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Blackwater USA – Daily Brief

China

  • Hong Kong’s protesters are staging a sit-in at the airport, and calling for their “five demands” to be met. Those demands include complete withdrawal of the extradition bill that started this whole thing, to stop calling the protests “riots,” the unconditional release of detained protesters, the formation of an independent commission to look into police brutality against protesters, and universal suffrage.
  • The Economist published a good op-ed calling on China to refrain from getting its military involved in Hong Kong, lest it scare Hong Kongers back to 1989. Article pasted below.
  • Typhoon Lekima is bearing down on Zhejiang Province, China, and expected to make landfall on Saturday. Another typhoon, Typhone Krosa, could hit Japan next week.

Iran

  • The NYT had an excellent article on U.S. efforts to bribe Iranian oil traders for data on clandestine oil sales—pasted below.

Afghanistan

  • The National (UAE) cited estimates by Afghan officials that up to 10% of Taliban fighters—overweighted towards the foreign ones who can’t return home—could grumpily defect to IS-Khorasan if the Taliban reaches a peace deal with the U.S. and their current fight winds down.
  • Meanwhile, Taliban emir Mullah Hibatullah Akhundzada disappointed those who had hoped for another Eid ceasefire this year: he instead called on followers to wage jihad during the holiday.

Mexico

  • U.S. CBP apprehensions at the southern border dropped below 100,000 for the first time in five months—a sign that Mexico’s efforts to slow migration are working.
  • Mexican police found 19 bodies of victims of drug gang violence in Michoacan, Mexico, including nine who had been strung up from a bridge with signs indicating the murders were the work of the Jalisco cartel, and were intended as a warning to the rival Viagra cartel (some name!).

Libya

  • Libya lifted force majeure on El Sharara oilfield—which makes up around a quarter of Libyan oil output—and restarted production there…until the next valve failure stops it again.

Venezuela

  • Venezuela’s parliament says inflation was only 33.8% in July, which makes for a total of 265,000% over the last year. Last month, the opposition National Assembly had estimated a much worse annual rate of 445,500% (the government often adopts rosier estimates than the opposition that criticizes it).
  • Pres. Maduro boasted that Venezuela and China had started work to expand the Sinovensa joint venture between a PDVSA subsidiary and CNPC from 110,000 bpd to 165,000 bpd. A second phase of the expansion would grow output to 230,000 bpd—if it ever comes about…more likely, China will get sick of helping Maduro before then.

India

  • There are apparently widespread protests breaking out in Kashmir, though we don’t hear much about them because of a communication breakdown. Police have arrested over 500 protesters, some of whom were throwing rocks, and detained them in temporary centers.

Syria

  • The U.S. and Turkey announced vague plans to build a joint headquarters to manage the proposed buffer zone between a Kurdish militia that Turkey fears and the Turkish border, though the lack of details makes it clear they’re still working out the agreement.

U.S.

  • Pres. Trump nominated Joseph Maguire, the head of the National Counterterrorism Center, to be his new acting DNI, and Deputy DNI Sue Gordon quit, after learning she’d been passed over for the job.
  • An armed 20-year-old in body armor frightened shoppers at a Springfield, MO Walmart, but an armed, off-duty firefighter was able to detain him until police arrived.

Other News

  • Hardline Italian interior minister Matteo Salvini declared that he’d had enough of his coalition partners in the populist Five Star Movement, after they criticized him for vacationing. The NYT says the breakdown of the coalition could make Salvini the next PM.
  • As part of its plan to exit the Canadian market, Chase announced that it would forgive all outstanding Canadian credit card debt. Chase didn’t say how much that was, but it was apparently not worth collecting.
  • Kyrgyz police finally arrested former president Almazbek Atambayev for corruption, after a showdown with his supporters that involved Atambayev himself firing on police. Atambayev denies the corruption charges.

Chinese troops must stay off the streets of Hong Kong (The Economist)

Deploying the army would have dangerous repercussions for China and the rest of the world

It is summer, and the heat is oppressive. Thousands of students have been protesting for weeks, demanding freedoms that the authorities are not prepared to countenance. Officials have warned them to go home, and they have paid no attention. Among the working population, going about its business, irritation combines with sympathy. Everybody is nervous about how this is going to end, but few expect an outcome as brutal as the massacre of hundreds and maybe thousands of citizens.

