Feature

The First Law of Petropolitics

Iran's president denies the Holocaust, Hugo Chávez tells Western leaders to go to hell, and Vladimir Putin is cracking the whip. Why? They know that the price of oil and the pace of freedom always move in opposite directions. It's the First Law of Petropolitics, and it may be the axiom to explain our age.

When I heard the president of Iran, Mahmoud Ahmadinejad, declare that the Holocaust was a "myth," I couldn't help asking myself: "I wonder if the president of Iran would be talking this way if the price of oil were $20 a barrel today rather than $60 a barrel." When I heard Venezuela's President Hugo Chávez telling British Prime Minister Tony Blair to "go right to hell" and telling his supporters that the U.S.-sponsored Free Trade Area of the Americas "can go to hell," too, I couldn't help saying to myself, "I wonder if the president of Venezuela would be saying all these things if the price of oil today were $20 a barrel rather than $60 a barrel, and his country had to make a living by empowering its own entrepreneurs, not just drilling wells."

As I followed events in the Persian Gulf during the past few years, I noticed that the first Arab Gulf state to hold a free and fair election, in which women could run and vote, and the first Arab Gulf state to undertake a total overhaul of its labor laws to make its own people more employable and less dependent on imported labor, was Bahrain. Bahrain happened to be the first Arab Gulf state expected to run out of oil. It was also the first in the region to sign a free trade agreement with the United States. I couldn't help asking myself: "Could that all just be a coincidence? Finally, when I looked across the Arab world, and watched the popular democracy activists in Lebanon pushing Syrian troops out of their country, I couldn't help saying to myself: "Is it an accident that the Arab world's first and only real democracy happens not to have a drop of oil?"

The more I pondered these questions, the more it seemed obvious to me that there must be a correlation -- a literal correlation that could be measured and graphed -- between the price of oil and the pace, scope, and sustainability of political freedoms and economic reforms in certain countries. A few months ago I approached the editors of this magazine and asked them to see if we could do just that -- try to quantify this intuition in graph form. Along one axis we would plot the average global price of crude oil, and along the other axis we would plot the pace of expanding or contracting freedoms, both economic and political, as best as research organizations such as Freedom House could measure them. We would look at free and fair elections held, newspapers opened or closed, arbitrary arrests, reformers elected to parliaments, economic reform projects started or stopped, companies privatized and companies nationalized, and so on.

I would be the first to acknowledge that this is not a scientific lab experiment, because the rise and fall of economic and political freedom in a society can never be perfectly quantifiable or interchangeable. But because I am not trying to get tenure anywhere, but rather to substantiate a hunch and stimulate a discussion, I think there is value in trying to demonstrate this very real correlation between the price of oil and the pace of freedom, even with its imperfections. Because the rising price of crude is certain to be a major factor shaping international relations for the near future, we must try to understand any connections it has with the character and direction of global politics. And the graphs assembled here certainly do suggest a strong correlation between the price of oil and the pace of freedom -- so strong, in fact, that I would like to spark this discussion by offering the First Law of Petropolitics.

The First Law of Petropolitics posits the following: The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them. Conversely, according to the First Law of Petropolitics, the lower the price of oil, the more petrolist countries are forced to move toward a political system and a society that is more transparent, more sensitive to opposition voices, and more focused on building the legal and educational structures that will maximize their people's ability, both men's and women's, to compete, start new companies, and attract investments from abroad. The lower the price of crude oil falls, the more petrolist leaders are sensitive to what outside forces think of them.

I would define petrolist states as states that are both dependent on oil production for the bulk of their exports or gross domestic product and have weak state institutions or outright authoritarian governments. High on my list of petrolist states would be Azerbaijan, Angola, Chad, Egypt, Equatorial Guinea, Iran, Kazakhstan, Nigeria, Russia, Saudi Arabia, Sudan, Uzbekistan, and Venezuela. (Countries that have a lot of crude oil but were well-established states, with solid democratic institutions and diversified economies before their oil was discovered -- Britain, Norway, the United States, for example -- would not be subject to the First Law of Petropolitics.)

To be sure, professional economists have, for a long time, pointed out in general the negative economic and political impacts that an abundance of natural resources can have on a country. This phenomenon has been variously diagnosed as "Dutch Disease" or the "resource curse." Dutch Disease refers to the process of deindustrialization that can result from a sudden natural resource windfall. The term was coined in the Netherlands in the 1960s, after it discovered huge deposits of natural gas. What happens in countries with Dutch Disease is that the value of their currency rises, thanks to the sudden influx of cash from oil, gold, gas, diamonds, or some other natural resource discovery. That then makes the country's manufactured exports uncompetitive and its imports very cheap. The citizens, flush with cash, start importing like crazy, the domestic industrial sector gets wiped out and, presto, you have deindustrialization. The "resource curse" can refer to the same economic phenomenon, as well as, more broadly speaking, the way a dependence on natural resources always skews a country's politics and investment and educational priorities, so that everything revolves around who controls the oil tap and who gets how much from it -- not how to compete, innovate, and produce real products for real markets.

