decide what is a legitimate target and what is an appropriate level of response and may hide behind flags of convenience and the legal ambiguity of combat in the high seas. The lesson being taken is clearly that if security is left to private actors then private actors will also take the lead on establishing how they provide their own security. 

Oil and Gas – Africa and the Middle East

As the recent situation in Algeria has demonstrated, Oil and Gas workers are always a high value target regardless of their location. The very fact that this particular BP facility was so far from the Mali border, where AQIM[2] are said to operate, is merely a further reminder that private sector actors in even relatively secure developing nations cannot rely exclusively on state protection for their security.

 Image Courtesy of Statoil

Figure 1 – Courtesy of Statoil

But the recent flurry around Algeria is just the tip of the global issue of kidnapping the employees of oil and gas businesses. Whether it is Shell employees and their families in Nigeria or BP, Shell, Exxon staff facing threats to security in places like Iraq or the high kidnapping rate in Venezuela and Colombia, there has been a long growing trend for multinational firms to seek their own security arrangements.

On the face of it again this pattern is inherently logical. A states armed forces and police cannot anticipate and protect every employee of a foreign national effectively and often the state may not have the resources to do this anyway. By contrast, Multinational companies like Shell may use their provision of private security staff to re-assure their employees and contractors to work for them in high risk areas instead of their rivals. How staff are treated in high risk areas is increasingly becoming a very significant factor within the Oil and Gas industry, with the various different levels of response to Oil and Gas firms in Libya, where Russian and Chinese nationals were effectively abandoned by their respective national industries, being a case in point. That sort of care towards staff matters.

The problem again though of relegating the security of these employees to the firms themselves is perhaps best explained by the controversy of private military contractors in Iraq. If a PMSC kills or injures a foreign national (assuming they can carry some form of weaponry, or is particularly adept with his/her hands), then how does the host state respond? If they prosecute the individuals due to public pressure then multinational firms whose investment is so desperately sought and required may not feel able to ensure it employee’s security and so may restrict their operations in that region or pull them entirely. On the other side, if individuals are not subject to local laws though this can lead to a back-lash against the government for being seen as under “foreign influences”.

General Issues:

Further highlighting these issues is the basic fact that across all industries operating in developing nations, establishing which individuals are threats and which are not is incredibly difficult. With regards to piracy, the vessels used by pirates are often identical to local fishing vessels and in certain cultures the carrying of weapons in public is not an uncommon occurrence, thus how do you distinguish between those who are carrying weapons for personal security and those carrying weapons to threaten others?

Even more worryingly many people are realising that the local state security forces may even be part of the risk themselves. The “Green-on-Blue” incidences in Afghanistan are the most high profile of these, but actual involvement by local state police with would-be-kidnappers is certainly not unheard of. Is it not perhaps un-surprising then that multinational companies are beginning to turn to the private sector for their security?

The private sector itself now provides comprehensive risk mitigation methods to enhance the security of Multinational firm’s people and assets. Whether this is in the form of better knowledge of market risks by using ControlRisks or bespoke products like the WorldRiskReview, the purchasing of Political risk insurance and Kidnap and Ransom policies or at the first (or last) stage, directly hiring PMSC’s.

Concluding remarks:

In 2004 the BBC suggested the global private security industry was globally worth $100 Billion, would anyone even be able to truly guess its value today? I doubt it. Companies like G4S and Blackwater now employee 100’s of thousands of employees each and even in combat location like Iraq the number of PMSC’s has risen from 1 in every 100 soldiers in 1991 to around 1 in 4 soldiers in 2011. The increasing use of the private sector is here to stay, and the private sector is responding to this. 

As States have gradually allowed the private sector to take responsibility for their own security, the private sector has gradually started to shape the rules and behaviour that govern their use of Private Security Providers. Furthermore, as attacks against firm continue (with a 300% increase in kidnapping’s in Mexico between 2005-2011 being just one example), the speed of these changes and the move away from the traditional reliance on the State for their security will decline.

If States do not begin to respond much quicker and more robustly to the changing threats faced by companies then there will inevitably be either a move away from the state as the sole legal source of security to a system were the private sector begins to define what is necessary for its security not the state.

 This is not just un-democratic and lacking transparency. This is a genuine concern for all states and their claim to the “Monopoly on the legitimate use of Violence” which has underpinned the modern state we live in. Governments need to start being creative or risk being outflanked on this issue.


[1] Private Military Security Providers

[2] Al Qaeda in the Islamic Maghreb

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Russia 2020 – Game over Putin?