Today, 30 years on, nobody knows how many were killed in and around Tiananmen Square, in that bloody culmination of student protests in Beijing on June 4th 1989. The Chinese regime’s blackout of information about that darkest of days is tacit admission of how momentous an event it was. But everybody knows that Tiananmen shaped the Chinese regime’s relations with the country and the world. Even a far less bloody intervention in Hong Kong would reverberate as widely (see article).

What began as a movement against an extradition bill, which would have let criminal suspects in Hong Kong be handed over for trial by party-controlled courts in mainland China, has evolved into the biggest challenge from dissenters since Tiananmen. Activists are renewing demands for greater democracy in the territory. Some even want Hong Kong’s independence from China. Still more striking is the sheer size and persistence of the mass of ordinary people. A general strike called for August 5th disrupted the city’s airport and mass-transit network. Tens of thousands of civil servants defied their bosses to stage a peaceful public protest saying that they serve the people, not the current leadership. A very large number of mainstream Hong Kongers are signalling that they have no confidence in their rulers.

As the protests have escalated, so has the rhetoric of China and the Hong Kong government. On August 5th Carrie Lam, the territory’s crippled leader, said that the territory was “on the verge of a very dangerous situation”. On August 6th an official from the Chinese government’s Hong Kong office felt the need to flesh out the implications. “We would like to make it clear to the very small group of unscrupulous and violent criminals and the dirty forces behind them: those who play with fire will perish by it.” Anybody wondering what this could mean should watch a video released by the Chinese army’s garrison in Hong Kong. It shows a soldier shouting “All consequences are at your own risk!” at rioters retreating before a phalanx of troops.

The rhetoric is designed to scare the protesters off the streets. And yet the oppressive nature of Xi Jinping’s regime, the Communist Party’s ancient terror of unrest in the provinces and its historical willingness to use force, all point to the danger of something worse. If China were to send in the army, once an unthinkable idea, the risks would be not only to the demonstrators.

Such an intervention would enrage Hong Kongers as much as the declaration of martial law in 1989 aroused the fury of Beijing’s residents. But the story would play out differently. The regime had more control over Beijing then than it does over Hong Kong now. In Beijing the party had cells in every workplace, with the power to terrorise those who had not been scared enough by the tanks. Its control over Hong Kong, where people have access to uncensored news, is much shakier. Some of the territory’s citizens would resist, directly or in a campaign of civil disobedience. The army could even end up using lethal force, even if that was not the original plan.

With or without bloodshed, an intervention would undermine business confidence in Hong Kong and with it the fortunes of the many Chinese companies that rely on its stockmarket to raise capital. Hong Kong’s robust legal system, based on British common law, still makes it immensely valuable to a country that lacks credible courts of its own. The territory may account for a much smaller share of China’s gdp than when Britain handed it back to China in 1997, but it is still hugely important to the mainland. Cross-border bank lending booked in Hong Kong, much of it to Chinese companies, has more than doubled over the past two decades, and the number of multinational firms whose regional headquarters are in Hong Kong has risen by two-thirds. The sight of the army on the city’s streets would threaten to put an end to all that, as companies up sticks to calmer Asian bases.

The intervention of the People’s Liberation Army would also change how the world sees Hong Kong. It would drive out many of the foreigners who have made Hong Kong their home, as well as Hong Kongers who, anticipating such an eventuality, have acquired emergency passports and boltholes elsewhere. And it would have a corrosive effect on China’s relations with the world.

Hong Kong has already become a factor in the cold war that is developing between China and America. China is enraged by the high-level reception given in recent weeks to leading members of Hong Kong’s pro-democracy camp during visits to Washington. Their meetings with senior officials and members of Congress have been cited by China as evidence that America is a “black hand” behind the unrest, using it to pile pressure on the party as it battles with America over trade (a conflict that escalated this week, when China let its currency weaken—see article).

Were the Chinese army to go so far as to shed protesters’ blood, relations would deteriorate further. American politicians would clamour for more sanctions, including suspension of the act that says Hong Kong should be treated as separate from the mainland, upon which its prosperity depends. China would hit back. Sino-American relations could go back to the dark days after Tiananmen, when the two countries struggled to remain on speaking terms and business ties slumped. Only this time, China is a great deal more powerful, and the tensions would be commensurately more alarming.