Beyond these general theories, some political scientists have explored how an abundance of oil wealth, in particular, can reverse or erode democratizing trends. One of the most trenchant analyses that I have come across is the work of UCLA political scientist Michael L. Ross. Using a statistical analysis from 113 states between 1971 and 1997, Ross concluded that a state’s "reliance on either oil or mineral exports tends to make it less democratic; that this effect is not caused by other types of primary exports; that it is not limited to the Arabian Peninsula, to the Middle East, or sub-Saharan Africa; and that it is not limited to small states."

What I find particularly useful about Ross's analysis is his list of the precise mechanisms by which excessive oil wealth impedes democracy. First, he argues, there is the "taxation effect." Oil-rich governments tend to use their revenues to "relieve social pressures that might otherwise lead to demands for greater accountability" from, or representation in, the governing authority. I like to put it this way: The motto of the American Revolution was "no taxation without representation." The motto of the petrolist authoritarian is "no representation without taxation." Oil-backed regimes that do not have to tax their people in order to survive, because they can simply drill an oil well, also do not have to listen to their people or represent their wishes.

The second mechanism through which oil dampens democratization, argues Ross, is the "spending effect." Oil wealth leads to greater patronage spending, which in turn dampens pressures for democratization. The third mechanism he cites is the "group formation effect." When oil revenues provide an authoritarian state with a cash windfall, the government can use its newfound wealth to prevent independent social groups -- precisely those most inclined to demand political rights -- from forming. In addition, he argues, an overabundance of oil revenues can create a "repression effect," because it allows governments to spend excessively on police, internal security, and intelligence forces that can be used to choke democratic movements. Finally, Ross sees a "modernization effect" at work. A massive influx of oil wealth can diminish social pressures for occupational specialization, urbanization, and the securing of higher levels of education -- trends that normally accompany broad economic development and that also produce a public that is more articulate, better able to organize, bargain, and communicate, and endowed with economic power centers of its own.

The First Law of Petropolitics tries to build on such arguments but to take the correlation between oil and politics one step further. What I am arguing in positing the First Law of Petropolitics is not only that an overdependence on crude oil can be a curse in general but also that one can actually correlate rises and falls in the price of oil with rises and falls in the pace of freedom in petrolist countries. The connection is very real. As these graphs demonstrate, the pace of freedom really starts to decline as the price of oil really starts to take off.

An Axis of Oil?

The reason this connection between the price of oil and the pace of freedom is worth focusing on today is that we appear to be at the onset of a structural rise in global crude oil prices. If that is the case, this higher price level is almost certain to have a long-term effect on the character of politics in many weak or authoritarian states. That, in turn, could have a negative global impact on the post-Cold War world as we have come to know it. In other words, the price of crude should now be a daily preoccupation of the U.S. secretary of state, not just the treasury secretary.

Since 9/11, oil prices have structurally shifted from the $20-$40 range to the $40-$60 range. Part of this move has to do with a general sense of insecurity in global oil markets due to violence in Iraq, Nigeria, Indonesia, and Sudan, but even more appears to be the result of what I call the "flattening" of the world and the rapid influx into the global marketplace of 3 billion new consumers, from China, Brazil, India, and the former Soviet Empire, all dreaming of a house, a car, a microwave, and a refrigerator. Their rising energy appetites are enormous. This already is, and will continue to be, a steady source of pressure on the price of oil. Without a dramatic move toward conservation in the West, or the discovery of an alternative to fossil fuels, we are going to be in this $40-to-$60 range, or higher, for the foreseeable future.

Politically, that will mean that a whole group of petrolist states with weak institutions or outright authoritarian governments will likely experience an erosion of freedoms and an increase in corruption and autocratic, antidemocratic behaviors. Leaders in these countries can expect to have a significant increase in their disposable income to build up security forces, bribe opponents, buy votes or public support, and resist international norms and conventions. One need only pick up the newspaper on any day of the week to see evidence of this trend.

Consider a February 2005 article in the Wall Street Journal about how the mullahs in Tehran -- who now are flush with cash thanks to high oil prices -- are turning their backs on some foreign investors instead of rolling out the welcome mat. Turkcell, a Turkish mobile-phone operator, had signed a deal with Tehran to build the country's first privately owned cell-phone network. It was an attractive deal: Turkcell agreed to pay Iran $300 million for the license and invest $2.25 billion in the venture, which would have created 20,000 Iranian jobs. But the mullahs in the Iranian Parliament had the contract frozen, claiming it might help foreigners spy on Iran. Ali Ansari, an Iran expert at the University of St. Andrews in Scotland, told the Journal that Iranian analysts had been arguing in favor of economic reform for 10 years. "In actual fact, the scenario is worse now," said Ansari. "They have all this money with the high oil price, and they don't need to do anything about reforming the economy."

