Global Guerrillas

SYSTEMIC SHOCKS

A top-level conclusion from my book Brave New War is that security in the future, from economic to physical to environmental to social, will be measured by our responses to a never-ending series of global systemic shocks derived from a plethora of sources. Unfortunately, we are likely to fare badly. The reasons for this are simple, the global system is:

• Too Big. Simply, the system's scale is far beyond the ability of nation-states, or a community of nation-states, to manage when it suffers a breakdown. In the case of the current financial collapse, the global shadow banking system (a globally inter-networked collection of unregulated financial products) is approximately $450 trillion, as compared to a US GDP of $15 trillion or a global GDP of ~$60 trillion. Put another way, the financial liabilities of the highly leveraged Deutsche Bank are 80% of Germany's GDP and Barclay's liabilities are 100% of the UK's GDP. As the leverage underlying the shadow banking system unwinds and more banks fail, the scale of the loses experienced will rapidly exceed nation-state budgets.

• Too Fast. The speed at which shocks spread in this globally interconnected system is faster than the response time of governmental institutions (tight coupling). In this financial crisis, the cascade of failure in the system spreads at the speed of information networks and computer automation in trillion dollar increments. The upshot is that the government's impacted will likely take hasty measures, like the 3 page Paulson plan in the US, without the analysis, orientation, or synthesis necessary to produce high quality results.

• Too Complex. The system's function is beyond understanding. This is due to a lack of data (opacity either due to the nature of the system or by design as in the shadow banking system), the number of variables or connected systems, a lack of long term historical data on its operation in its current configuration, etc. The result is that efforts to mitigate the system's excesses produces pyrrhic victories (where the corrective action produces negative outcomes, like how efforts to ramp biofuel production impacted food prices). Worse, due to the system's complexity and the lack of an effective means to address its excesses, we are reduced to treating symptoms of failure (as with the Paulson plan) and even then under violent debate.

Epilogue

The inevitable outcome of systemic shocks at this magnitude will be an inevitable delegitimization of the nation-state as our trust in the ability of leaders to take effective corrective action evaporates. Further, nation-states will expend the majority of their resources on hasty and relatively ineffective corrective actions, which will make them collectively more prone to damage in the future and which will preclude the investments required to mitigate future crises. The cycle of delegitimization and resource depletion will continue until the nation-state is unable to respond at all to future calamity (the scale of this financial crisis is such, we may as well forget about any chance of early action to delay or prevent global warming, peak oil, water scarcity, food shortfalls, pandemics, etc.). In short, we will see a proliferation of hollow states.

NOTE: Due to the networked design of our global system, small events can be amplified into global shocks -- either through unmitigated positive feedback loops or a breakdown in the system's core assumptions.

FINANCIAL MELTDOWN

As anticipated, the global financial system is now in free-fall. The bankruptcy of Lehman, the government take-over of Fannie/Freddie (essentially, a gov't takeover of the entire US mortgage market), the fire sale of Merrill Lynch (moments before it too went into free-fall), the expansion of Federal Reserve emergency lending into securities (which codifies its position as the only source of capital for big financial firms), the looming failure of AIG (the world's biggest insurance company), the impending failure of Washington Mutual (which will deplete the entire FDIC fund in one whack) all point to tougher times ahead. The easily foreseen failure in the US/UK mortgage markets due to rampant corruption has now developed into a financial black swan that due to entanglements (connectivity), opacity, size, speed, and complexity is beyond the capacity of the US (and its allies) to control. It will get worse as the run on the massive (30 times larger than the US economy) shadow banking system begins in earnest.

To many, this developing situation will be uncharted territory. However, for those of us that have already embraced the trend lines, the roadmap for the next decade is increasingly clear. There will be:

• An acceleration in the decline of the state. From financial failures in developed countries (at the gov't level) to the proliferation of hollow/failed states. Due to financial distress, new black swans (of different types) will create greater levels of dislocation than previously. States will lurch from crisis to crises, undercut by groups emerging below them.
  