None of this is inevitable. China has matured since 1989. It is more powerful, more confident and has an understanding of the role that prosperity plays in its stability—and of the role that Hong Kong plays in its prosperity. Certainly, the party remains as determined to retain power as it was 30 years ago. But Hong Kong is not Tiananmen Square, and 2019 is not 1989. Putting these protests down with the army would not reinforce China’s stability and prosperity. It would jeopardise them.

U.S. Sanctions Turn Iran’s Oil Industry Into Spy vs. Spy (NYT)

They change offices every few months and store documents only in hard copy. They scan their businesses for covert listening devices and divert all office calls to their cellphones. They know they are under surveillance, and assume their electronics are hacked.

They are not spies or jewel thieves but Iran’s oil traders, and they are suddenly in the cross hairs of international intrigue and espionage.

“Sometimes I feel like I am an actor playing in a thriller spy movie,” said Meysam Sharafi, a veteran oil trader in Tehran.

Since President Trump imposed sanctions on Iranian oil sales last year, information on those sales has become a prized geopolitical weapon — coveted by Western intelligence agencies and top secret for Iran. And the business of selling Iranian oil, once a safe and lucrative enterprise for the well connected, has been transformed into a high-stakes global game of espionage and counterespionage.

Last month, Iran said it had dismantled a spy ring and arrested 17 Iranians it said were working for the C.I.A. The Iranian government was vague on the target of the espionage, for which some of the suspects were sentenced to death, but it now appears that it involved clandestine efforts to gather intelligence on oil sales.

President Trump denied that the suspects worked for the C.I.A., a highly unusual statement from a government that almost never confirms or denies such accusations. A spokesman for the C.I.A. declined to comment.

But American officials acknowledged that Iran’s oil sector is of intense interest to the United States and its intelligence agencies.

Whoever is doing the spying, there is little doubt that cloak-and-dagger tactics have buffeted the shrinking Iranian oil trade. Traders say they have been offered all kinds of enticements in exchange for information.

Eastern Europeans showed up in Tehran with cases of vodka and red wine, promising a steady flow of alcohol and cash and offering to double the broker’s fee. A man claiming to be an American academic offered a $5,000-a-month retainer for help with his research on the oil industry. Armenian prostitutes disguised as businesswomen proposed vacation getaways to Shiraz and Isfahan, ancient Iranian cities known for their history and culture.

The oil traders say foreigners, who they assume are working on behalf of the United States, have offered astronomical sums, ranging from $100,000 to $1 million, just for the bank account numbers the Oil Ministry used in a sale. Some of the foreigners have promised visas to the United States, the traders said.

One trader admitted to having been duped: The Armenian prostitutes persuaded him to use their names to register front companies in Armenia to facilitate banking transactions. After the women were caught soliciting clients in Iran, he said, Iranian security forces called him in for questioning and he ended the relationship.

Foreign clients, too, are paranoid because of the secondary sanctions that the United States would place on them if they are caught buying Iranian oil. Traders said that on trips abroad, clients asked them to switch hotels in the middle of the night. Traders said it was not uncommon to be questioned at airports overseas. In at least one case, a foreign customer dispatched female agents, dressed in tight dresses and heels, to test what information a trader might divulge.

If the spying charges were intended to send a message to Iran’s oil traders, the message was heard.

One trader said he called the intelligence branch of the Oil Ministry and proactively gave him some information about a suspicious European who had visited his office. Another deleted text messages and blocked the number of a woman who introduced herself as a Swedish Ph.D. student researching Iran’s oil trade.

Hassan Soleimani, the editor in chief of Mashregh, a newspaper affiliated with the Iranian Revolutionary Guards Corps, confirmed that the spy ring arrests involved oil espionage. So did an Iranian politician and two oil traders, all of whom spoke on condition of anonymity.

Many of the 17 people accused of spying had worked in the oil and energy sector as traders and brokers, the two traders said. They had come under scrutiny because of contacts with foreigners on their trips abroad.

Separately, Iran said in June that it had arrested a woman who worked at a European energy firm, accusing her of obtaining oil sales documents by cultivating senior and middle managers at the Oil Ministry.

Because Iran’s economy depends on oil, and on evading American sanctions, keeping oil sales secret is considered crucial.