Or, how about a Feb. 11, 2006, story in The Economist about Iran, which stated: "Nationalism is easier on a full stomach and Mr. Ahmadinejad is the rare and fortunate president who expects to receive, over the coming Iranian year, some $36 billion in oil export revenues to help buy loyalty. In his first budget bill, now before parliament, the government has promised to build 300,000 housing units, two-thirds of them outside big towns, and to maintain energy subsidies that amount to a staggering 10% of [gross domestic product]."

Or, consider the drama now unfolding in Nigeria. Nigeria has a term limit for its presidents -- two four-year terms. President Olusegun Obasanjo came to office in 1999, after a period of military rule, and was then reelected by a popular vote in 2003. When he took over from the generals in 1999, Obasanjo made headlines by investigating human rights abuses by the Nigerian military, releasing political prisoners, and even making a real attempt to root out corruption. That was when oil was around $25 a barrel. Today, with oil at $60 a barrel, Obasanjo is trying to persuade the Nigerian legislature to amend the constitution to allow him to serve a third term. A Nigerian opposition leader in the House of Representatives, Wunmi Bewaji, has alleged that bribes of $1 million were being offered to lawmakers who would vote to extend Obasanjo's tenure. "What they are touting now is $1 million per vote," Bewaji was quoted as saying in a March 11, 2006, article by VOA News. "And it has been coordinated by a principal officer in the Senate and a principal officer in the House."

Clement Nwankwo, one of Nigeria's leading human rights campaigners, told me during a visit to Washington in March that since the price of oil has started to climb, "civil liberties [have been] on a huge decline -- people have been arbitrarily arrested, political opponents have been killed, and institutions of democracy have been crippled." Oil accounts for 90 percent of Nigeria's exports, added Nwankwo, and that explains, in part, why there has been a sudden upsurge in the kidnapping of foreign oil workers in Nigeria's oil-rich Niger Delta. Many Nigerians think they must be stealing oil, because so little of the revenue is trickling down to the Nigerian people.

Very often in petrolist states, not only do all politics revolve around who controls the oil tap, but the public develops a distorted notion of what development is all about. If they are poor and the leaders are rich, it is not because their country has failed to promote education, innovation, rule of law, and entrepreneurship. It is because someone is getting the oil money and they are not. People start to think that, to get rich, all they have to do is stop those who are stealing the country's oil, not build a society that promotes education, innovation, and entrepreneurship. "If Nigeria had no oil, then the entire political equation would be different," said Nwankwo. "The income would not be coming from oil and therefore the diversification of the economy would become an issue and private enterprise would matter more, and people would have to expand their own creativity."

Indeed, the link between oil prices and the pace of freedom is so tight in some countries that even a far-sighted leadership can be diverted from the path of economic and political reform by a sudden spike in crude prices. Consider Bahrain, which knows it is running out of oil, and has been a case study of how falling oil revenues can spur reform. Even it has not been able to resist the temporary seduction of higher oil prices. "We are having good times now because of high oil prices. This may lead officials to be complacent," Jasim Husain Ali, head of the University of Bahrain's economic research unit, recently told the Gulf Daily News. "This is a very dangerous trend, as oil income is not sustainable. [Bahrain's] [d]iversification may be enough by Gulf standards, but not by international standards." No wonder a young Iranian journalist once remarked to me while we were on a stroll in Tehran: "If only we didn’t have oil, we could be just like Japan."

Geology Trumps Ideology

With all due respect to Ronald Reagan, I do not believe he brought down the Soviet Union. There were obviously many factors, but the collapse in global oil prices around the late 1980s and early 1990s surely played a key role. (When the Soviet Union officially dissolved on Christmas Day 1991, the price of a barrel of oil was hovering around $17.) And lower oil prices also surely helped tilt the postcommunist Boris Yeltsin government toward more rule of law, more openness to the outside world, and more sensitivity to the legal structures demanded by global investors. And then came Russian President Vladimir Putin. Think about the difference between Putin when oil was in the $20-$40 range and now, when it is $40-$60. When oil was $20-$40, we had what I would call "Putin I." President Bush said after their first meeting in 2001 that he had looked into Putin's "soul" and saw in there a man he could trust. If Bush looked into Putin's soul today -- Putin II, the Putin of $60 a barrel -- it would look very black down there, black as oil. He would see that Putin has used his oil windfall to swallow (nationalize) the huge Russian oil company, Gazprom, various newspapers and television stations, and all sorts of other Russian businesses and once independent institutions.

When oil prices were at a nadir in the early 1990s, even Arab oil states, such as Kuwait, Saudi Arabia, and Egypt, which has substantial gas deposits, were at least talking about economic reform, if not baby-step political reforms. But as prices started to climb, the whole reform process slowed, particularly on the political side.