• Widespread economic dislocation. Since everyone is now in competition with everyone else in the world (the state won't/can't protect you from that), there will be an accelerated shift towards primary loyalties as people scramble for economic protection (to eat, get energy, and move forward). On the whole, these groups will opt for open source warfare to fight their foes (both states and corporations). IF you don't have a group (other than the state) to rely upon to back you up, you are vulnerable. The best alternative for those not willing to resort to violence/crime will be to shift towards resilient communities.
  
• Privatization of everything. The financial distress of nation-states will cause them to enlist allies from the corporate world. Fire sales of state assets and the replacement of gov't services with corporate services will be commonplace. Everything will be fee-based. Expect a rapid differentiation in all services (particularly those commonly expected from the gov't) between those that can pay and those that cannot. Increasingly, violence will be between global guerrilla groups (based on primary loyalties) and corporations, with control of a hollow nation-state as the spoils.
  

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NOTE2:

Primary Loyalty: A primary loyalty is a connection to a non-state group that is greater than loyalty to a state. These loyalties include those to clan, religion, tribe, neighborhood gang, etc. These loyalties are reciprocated through the delivery of political goods (see the brief Weak, Failed, and Collapsed States for a list of political goods) by the group that the state cannot or will not deliver.

HALTING RUSSIAN ENCROACHMENT

What do Finland, the Baltics, Ukraine, Georgia, Poland, Azerbaijan, and the central Asian countries have in common? A fear of Russian encroachment. If you talked to defense experts about it, they would frame the situation using cold war logic (NATO expansion, missile defense, etc.). If you talked to political scientists or area experts, they would talk about spheres of influence and Russia's historical influences stretching back to Peter the Great (solutions include alignment, sensitivity to ethnic issues, etc.). Unfortunately, these conversations would be an utter waste of time. The real power in today's world rests in the hands of global markets. The scorecard for success and failure in this environment is set by capital inflows, share prices of aligned corporations, and service relationships with trading partners. Seen through this lens, nearly every aggressive action by Russia over the last three years is easily explained.

The Opportunity Space
This shift towards economics and networks also means that small states on Russia's periphery now have a defensive trump card. They can inflict damage on Russia that far exceeds the potential economic benefits Russia receives. Any one of these nations could easily inflict tens of billions in damage to Russia's energy industry (which pays for much of the Russian government). IF these nations came together in a defensive alliance, its possible that Russian energy production could be halved and inflict damage that's counted in the trillions. Systempunkts for Russia include:

• Service relationships with energy trading partners (Europe and China). A way to evoke a diplomatic response from these countries (which, in contrast, were silent during the recent invasion of Georgia).
  
• The share price of Gazprom and Rosneft. Russian plans for economic expansion are tightly coupled to the share prices of these companies (downstream integration, etc.)
  
• Capital flows (drive the hot money and investment capital out of Russia). Recent ouflows from Russia during the Georgian campaign did more to halt the fighting than anything else.
  

Systems Disruption as Defense
Beneficially for these countries, the costs of maintaining a defensive posture that relies on systems disruption is nearly zero. There is no need to maintain a "toy army" or any defensive systems at all. In fact, it's likely preferable not to put up any fight at all during a Russian incursion to minimize damage/casualties. What is needed are small teams (given how may in these countries already speak Russian and can pass for Russian) that can disrupt pipelines, powerlines, etc., which are very inexpensive to maintain (another option is to purchase guest workers/criminals to do the job). Further, some of these countries have a well developed software industry and can generate cyberattacks on Russian corporate targets. Even better, these countries can invite anyone in the world offended by the Russian action, through sites that provide target lists/exploits and offensive software, to join in the attacks (bounties/rewards could be offered for exceptional attacks). In many cases, the returns on investment (ROIs) for these disruptions can top one million $ to one $.

