Crude Awakening

In Iraq's turbulent politics, whoever controls the oil production wields the power. And that might soon be ExxonMobil.

On Dec. 17, two days after the U.S. military cased its colors and formally ended its mission in Iraq, the brain trust of the Iraqi oil sector gathered for a symposium at Baghdad's Alwiyah Club, a fortified concrete complex of meeting rooms and outdoor gardens. They were officially meeting to discuss "Challenges Facing the Development of the Extractive Industry." The issues they grappled with held the prospect to transform the global energy marketplace and determine the course of Iraqi democracy.

A few top government officials sat on a dais while members of the audience -- about 150 parliamentarians, technocrats, and academics -- took turns at a podium, giving short speeches and asking questions of the panelists. Speakers often had to yell to be heard over the objections of audience members. A bit of shouting was to be expected: This was the first time in years that Iraqis were gathering without a foreign military occupation to outline their economic future. And in a country where 95 percent of government revenue comes from oil, any debate about oil is also a struggle for power. They addressed the most fundamental questions: How much oil should Iraq produce? What should happen to the revenue? Who should control the country's oil strategy? You wouldn't have known it by the volume of the rhetoric, but a lot of the talk was moot.

Much has already been decided. In 2009, the government started awarding contracts for the country's largest fields, and the biggest names in oil have signed up. Companies like ExxonMobil and BP have invested billions of dollars, bringing the latest in technology and engineering expertise. Production has rebounded from just over 1 million barrels per day after the invasion to nearly 3 million today. Baghdad's 11 international oil contracts promise to deliver a total of more than 13 million barrels per day within seven years -- a figure that would make Iraq the largest oil producer, ever.

There are good reasons to doubt these projections. For one thing, the current political crisis has underscored Iraq's failure to build the kinds of institutions -- a credible judiciary, non-politicized security forces -- that support a stable, functioning, democratic state. Even if Iraq weren't plagued by daily bombings and political dysfunction, it would be hard-pressed to achieve what would be the most rapid oil expansion in world history.

Yet if the investment bonanza can even partially succeed, it promises to reshape not only Iraq but also the regional balance of power. Falah al-Amri, director of the State Oil Marketing Organization, showed the audience at the Alwiyah Club a PowerPoint presentation with figures that he had quoted to his Gulf counterparts at a recent OPEC meeting. By 2014 or 2015, he said, the country would reach the magic number of 4.5 million barrels per day of oil production, at which point OPEC would start trying to enforce quota restrictions.

Amri vowed that Iraq would negotiate hard for a larger national quota. He also provided a clue to the government's contracting strategy, which appears to recognize that oil is a source of not only revenue but also geopolitical power.

"Our plan is not to flood international markets. This is not our goal. If we have a spare 2 or 3 million barrels per day, then so be it," Amri said. He later clarified to me that he thinks Iraq will have this "swing capacity" -- that is, the ability to drastically increase production on short notice -- by 2017.

Saudi Arabia is currently the world's only so-called "swing producer," with an already-developed capacity that far exceeds its current production. This status gives the kingdom enormous power. If any other producer falters -- if, say, rebels in the Niger Delta blow up a pipeline or Iranian oil is shut in by an embargo -- the world economy depends on the Saudis to open the taps and keep prices from rising too high. This Saudi leverage also keeps its OPEC associates in check: Other cartel members can't stray too far from their production quotas, lest the Saudis flood the market with a punitive deluge of crude, driving down everyone's prices and profits.

Amri's presentation contained the seeds for the disruption of this power dynamic. If Iraq develops 2 million or 3 million barrels per day of swing capacity, which is roughly what Saudi Arabia claims to have, OPEC will suddenly have a second enforcer. That could pave the way for a regional rivalry between Saudi Arabia and the Shiite-led Iraqi government. Relations between the two are already in the doldrums, as Saudi leaders have characterized Prime Minister Nouri al-Maliki as an Iranian puppet and continue to refuse to send an ambassador to Baghdad. Their worries are not unfounded. Maliki is no puppet, but he has taken dramatic steps to consolidate power by pushing aside all his major Sunni-backed rivals; as a result he is increasingly dependent on a Shiite political base with deep ties to Iran.

But though the geopolitical implications of Iraq's efforts to become an energy giant are dizzying, they will only become a reality if the country can meet Amri's ambitious projections. And there's no guarantee that the country can overcome the daunting challenges facing its oil industry.

Iraq has already come a long way. A Western oilman recently recalled for me the sorry state of Iraq's oil sector shortly after the 2003 invasion. He had just arrived in the southern port city of Basra to get a key field back up and running, and he found that after decades of sanctions and underinvestment, some critical equipment was literally held together with duct tape. Thankfully, Iraqi engineers were experts at improvising improbable solutions, and after weeks of work, everyone was confident that the field could restart production.

"It's time to light the flare," the oilman announced.

In most modern facilities, when you need to burn off certain byproducts of crude oil production, you press a button on a control panel and ignite a flare atop a metal chimney. But in Basra, where no such mechanism existed, it was a slightly riskier proposition -- and the responsibility for the task sparked a shouting match among the more junior Iraqi workers.

After a long argument, the Iraqis drew straws. The loser wrapped a wet T-shirt around his head, held a flaming torch in the air, and, crouching low, crept toward the chimney, which was hissing with invisible, flammable gases. When he got close enough, the air burst into a giant fireball and the man ran screaming back to his cohort, who doused him with water and laughed at his singed body hair. Soon after, the Western oilman introduced a slightly more modern ignition device: a flare gun, which could be fired from a safer distance.