As more and more oil wealth piles up in petrolist countries, it could really begin to distort the whole international system and the very character of the post-Cold War world. When the Berlin Wall fell, there was a widespread belief that an unstoppable tide of free markets and democratization had also been unleashed. The proliferation of free elections around the world for the next decade made that tide very real. But that tide is now running into an unanticipated counter-wave of petro-authoritarianism, made possible by $60-a-barrel oil. Suddenly, regimes such as those in Iran, Nigeria, Russia, and Venezuela are retreating from what once seemed like an unstoppable process of democratization, with elected autocrats in each country using their sudden oil windfalls to ensconce themselves in power, buy up opponents and supporters, and extend their state's chokehold into the private sector, after many thought it had permanently receded. The unstoppable tide of democratization that followed the fall of the Berlin Wall seems to have met its match in the black tide of petro-authoritarianism.

Although petro-authoritariansim does not represent the sort of broad strategic and ideological threat that communism posed to the West, its long-term impact could nevertheless corrode world stability. Not only will some of the worst regimes in the world have extra cash for longer than ever to do the worst things, but decent, democratic countries -- India and Japan, for instance -- will be forced to kowtow or turn a blind eye to the behavior of petro-authoritarians, such as Iran or Sudan, because of their heavy dependence on them for oil. That cannot be good for global stability.

Let me stress again that I know that the correlations suggested by these graphs are not perfect and, no doubt, there are exceptions that readers will surely point out. But I do believe they illustrate a general trend that one can see reflected in the news every day: The rising price of oil clearly has a negative impact on the pace of freedom in many countries, and when you get enough countries with enough negative impacts, you start to poison global politics.

Although we cannot affect the supply of oil in any country, we can affect the global price of oil by altering the amounts and types of energy we consume. When I say "we," I mean the United States in particular, which consumes about 25 percent of the world's energy, and the oil-importing countries in general. Thinking about how to alter our energy consumption patterns to bring down the price of oil is no longer simply a hobby for high-minded environmentalists or some personal virtue. It is now a national security imperative.

Therefore, any American democracy-promotion strategy that does not also include a credible and sustainable strategy for finding alternatives to oil and bringing down the price of crude is utterly meaningless and doomed to fail. Today, no matter where you are on the foreign-policy spectrum, you have to think like a Geo-Green. You cannot be either an effective foreign-policy realist or an effective democracy-promoting idealist without also being an effective energy environmentalist.

Feature

The Merchant of Death

Russian entrepreneur Viktor Bout has made millions as the world's most efficient postman, able to deliver any kind of cargo -- especially illicit weapons -- anywhere in the world. How was he able to build his intricate underground network? By exploiting cracks in the anarchy of globalization.

In many ways, Viktor Bout is a prototypical, modern-day, multinational entrepreneur. He is smart, savvy, and ambitious. He’s good with numbers, speaks several languages, and knows how to seize opportunities when they arise. According to those who've met him, he’s polite, professional, and unassuming. Bout has no known political agenda. He loves his family. He's fed the poor. And through his hard work, he's become extraordinarily wealthy. During the past decade, Bout’s business acumen has earned him hundreds of millions of dollars. What, exactly, does he do? Former colleagues describe him as a postman, able to deliver any package virtually anywhere in the world.

Not yet 40 years old, the Russian national also happens to be the world's most notorious arms trafficker. He, more than almost anyone else, has succeeded in exploiting the anarchy of globalization to get goods -- usually illicit goods -- to market. He's a wanted man, desired by those who require a small military arsenal and pursued by law enforcement agencies who want to bring him down. Globe-trotting weapons merchants have long flooded the Third World with AK-47s, rocket-propelled grenades, and warehouses of bullets and land-mines. But unlike his rivals, who tend to carve out small regional territories, Bout’s planes have dropped off his tell-tale military-green crates from jungle landing strips in the Congo to bleak hillside runways in Afghanistan. He has developed a worldwide network of logistics, maneuvering through a maze of brokers, transportation companies, financiers, and weapons manufacturers -- both illicit and legitimate -- to deliver everything from fresh-cut flowers, frozen poultry, and U.N. peacekeepers to assault rifles and surface-to-air missiles across four continents.

His client list for weapons is long. In the 1990s, Bout was a friend and supplier to the legendary Ahmed Shah Massoud, leader of the Northern Alliance in Afghanistan, while simultaneously selling weapons and aircraft to the Taliban, Massoud's enemy. His fleet flew for the government of Angola, as well as for the UNITA rebels seeking to overthrow it. He sent an aircraft to rescue Mobutu Sese Seko, the ailing and corrupt ruler of Zaire, even though he had supplied the rebels who were closing in on Mobutu’s last stronghold. He has catered to Charles Taylor of Liberia, the Revolutionary Armed Forces of Colombia, and Libyan strongman Col. Muammar el-Qaddafi.