NOTE: What isn't needed? Army, Air Force, Navy, NATO membership, missile defenses, etc.

JOURNAL: BTC Pipeline not at Risk

It's already shut down for the rest of the week (two weeks total) due to an attack on it by the PKK. Sounds familiar. Turkey is losing $300k a day during the shutdown (total partner losses are easily an order of magnitude more). ;->

This war will certainly roil the investment climate for strategic systems like the Nabucco pipeline. It may be, given the impotence of the West in responding to Russian activities and the extreme value of energy flows outside of Russian control, to help Georgia learn how to deter attack through selective systems disruption.

RUSSIA'S HOSTILE ACQUISITION

Russia is, for all intents and purposes, a corporation with the trappings of a nation-state. The core business of the Russian corporation is energy, its production and transport (as a result, Gazprom, Russia's key subsidiary, will likely become the world's most valuable publicly traded corporation, valued at over $1 trillion). Internally, production consolidation has led to the destruction of corporate competitors, to include domestic corporations (Yukos) and foreign partners (most recently BP). Externally, the focus has been on consolidating control over energy transportation (pipelines) and downstream integration (Europe, via soft pressure). Recent actions to control energy transportation include:

• Estonia. Estonia had a lucrative business shipping Russian energy resources via its ports (i.e. Muuga). To protect this business, Estonia tried to block the construction of a Baltic pipeline that would have allowed Russia to send resources directly to Europe. The result was a Russian economic blockade of the country and a cyberattack by "patriotic" Russian hackers on Estonian computer systems.
  
• Ukraine. To protect its low cost purchases of Russian energy, Ukraine began to exert control over Russian pipeline traversing its territory. Russia cut off supplies.
  
• Georgia. The construction of the BTC pipeline (1 million barrels a day, currently Azeri and potentially Kazakh oil) that bypassed Russian control led to intentional systems disruption that led to a weeklong energy blackout, support for domestic insurgents, and (most recently) a military invasion.
  

The Poison Pill
Georgia's mistake, and it is a common one, is that it thought that connectivity to the global system (as well as the US) was a viable defense against a hostile Russian takeover. As a result, it became a vital cog in the BTC and a willing participant in the US adventure in Iraq. That defense proved mostly hollow. In short, the only real defense against hostile takeovers by aggressive corporate states is to make the cost of the acquisition too expensive for the acquirer. The way to do this is through the development of a poison pill: the intentional disruption of Russian energy pipelines (see, "The Example of Georgia" January 2006 and "JOURNAL: Can Georgia become a micropower?" October 2006 for more on this). Global guerrilla methods, particularly cyber/physical disruption, compliment interconnection as part of a Micropower defense strategy.

JOURNAL: Global Oscillations

When a dissipative system exceeds its design envelope, you will often see oscillations (potentially as a prelude to bifurcation). We are seeing an oscillation right now as rising energy costs impact the behavior of the global economic system. The economist Jeff Rubin at CIBC has a great report on the topic. I believe that we may see several iterations of this "cycle" before we see stabilization on an attractor defined by high cost energy and hyper localization.

SCENARIO: CHECHEN INDEPENDENCE (Part 3)

This brief could be alternatively titled, "how to coerce a major state for less than one million dollars."

How could global guerrillas fight on the strategic level? To explore this, I crafted a potential scenario that pits Chechen (or more precisely now, Caucasian Front) guerrillas against the Russian state. Part 1 provides an overview of the scenario. Part 2 explains how the moral center of a state has shifted to the markets it participates in (and how traditional symbolic terrorism can put the state on the horns of a dilemma). Part 3 (below) examines some of the mechanics of systems disruption necessary to accomplish the desired moral effects.