Since 1990 Russia has experienced something of an escalator ride in the nation’s fortunes. From near bankruptcy the Russian economy has bounced back since the beginning of the Putin years, largely on the back of a vast overhaul of its oil and gas industry which has fuelled the increasing spending demands of Putin’s various administrations. Yet are we about to see the Russian state experiencing another rollercoaster drop in the next decade? Here are a few humble suggestions why Russia is facing a perfect storm in 2020:

“It’s the Economy Stupid” – or more accurately it’s the Oil Price.

For most of Russia’s history its economy has been primarily driven by its primary industries which have exported the vast resources at the states disposal. But in recent years the dependency of the current Russian economy on oil and gas exports has become truly staggering. Not only does Russia’s oil and gas industry now account for 49% of the state’s revenues, but Russia also requires over 2/3rds of its gas production simply to service its own economies internal requirements.

The situation when we start to examine Russia’s much discussed export of oil and gas products gets far worse (if you are Russian). Of Russia’s 600BcM of gas produced every year, around 140BcM is exported to Europe but of that 140 BcM exported to Europe, Germany and Ukraine account for 70BcM of exports combined (at 30BcM and 40BcM respectively. To re-phrase this, Russia relies on Germany and Ukraine for around 34% of its gas sales, whilst Ukraine accounts for nearly 19% of all Russia’s gas exports. Compounding even this terrifying over-reliance, the pipelines that provide Russia’s gas to the rest of its EU markets all currently use Ukraine as a transit nation. Thus for anyone who remembers the 2009 gas crisis in Europe, this is why Russian planners are so concerned about their gas position.

Even if Russia is able to construct its South Stream project to reduce its reliance on Ukraine as a transit hub it is not only competing against the EU machine, which has aggressively tried to challenge Russian gas hegemony, but also the alternative gas pipeline, Nabucco West.

Taking aside the above issues however the baseline concern for the Russian economy is to do with the price of oil. With the US explosion of Shale gas, estimated to increases the US gas production by 25% by 2020, there will be an inevitable decline in demand for oil related products on the international market, especially as other BRIC nations seek their own domestic means of energy production. In addition, the climate change agenda and the effects of air pollution in major cities is leading developing nations like China to increasingly seek gas as an alternative to oil. The problem for Russia however is that, simply put, it gets such a good price from Europe that it won’t accept the terms China and others are offering.

The implication of this fall in the oil price is an inevitable decline in the Russian state revenues. If the price of oil and gas declines then Russia will face a choice: to reduce its current output of oil and gas to maintain the price level (assuming the rest of OPEC will do likewise) or to maintain its output but at a reduced profit (and in some cases certain projects will become close to loss making). All of which is disastrous for the Russian government’s spending pledges, including its $800 billion armed forces modernisation programme….

The energy crisis however is not just linked to the state revenues from oil and gas however. The World Bank’s latest report on the ECA and FSU states has indicated that they will need to invest $1.5 trillion into maintain and modernising its energy infrastructure within the next 20 years, yet to do this will require a large increase in the price of electricity. This then leads to the next problem of the Russian economy: a large proportion of high energy intensity industries whose main advantage is price competitiveness, in no small part due to low energy prices. So the question here is: if faced with a decline in global oil and gas prices will Russia reduce its supply of oil and gas and sell its products purely on the basis of the highest bidder in Europe and at home, or will it maintain its output levels and use its oil and gas industry to subsidize its domestic manufacturing industries?

The net result of any of these variables above will mean less revenue for the Russian state and hence the problems below:

Increasing domestic instability and declining state security resources:

The re-election of Vladimir Putin was considered by many competitors to be an academic exercise. He was too strong, too popular or too well connected to lose so commentators said. And sure enough they were right, except this time Russia’s voters didn’t lie down and play dead. The scale of protests was unprecedented under Putin’s rule and provides a glimmer of the hostility ordinary people feel towards the current government.

It is true that for many Putin is still deeply popular but the same is certainly not true of his lieutenants and it is their increasingly public misdemeanours that are starting to significantly chip-away at the regimes support base. The sense of insecurity felt by Putin was perhaps best displayed by the obscene levels of attention and media coverage that was generated by the Russian punk rock band “Pussy Riot” whose 30 seconds of fame generated world-wide news coverage.

Now whilst Russia has often suppressed riots and domestic violence, it is the impact of declining state revenues that will suddenly start to lead to difficult strategic decisions on where Russia spends its resources. If the state continues to focus its funding on internal suppression then it will inevitably have to reduce its spending on its planned military modernisation programme, something which will surely reduce the global reach of the Russian military and certainly the extent it can intimidate its neighbours.