Bout's customers are not exclusively corrupt Third-World leaders. He built his fortune by flying tons of legitimate cargo, too. These included countless trips for the United Nations into the same areas where he supplied the weapons that sparked the humanitarian crises in the first place. He's done business with Western governments, including the United States. Over the past several years, the U.S. Treasury Department has tried to put Bout out of business by freezing his assets and imposing other sanctions on him, his business associates, and his companies. But the Pentagon and its contractors in Iraq and Afghanistan have simultaneously paid him millions of dollars to fly hundreds of missions in support of postwar reconstruction in both countries. In an age when the U.S. president has divided the world into those who are with the United States and those who are against it, Bout is both.

International officials believe that Bout's business practices -- in particular, his refusal to discriminate among those who are willing to pay the right price -- are, in fact, illegal. Peter Hain, then the British Foreign Office minister responsible for Africa, stood in Parliament in 2000 to lash out against those violating U.N. arms sanctions. He singled out Bout, dubbing him Africa's "merchant of death." But Bout's deals often fall into a legal gray area that global jurisprudence has simply failed to proscribe. It’s not for lack of trying. His peripatetic aircraft appear in little-noticed U.N. reports documenting arms embargo violations in Liberia, the Democratic Republic of the Congo, Angola, and Sierra Leone. U.S. spy satellites have photographed his airplanes loading crates of weapons on remote airstrips in Africa. American and British intelligence officials have eavesdropped on his telephone conversations. Interpol has issued a "red notice," requesting his arrest on Belgian weapons trafficking and money-laundering charges.

Yet Bout has managed to elude authorities over and over again. Laws simply do not address transnational, nonstate actors such as Bout. His most egregious illegal acts have included multiple violations of U.N. arms embargoes, a crime for which there is no penalty and for which there is no enforcement mechanism. Today, Bout lives openly in Moscow, protected by a Russian government unconcerned by the international outcry that surrounds him and his business empire.

INTERNATIONAL MAN OF MYSTERY

Much of Viktor Bout's early history is either unknown or of his own making. He is married and has at least one daughter; that much is true. His older brother Sergei works for him. But any other personal information is clouded in mystery. Even his place of birth is unclear. According to his official Russian passport, Bout was born on Jan. 13, 1967, in the faded Soviet outpost of Dushanbe, Tajikistan. But during a 2002 radio interview in Moscow, Bout said he was born near the Caspian Sea in Ashgabat, Turkmenistan. A 2001 South African intelligence report lists him as Ukrainian. He is known to carry more than one passport and use an array of aliases, including Vadim S. Aminov, Victor Anatoliyevitsch Bout, Victor S. Bulakin, and the sardonic favorite of his American pursuers, Victor Butt.

The deliberate obfuscation has made it difficult to track Bout, his partners, and his business. He says he was an Air Force officer and has acknowledged graduating from the prestigious Soviet Military Institute of Foreign Languages in Moscow in the late 1980s. He reportedly speaks fluent English, French, Portuguese, Uzbek, and several African languages. U.N. officials say he worked as a translator for peacekeepers in Angola in the late 1980s. Several reports tie him to Russian organized crime. Although British and South African intelligence reports say that Bout was stationed in Rome with the KGB from 1985 to 1989, he has strenuously denied any intelligence background. But military language school was a known training ground for the GRU (or Main Intelligence Directorate) -- the vast, secretive, Soviet military intelligence network that oversaw the Cold War flow of Russian arms to revolutionary movements and communist client states in the Third World.

Whether or not he was a secret agent, by the time the Cold War ended, Bout had struck out on his own and was ready to salvage the remaining scraps of the Soviet empire. The entire Soviet Air Force was on life support, as money for maintenance and fuel evaporated. Thousands of pilots and crew members were suddenly unemployed. Hundreds of lumbering old Antonov and Ilyushin cargo planes sat abandoned at airports and military bases from St. Petersburg to Vladivostok, their tires frayed and their worn frames patched with sheet metal and duct tape.

Moving quickly, Bout acquired cargo planes destined for the junkyard. By his own account, Bout, then 25, bought his first trio of old Antonovs for $120,000, hiring crews to fly cargo on a maiden flight to Denmark, then on longer-distance routes to Africa and the Middle East. But his business and financial associates tell a different version. "The GRU gave him three airplanes to start the business," said one European associate who knew Bout in Russia and worked with him in Africa. "He had finished language school, but he had learned to fly. The planes, countless numbers of them, were sitting there doing nothing. They decided, let's make this commercial. They gave Viktor the aircraft and in exchange collected a part of the charter money."

Bout's initial stock in trade was the supply of guns and ammunition abandoned in arsenals around the former Soviet bloc. Many had airstrips built inside their compounds, making loading easy. Guards were often unpaid and their commanders were willing to sell the weapons for a fraction of the market value. This availability of weapons was married to an instant clientele of former Soviet clients, unstable governments, dictators, warlords, and guerrilla armies clamoring for steady supplies across Africa, Asia, and Latin America. "He had a logistics network, the best in the world," says Lee S. Wolosky, a former staff member at the National Security Council (NSC) who led the United States' interagency efforts to track Bout in the late 1990s. "There are a lot of people who can deliver arms to Africa or Afghanistan, but you can count on one hand those who can deliver major weapons systems rapidly. Viktor Bout is at the top of that list."