Pipeline Disruption

Russia's energy exports is the main thread that ties it to the world's markets. Internally, the energy industry is directly responsible for 25% of the country's employment and 50% of the state's tax revenues. It is the single most important strength of the Russian state. In order to defeat the Russian state strategically, Chechen guerrillas turned this strength into a weakness. This was done through systems disruption. It turned the moral sentiment of global markets against the state (via uncertainty, menace, and mistrust).

On the face of it, the disruption of the Russian energy transportation infrastructure was straight forward. There wasn't any need for deep systems analysis to determine systempunkts (points of greatest vulnerability). The pipelines of Transneft's oil and gas transportation system are concentrated into two major conduits (see diagram of the gas pipeline system). These lines were both easy to access and disrupt using simple homemade thermite and propane tanks (DIY, or do-it-yourself, explosives that are very effective against infrastructure). An effects-based operation with the goal of causing immediate losses would make frequent small attacks against those lines to the east of Moscow. In many cases, these attacks impacted both oil and gas exports due to co-location vulnerability.

Expansion of the Effort to Maintain Effects
However, the campaign got more complicated when it was forced to move beyond attacks on the main lines due radical increases in defensive efforts (which were only partially effective). To maintain the desired effect (a reduction in Russian gas/oil exports of 50% or more), Chechen guerrillas developed and exploited systempunkts in the rail, communications, and electricity systems. Since the disruption of these system exceeded the ability of a regional open source movement to accomplish, it opted to expand through a market-based approach. Guerrilla entrepreneurs sent into the field with financing hired participants from easily accessible criminal networks to provide target selection, bomb manufacturing, and emplacement services. Since these attacks didn't involve body-count terrorism, these participants were easy to recruit. The fluid marketplaces that developed emerged much more rapidly than the government could react to. Here's how these systems were disrupted:

• Rail. Transneft's oil transport capacity is limited to ~four million barrels a day. The rest is transported by rail. The Russian rail system exhibits many of the sparse network problems of the pipeline system. There are several links and hubs to the east of Moscow that provide a complete system shutdown capability. In order to immediately impact rail system performance, the Chechen guerrillas began to cut the fiber connections of the rail systems Unified Main Digital Communications Network (which follows the route of the tracks). These attacks disconnected the central routing and management system from downstream customers, trains, and stations. The ongoing disruption of these links made subsequent attacks on the tracks themselves more effective (since it slowed rerouting efforts and attempts to mitigate the disruption).
• Electricity. Systems analysis revealed the Russian electrical system, although more complex than the rail and pipeline infrastructure, had several key systempunkts. Attacks on only three high voltage substations was able to force the system into a cascading failure that collapsed electricity delivery in the central area north of Kazakhstan. Ongoing attacks on regional high voltage lines of 500 KV and above delayed repair efforts. This ongoing regional blackout complicated the repair of pipeline and railway disruption.
• Communications. To amplify the moral distress of markets in Russia's continued ability to participate in the global economy, Chechen guerrillas opted to focus their communications disruption on Moscow. To do this, the guerrilla began to systematically dismantle the cell phone tower infrastructure that supplied the city with robust communications capability. The high volume of calls routed to the remaining towers caused overloads and drops in service for the vast majority of subscribers.

Epilogue
(See Part 1 for a more descriptive Epilogue) The effect of this disruption campaign was a sustained reduction, by 50%, of Russian oil and gas exports for three months. Market reaction was fierce. The ruble fell precipitously (50 to 1), contracts with Russian oil and gas firms were embroiled in legal wrangling, and the cost of debt soared. Additionally, domestic opinion turned against the government which it blamed for the current problems. The Russian government was assailed from all sides. Facing collapse and major unrest at home, the Russian government offered Chechnya independence. Other provinces in the Caucasus would soon follow.

FEAR MANAGEMENT

Last August, in a Shiite neighborhood in eastern Baghdad, a suicide car bomb went off near a police station across the street from an open air bus station. Ten minutes later, as people crowded in the station to watch the rescue across the street, another suicide bomber drove his car into the station itself. The carnage was widespread but far from over. Twenty minutes later, as the victims of the first two blasts were removed to Kindi hospital only 200 yards away from the terminal, a third suicide car bomb went off at the hospital's side entrance.