“How we evade sanctions to sell our oil and how we move the money is now the country’s most vital and sensitive information,” Mr. Soleimani, the editor, said. “Nothing is more important.”

Iran’s oil minister, Bijan Zanganeh, banned the release of oil data last year after Washington quit the Iran nuclear deal and imposed sanctions on Iran’s oil exports and financial transactions.

The U.S. has been unable to halt Iranian oil exports.

“Information about Iran’s oil exports is war information,” he said in July.

Of the 10 people who on average contact the Oil Ministry each day to inquire about purchasing oil, Mr. Zanganeh has said, seven are not genuine customers. “They are after figuring out our entire system,” he told Iranian news media in June.

The White House said the aim of the sanctions, which were tightened in May, was “to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”

While that goal has not been met, analysts estimate that Iran’s foreign oil sales have fallen steeply, from 2.5 million barrels a day before the first set of sanctions took effect in 2018 to about 500,000 barrels a day now.

The cold conflict has spilled into the seas, where Iran was blamed for sabotage attacks on six oil tankers, and the air, where the United States and Iran have each downed the other’s drone.

Last month, Britain seized an Iranian tanker in Gibraltar that it said was destined for Syria in violation of international sanctions against Syria. Iran retaliated by seizing a British tanker in the Persian Gulf, a pointed reminder that any military effort to enforce the oil sanctions could quickly heat up.

The information war has been quieter but no less vital. Information about Iran’s oil production, prices, sales and exports are a crucial tool for Washington to gauge the effect of the sanctions and carry out its “maximum pressure” campaign against Iran.

“The U.S. wants the information on oil exports so they can have a sense of how much hard currency Iran is earning,” said Elizabeth Rosenberg, an analyst at the Center for a New American Security and a former senior Treasury official in the Obama administration. “Then they can have a sense of how much they have to squeeze Iran to get its leaders to change their political calculus.”

Iran is a tough intelligence target because Iranians work through “personal relationships of trust,” she said, avoiding some of the telltale trappings and mechanisms of the international oil trade and operating with extreme discretion.

Iran has adopted an array of measures to circumvent sanctions, say traders and oil experts, including turning off the GPS locaters on its oil tankers, transferring oil from ship to ship in open waters, mixing its oil with Iraqi oil leaving the port of Basra, and falsifying shipping manifests to reflect a non-Iranian origin.

Iran has also tightened its oil trading system and increased security to make it more difficult to penetrate and track. Three Iranian oil traders described the changes to The New York Times, requesting anonymity over concerns for their safety.

The thousands of freestyle brokers who put together oil deals between buyers and the Oil Ministry were replaced by a handful of authorized, vetted traders. They report to four senior retired Oil Ministry officials, who have divided the market by region.

A former oil minister and Revolutionary Guards commander, Rostam Ghasemi, took charge of exports to Syria. The other three handled China, India and Europe.

Each purchase plan is customized depending on who is buying, how much they are buying and where the cargo is going — with the goal of constantly changing the method to elude sanctions monitors.

Buyers were required to send representatives to Tehran as a way to protect information and to identify serious clients.

Traders were ordered not to discuss price, shipping or payment with prospective clients. Their main job is to determine whether prospective buyers are legitimate, and then send a proposal to one of the four senior officials.

The Oil Ministry’s security wing holds regular workshops and briefing sessions to train the traders on security and counterespionage tactics.

“The space surrounding us has become intensely security oriented,” said Mr. Sharafi, one of the traders.

To encourage buyers, Iran typically sells its oil about $4 a barrel under the market price. It requires a 10 percent down payment and full payment before allowing the oil barrels to be offloaded at destination ports.

The payment phase is the most closely guarded step. Overseas bank accounts are opened and closed within a few hours, just long enough to make deposits and transfers. While those transactions are taking place, traders and buyers are kept under surveillance at a guesthouse belonging to the Oil Ministry. They are served kebabs and Persian tea and their phones are confiscated to prevent leaks.

Once the deal is complete, they are free to leave.

Oil traders say the new system is doing its job.

“Our worst fears about the economy collapsing did not materialize,” said Farshad Toomaj, a former trader who consults for the Oil Ministry from Sweden. “Iran has become very creative and sophisticated in coming up with dynamic ways to sell oil.”