By the late 1990s, Bout had perfected his modus operandi -- the ability to move his aircraft ahead of government efforts to ground them. To obtain permission to fly internationally, an aircraft must be registered in a country where its maintenance records and airworthiness are certified. Each country in the world has a series of call letters assigned to it, so the country of origin of any aircraft should be immediately identifiable by matching call letters on a plane's tail. By repeatedly registering planes in different countries, Bout was able to avoid local aviation rules, inspections, and oversight. According to a December 2000 U.N. investigation, Bout often registered his planes in Liberia, a nation that had sold its aircraft registry to business associates who helped Bout set up the aviation and holding companies he used for arms trafficking. Run from Kent, England, the Liberian "Aircraft Registration Bureau" offered a full range of services, without anyone ever inspecting the aircraft. This included the "creation of a company name; air operator’s certificate (no restrictions); full aircraft/company documentation; ferry permits and crew validations," the U.N. report noted. That same group controlled the registry of Equatorial Guinea, so when international pressure mounted on Liberia to decertify Bout’s aircraft, he simply reregistered them, a process that took only a few hours through a series of phone and computer transactions.

Although Bout's aircraft were registered and reregistered in far-flung corners of the world, they almost all operated out of Sharjah, a small desert sheikdom in the United Arab Emirates (UAE) that serves as a central base for flights to and from the former Soviet bloc, the Middle East, Central Asia, and Africa. There, Bout continued to muddle his company structures. The aircraft registered in Equatorial Guinea operated under the name Air Cess, and those registered in the Central African Republic flew for Central African Airlines. Although the two airlines had different addresses, they had the same Sharjah phone numbers.

Bout's first known weapons flights were to Afghanistan's Northern Alliance in 1992. Three years later, a MiG fighter jet, flown by the Taliban, intercepted a hulking freighter leased by Bout for delivery of several million rounds of ammunition to the government in Kabul. Taliban soldiers seized the aircraft’s cargo and imprisoned its crew. Bout negotiated with the mullahs for months. Finally, after a year, the crew pulled off what appeared to be a miraculous escape, outwitting their captors by flying the Ilyushin out of Kandahar. But skeptical Western intelligence officials and Bout’s rivals later suggested the crew’s release was tied to Bout’s secret work for the mullahs. After all, in 1995, Sharjah had established a free trade zone that soon became known for its lax oversight and close ties to Islamist radicals. Because the UAE was one of only three countries (along with Pakistan and Saudi Arabia) to recognize the Taliban government in Afghanistan, Sharjah became the main shopping center for the regime, where it was able to purchase everything from weapons and satellite telephones to refrigerators and generators.

Soon, a covert business relationship was established between the Taliban and Bout's network. Bout's avionics and maintenance crews serviced planes flown by Ariana Afghan Airways, the national carrier then controlled by the mullahs. Starting in 1998, according to aircraft registration documents found in Kabul by Afghan officials, Bout's operation and allied air firms based in Sharjah sold the Taliban military a fleet of cargo planes that was used to haul tons of arms and matériel into Afghanistan. U.S. officials concluded that the planes also ferried militant operatives, narcotics, and cash. It was a lucrative venture. Western officials estimate the Taliban paid Bout more than $50 million during the years it ruled Afghanistan.

BOMBS AND RICE

While developing his ties with the Taliban, Bout was also perfecting his sanctions-busting business to the south. Throughout the 1990s, his aging fleet was crisscrossing Africa with weapons for all sides of some of the continent’s most gruesome conflicts. "[There was] Sierra Leone and Liberia, a real bleed-out across West Africa," recalls Gayle Smith, who was senior director for African Affairs at the NSC at the time. "The Congo and Angola were still unresolved. And Sudan was heating up. Any one of these conflicts would have been all-consuming by itself. But they were happening all at once, and Bout was a common denominator."

U.N. investigators uncovered a small slice of his activities in Angola. From July 1997 to October 1998, Bout's airplanes flew 37 flights from Burgas, Bulgaria, to Lomé, Togo, with weapons destined for the UNITA rebels in Angola. The cargo included 20,000 82-mm mortar bombs, 6,300 antitank rockets, 790 AK-47s, 1,000 rocket launchers, and 15 million rounds of ammunition. The total value of the shipments was estimated at $14 million.

Bout's real money came when he realized he could fly lucrative commercial cargo on the flights back from the weapons deliveries. His most profitable enterprise was flying gladiolas purchased for $2 in Johannesburg and resold for $100 in Dubai.