THE ANALYSIS GAP: OIL MARKETS

Conventional oil market analysis is focused on traditional economic factors. The only intangible factors left to deal with is the sentiment of OPEC (to abide by quotas, increase/decrease quotas, etc.) and Saudi Arabia's maximum production capacity (a closely guarded secret). This type of analysis has worked fairly well in the past, but it has recently reached an impasse. It is no longer explanatory or predictive. This brief explains the problem, and what can be done to correct it.

PIERCING THE CORPORATE VEIL

Is business war?  It is in the world of post-industrial, post-state conflict. 

Battles between the corporate allies of nation-states and the transnational tribes and gangs of black globalization are at the core of this century's epochal war. 

Meet the Competition

Jeffrey Ake, the CEO of Equipment Express, has become a poster-boy for this conflict.  His visit to Iraq -- to manage his company's water and cooking oil bottling operation -- placed him squarely the cross-hairs of his guerrilla competitors. 

The problem is that these new competitors don't play by the Queensbury Rules of American business. 

The CEO as an Objective of War

CEO kidnapping isn't new.  It is common practice in Brazil, Mexico, etc.  The difference in Iraq is the motive.  In Iraq, it isn't purely financial gain.  It is being used as a way to unravel the fledgeling Iraqi government.

Here's why.  America's second largest ally in Iraq isn't the UK.  Not even close.  Corporations like Halliburton provide almost as many trigger pullers and engineers as the US Army.  They are the battalions of foot soldiers in Thomas Barnett's sys-admin force -- connecting Iraq to the US and the world. 

This role converts CEOs into generals/colonels in the US globalization machine (leaders of new entrants in the rapidly expanding long tail of warfare).  They are now legitimate and highly prized targets. 

The Corporate Systempunkt

The corporation is a particularly bad organization for warfare.  It is much too centralized.  The institution of the CEO is a particular weakness (a systempunkt in global guerrilla lingo).  The CEO's network centrality makes him/her a single point of failure for the entire corporate organism.  Here are some of the ways this damage can flow through a company:

• Psychological trauma.  We've already seen the results of this trauma at work on corporate decision making in Iraq.  Ongoing assaults on corporate employees have caused numerous corporate withdrawals (over a large number of nationalities, which implies that corporate behavior in this regard is relatively universal).  Assaults on CEOs ups the psychological ante:  it pierces the flimsy veil between corporate behavior and the personal security of senior executives.  The result is a greater level of risk adverse behavior within the target company and companies on the edge of involvement.
• Financial trauma.  The departure of the CEO from a public company can create substantial market volatility in the company's stock (see this Fed study for more) for up to two years after the event.  NOTE:  This volatility offers the incentive of rapid financial gains to guerillas with the foreknowledge of attacks through leveraged investments in options and derivatives -- remember, in this crazy new world micro-finance and warfare are closely connected. 
• Organizational trauma.  The financial trauma (see above) is symptomatic of the organizational chaos a company goes through when a CEO rapidly departs.  The pyramidal organizational networks of most corporations demonstrate a major vulnerability to the loss of its central decision maker.  This is particularly true in a small entrepreneurial company like Equipment Express. Even after a new CEO is selected, he/she can be relied upon to change strategic plans, roil the ranks of senior management, and generally slow down decision making in the short-term.

What's Next?

Frankly, a CEO is an excellent strategic target as well as a tactical target.  As a rule of thumb, I would consider all CEOs that reside/work within a nation-state at war with non-state guerrillas at risk.  Under almost all measures of this new method of warfare, CEOs are better targets than government or military officials.   

Remember, in this flat world, it is easy to pull up a CEO's name, address, credit history, and even a satellite photo of his/her home from a Cyber Cafe in Peshawar.