Furthermore, if Russia does retrench domestically, will this lead to more aggressive actions by those states that have territorial disputes with Russia currently? Any increased belligerence by states like Georgia and Azerbaijan would be increasingly embarrassing for Moscow, whose people would demand a response. Will the Russian state be able to in the future? Even the latest Russian fighter jet project, a symbol of its super-power aspirations, could be threatened if it fails to find suitable export partners and its numbers drop below its already low order number, (expected to be initially 100 or less).

Demographic issues:

Inherently linked in Russia with domestic security concerns is population issues and immigration. The Russian state has always incorporated a large number of ethnic minorities and different faiths, but notice the word minorities. The modern Russia today is facing a marked decline in the birth rate of European, orthodox Russians, whilst its minority populations, notably those who follow Islam, continue to grow, as does the number of immigrants from central Asian states.

This again will start to stir domestic tensions where the state has historically under invested in the East and often concentrated its investments into a few key cities like Moscow. Furthermore, regional hot-spots like Chechnya may become emboldened to push for further regional autonomy if the region’s population continues to grow whilst the typically more Slavic and European population of western Russia declines.

Linking this all back in again. Under-investment in regions with high birth rates which will require greater state resources for health care and education as well as state and/or private investment to create job opportunities for a rapidly increasing young workforce will create a policy headache for a state with limited alternatives than state spending or careers in the oil and gas sector. Both of which seem certain to decline.

Squaring the Circle – concluding remarks:

So what does all this mean? In effect Russia is facing a perfect storm by the end of this decade and the only possible solutions to its problems still look as distant as ever.

The Russian state cannot generate internal investment without an end to the rampant corruption that eats away at public confidence in the state bureaucracy and decimates the ability of financial institutions to invest sensibly into growth prospects. But more fundamentally what Russia really lacks is a functioning rule of law.

No company today can invest in Russia without the concern of expropriation or state interference and those that have tried have often been burnt badly in the process, whether BNP-TNK or Shell and its development of Sakhalin island. This hampers any serious private sector investment and again places the onus of investment squarely on the Russian state.

With declining state revenues and increasing demands on its budget, does Russia have many options left open? Can it cut spending and if so what? Can it increase its level of government debt and if so for how long and at what cost? All of these questions leave Russian policy planners feeling uneasy and with Putin’s grand ambitions so publically stated what would be the political damage if the policies failed or perhaps even worse, they were cancelled?

So while for now Russia may be having its moment in the spotlight as a super-power in Syria, it’s worth waiting to see what happens next. My suspicion? Russia may just start getting that bit quieter and quieter as this decade progresses.

So keep an eye on Russia and 2020. The Russian roller coaster may just be about to drop.

The Digital Ayatollah?

Did Iran really take down 4 US drones?

So let me just see if I can clarify the crazy that is the Iranian government press department for a second:

According to the Iranian government, a nation that is reduced to bartering tankers filled with crude oil for tankers of grain, Iran has “allegedly” captured 4 US drones in a year……Not just the same design either, but 3 separate drone designs……

Now here’s the thing, the RQ170 sentinel, the first one Iran allegedly “captured” I could just about at a distant push believe. I mean at least the US government admitted it had actually gone down in the right geographical vicinity. (The fact that the drone was then shown without a scratch would suggest there is a story there but that is beyond the remit of this blog and into the world of conspiracy theorists and university Model UN attendees.) What seems utterly absurd though is the idea that Irani managed to capture 3 other drones on 3 separate occasions when the US navy who operates them say the USA have not lost a single unmanned drone in the area…..

Now I am not a military technology expert but while I can accept the argument, put forward by more learned folks, that the US GPS system on drones is “feasible” to hack (….that sentence is worrying enough), what seems implausible is that the US armed forces upon realising they had lost the ability to direct the drones would leave it there.

Now let’s add the next bit. The two latest drones, quoted by Reuters have a range of 10km’s…..That’s right, an aircraft carrier launched jet managed to get hijacked and land successfully in a perfect 10km location that was close enough to land on Iranian soil and yet far enough away that on at least two occasions the Americans A.) Couldn’t self-detonate the drone, a separate function to navigation, and B.) Couldn’t shoot the thing down themselves…..

I am all for stories that make the American armed forces show some hubris, but I’m sorry Iran, this time, even you guys have gone a bit too crazy.