Ever on the lookout for a good business opportunity, Bout even took part in humanitarian operations. In 1993, he flew Belgian peacekeepers to Somalia as part of "Operation Restore Hope," using TransAvia Export Cargo Company, one of his first ventures. A year later, his aircraft flew 2,500 French troops into Rwanda to help slow the ethnic slaughter there. In 2000, he transported hostage negotiators to the Philippines, where European tourists were being held by the terrorist group Abu Sayyaf. He also frequently carried relief supplies from the World Food Programme to impoverished areas in Africa. And in the wake of the massive Indian Ocean tsunami of 2004, his planes delivered humanitarian goods and services to Sri Lanka.

THE HUNT FOR VIKTOR BOUT

Ironically, it was Bout's humanitarian flights delivering European aid that eventually led authorities to his illicit activities. Bout decided to expand his network northward in 1995, setting up several airfreight operations in Ostend, Belgium, where Belgian intelligence began investigating him for possible gunrunning. Meanwhile, the CIA was picking up the first reports of his activities in the Great Lakes region of East Africa. And British intelligence officials in Sierra Leone, worried about how their growing peacekeeping force there would contend with the country’s steady weapons flow, quietly set their sights on him, too. "The difference between Bout and the others was that Bout was an integrated operation," says Johan Peleman, a Belgian researcher who was hired by the United Nations to help investigate Bout. "He can source the arms, he organizes the transport, and he can source the financing." His genius was his ability to provide a door-to-door operation from the arsenal to the buyer.

By the late 1990s, Bout had emerged as the personification of the new transnational threat -- a highly mobile global enabler, skilled at leveraging his assets and loyal to no country, deftly operating in several continents and shrugging off international standards. The U.S. government, in particular, grew frustrated by the limitations of international law. After all, domestic laws could not extend to Bout's foreign arms deliveries. To apply pressure, U.S. officials turned to South Africa, where some of Bout’s planes had been based, and to Belgium, where police had targeted his companies as part of a wide-ranging money-laundering investigation. But despite high-level requests, South African officials declined to prosecute Bout due to lack of evidence, and the Belgians and Americans failed to find common ground on how to build a case.

Finally, in February 2002, the Belgian government issued an international arrest warrant for Bout, charging him with laundering $325 million between 1994 and 2001. But by then, Bout was safe in Moscow. Asked if Bout was in the country when the arrest warrant was issued, the Russian foreign ministry said no, even though Bout was giving live radio interviews from studios in downtown Moscow. The next day, officials grudgingly acknowledged he might be in Russia but said they had seen no evidence that he had committed any crime, and therefore could not act.

FLYING UNDER THE RADAR

Any momentum to scuttle Bout’s business empire quickly fizzled in the wake of the 9/11 terrorist attacks. The Bush administration was almost immediately preoccupied by its invasion of Afghanistan and its wider war on terror. In April 2003, soon after the United States invaded Iraq, American officials began laying the groundwork for a massive commercial airlift. The U.S. military and the thousands of private contractors hired to restore Iraq's shattered infrastructure needed supplies for their mission. By the summer, Antonovs were roaring into Baghdad's cratered airport, ferrying everything from tents and video players to armored cars and refurbished Kalashnikovs.

But to their embarrassment, U.S. officials later learned that many of the Russian planes were operated by companies and crews working for Viktor Bout. His planes were flying Federal Express shipments for the U.S. Air Force, tents for the U.S. Army, and oil field equipment and personnel for KBR, a Halliburton subsidiary. In the months that followed, Bout's flagship firm flew hundreds of sorties in and out of Baghdad, earning millions of dollars from U.S. taxpayers.

How Bout's empire forged its secret U.S. contacts is unclear. But, as U.S. intelligence and military officials believe, the reason may be as simple as Bout's having the foresight to position his aircraft in the region. He was able to make his services available in the massive confusion that surrounded the supply operation, when no one had time to check the credentials of the many air operations vying for contracts.

As Bout’s contracts became public, and the possible legal implications of continuing to deal with him were explained by the U.S. Treasury Department, the military lurched toward a response. Air Force officials reacted quickly, revoking the fuel allowance and persuading Federal Express to sever its contract. But the U.S. Army and other defense agencies insisted they had no responsibility to scrutinize second-tier subcontractors. Bout’s flights for KBR continued well into late 2005, and even expanded to include flights into Bagram Airfield in Afghanistan. Several well-known Bout firms were finally banned from Iraq early this year by military officials. But Bout was suspected of shifting his operations to new firms, and U.S. officials fear that those companies may try to land lucrative U.S. contracts again.

On April 26, 2005, then Assistant Treasury Secretary for Terrorist Financing Juan Zarate announced new U.S. economic sanctions against 30 companies in Bout's financial orbit. Although Bout was not designated as a terrorist himself, Zarate noted that he had profited from supplying the Taliban with military equipment when it ruled Afghanistan -- a relationship that connected Bout, at least indirectly, to Osama bin Laden and al Qaeda. Therefore, U.S. entities were now banned from doing business with any of Bout's companies, even indirectly. Eight months later, the U.S. list was adopted by the full U.N. Security Council's Liberia committee -- a move not impeded by the Russian delegation. In theory, the international sanctions should have put an end to Bout’s trafficking.

Yet investigators have discovered several newly formed Bout enterprises operating aircraft that are still registered to Air Cess and other companies. Human rights monitors have heard that his planes flew into the northern part of the Democratic Republic of the Congo this year. And in January, one of Bout's carriers, Irbis Air Company, bid on a contract with Halliburton in Iraq. Despite the UAE's assurances that it has grounded his fleet, Bout often exploits the fact that U.S. military air controllers on duty in Sharjah, who control traffic into Iraq, rotate jobs every six months. His businesses -- including new shell companies registered in Moldova and elsewhere in Eastern Europe -- apply for contracts before the new person has time to find out who is designated or what to watch for. "It is a constant fight, because the military wants to fly stuff and the new people are under pressure, and tracking aircraft ownership is, frankly, not a priority," said a U.S. official involved in the Bout hunt.

Conceding their difficult straits, U.S. officials admit that there is no clear evidence that Bout's air fleet has been diminished or his activities slackened as a result of the sanctions. "You never can say with 100 percent certainty that he is gone," says Zarate -- who is now President George W. Bush's chief counterterror deputy at the NSC. "He is very, very good at doing his business." The Europeans find it equally hard. "He doesn’t go away. He just keeps changing his aircraft and registrations, hoping that he will outlast the interest in following him," says a European military intelligence source. "So far, he is right."

THE SIEVE OF GLOBALIZATION

Today, international efforts to pursue Bout have largely been abandoned. The CIA no longer has personnel specifically tasked with following his activities. The Belgian money-laundering investigation has stalled over internal feuding and lack of government interest. Only the British maintain an active intelligence effort to track him, and even that effort is greatly reduced.

In the meantime, Bout lives in a luxury apartment complex in Moscow, where he is occasionally spotted eating out at fancy sushi bars. Richard Chichakli, Bout's American business partner, also moved to Russia, using frequent flier miles to buy a ticket out of Texas after his assets were frozen in April 2005 by U.S. officials, who suspected he was running some of Bout's businesses from the United States. In theory, neither of them is allowed to go abroad because of a U.N. travel ban. But U.S. officials involved in the Bout hunt say there were credible Bout sightings earlier this year in Beirut. Meanwhile, the Russian government declines to answer any questions about Bout, who reportedly has cultivated close ties with senior military and other government officials in Moscow.

Bout himself has said that he did not know -- nor did he have any legal or ethical obligation to know -- the contents of the long, green crates he ferried into war zones. Strict economic calculations, not ideology, have been the guiding star of Bout's operations. But what motivates a man to shove such moral implications aside? Is it the quest for wealth? The adrenaline rush of operating in dangerous circumstances? The knowledge that some of the world's most powerful people rely on you? "No one else would deliver the packages," says one of Bout’s South African associates. "You never shoot the postman."

Perhaps the existence of the merchant of death says more about the world today than it does about the man himself. The halting efforts to disrupt his activities tell a chastening story of the failure of nations. Indeed, Viktor Bout is a product of the convergence of history and opportunity, an entrepreneur who saw a chance to turn an incredible profit in a rapidly changing world. In the Cold War, each side was able to enforce adherence to ideological imperatives by controlling the supply and demand of just about everything. When the Berlin Wall came down, so did the controls, and the market was thrown open to those who could seize the moment. Bout grasped that his services could be useful to any party desperately seeking the weapons he could provide. With a growing number of failed and failing states dependent on inexpensive and readily available weapons, Bout was able to craft a transglobal network to meet this market. "If you look at all of Bout’s various escapades, how easy it was for him to move weapons, get end-user certificates, and change aircraft registration," says Michael Chandler, a retired British colonel who led a U.N. panel on the Taliban and al Qaeda, "you get an amazing picture of how corrupt many parts of the world are."

Even in today's new world order, where the United States is the sole superpower and old ideologies are diminished, governments have yet to come to grips with the emergence of transnational criminal groups. These armed, nonstate actors disregard borders, dispassionately working with the Taliban and the U.S. military and other unlikely bedfellows, breeding instability and violence for personal profit, not ideology. Traffickers like Bout invented new rules as they went along. Rather than being impediments to the flow of weapons, arms embargoes simply allowed them to jack up prices. International "name and shame" campaigns, with no enforcement ability, served only to advertise their services.

Many arms control experts say that if Bout's empire were finally brought to heel, the international weapons business would simply fragment into smaller fiefdoms, similar to the way that the Colombian Cali and Medellín cocaine cartels disassembled in the 1990s after their leaders were killed. What they fail to mention, though, is that the net production of cocaine did not diminish, and the shrunken, tight-knit cartels proved equally difficult to dismantle. Indeed, in today's world, any attempt to halt illicit activities -- whether it's trafficking by Viktor Bout or by someone else -- can truly be read as the second labor of Hercules. Whenever the hydra's head is cut off, two more grow in its place.