Iraq's oil sector has matured since then, but that kind of crazy improvisation remains a defining characteristic. Bureaucratic hurdles also continue to hobble the oil industry's development. For several months in 2011, for example, many top Western oil company officials couldn't enter the country because their visas took months to process. Amazingly, the government was preventing them from doing the work it had contracted them to perform. The problem turned out to be a simple backlog: In a bureaucracy that functions through the authority of only a few strong leaders, the visa applications had to travel all the way to the prime minister's office for approval. Iraq's current atmosphere of political crisis offers little hope that Maliki will relax his tendency to micromanage and govern through just a handful of loyal subordinates.

Similar delays have affected almost every aspect of companies' operations: They have had problems getting paid on time; Oil Ministry officials have been slow to sign off on plans and subcontracts; and customs officials have held up the delivery of key equipment while waiting for authorization. One Western executive told me recently about a particularly troublesome holdup -- a shipment had been waiting for weeks at the border, he said, and now they were running low on essential supplies, including ammunition for their flare guns.

It's not just the facilities that are badly in need of modernization: The legal infrastructure for Iraq's oil industry is also held together by the political equivalent of duct tape.

Shatha al-Musawi, a former member of parliament and one of the speakers at the Alwiyah Club, knows firsthand the murky legal foundations of Iraq's oil sector. She had been the plaintiff in a 2009 lawsuit that challenged the legality of BP's contract for the Rumaila oil field in Basra -- the world's second largest, which now produces about half of Iraq's crude. Musawi's complaint centered on the fact that the Oil Ministry had not submitted the Rumaila contract to parliament for approval, as Iraqi law appears to require. Instead, Maliki's government unilaterally approved the Rumaila deal -- and all subsequent contracts -- without the legislative branch. Musawi's case was a quixotic fight against this power grab.

"There is not a strong legal basis for these contracts," Musawi said. "There is not any intention to build a new state, a democratic state."

The Iraqi Constitution calls for a modern oil law, but political dysfunction has prevented one from being passed. In a country where petroleum is power, any law that dictates the structure of the oil industry is also bound to define the state itself. And in a political arena dominated by fear and identity politics, nobody wants to share power. In recent debates, the sides have split along largely ethnic and sectarian lines: Maliki's Shiite-majority allies have backed centralized control of oil, while parties representing the minority Kurds and Sunnis say local governments should have more authority. No bill has yet survived parliament.

The Rumaila deal, Musawi argued, represented a textbook executive end-around. By commissioning billions of dollars' worth of investment, the Maliki administration was creating irreversible facts on the ground. Parliament could not pass a law that would invalidate major contracts because that would scare away future business -- and Iraq needs foreign investment for its reconstruction. Instead, future legislators would have to retrofit any new law to account for the existing contracts.

This is how governance works in Iraq: Strong leaders take action in the name of necessity when democratic bodies fail to function. As a result, the people in power have few incentives to compromise and many reasons to undermine public institutions. The Rumaila case, for example, was not allowed to proceed. Iraq's highest court, which has made several suspiciously favorable rulings for the prime minister, said Musawi would have to pay a $250,000 court fee just to bring the case to trial. Unable to raise the money, she was forced to drop the suit.

Political power dynamics have determined the course of Iraq's oil development far more than legislative policymaking. That volatility, however, hasn't dissuaded oil multinationals -- there's simply too much oil under the country's soil. So, many companies, from BP to ExxonMobil to Shell to Lukoil, have been willing to invest billions of dollars without the stability of a modern oil law. Companies have mitigated their risks by negotiating contracts that rely on international arbitration to settle major disputes, rather than Iraqi courts. But the overarching reason companies can operate with some confidence is that -- in the laissez-faire political economy of Iraqi oil -- their power rivals that of the divided Iraqi state.

Iraq's oil powers are split between two governments. After the U.S. invasion, the semiautonomous Kurdistan region in the north grew fearful that the new government in Baghdad would, like Saddam Hussein, use economic power to oppress them. Kurdistan's minister of natural resources, Ashti Hawrami, led an aggressive strategy to develop an independent oil sector, signing contracts without the central government's consent. He divided Kurdish territory into a grid of several dozen exploration blocks and, over the past decade, has signed a whopping 48 oil and gas contracts.

To leaders in Baghdad, this looks like an affront to Iraqi nationalism. The most forceful objections have come from Hussain al-Shahristani, one of Maliki's most powerful allies, who became oil minister in 2006 and now serves as deputy prime minister for energy. He argued that without a centralized system to manage oil, competing interests would tear the country apart along geographic, ethnic, and sectarian lines. He insisted that Baghdad should have sole authority over contracting and condemned the Kurdish deals as illegal.

Due to Iraq's vague constitution and incomplete regulatory structure, it's not clear which side has the legal upper hand. It's certainly an urgent question. One of the George W. Bush administration's biggest reconstruction benchmarks for Iraq was to pass an oil law, and U.S. Ambassador Zalmay Khalilzad spent months brokering negotiations. In 2007, a draft oil law passed the cabinet, and Khalilzad published a triumphant op-ed in the Washington Post proclaiming "the prospects for passage are excellent." But negotiations soon died in parliament. There were many reasons for the failure, but the single biggest was the rivalry between the Arab majority in Baghdad and the Kurdish government. The final nail in the coffin came on Sept. 8, 2007, when Kurdistan signed a contract with the U.S. firm Hunt Oil, whose chairman, Ray Hunt, sat on Bush's Intelligence Advisory Board. The definitive American influence, it turned out, was wielded not by the U.S. Embassy but by a private company.

Shahristani had to respond to this show of the Kurdish government's growing clout. He also had to start generating the kind of revenue that could fuel Iraq's reconstruction, with or without an oil law. One sure way to do both was to bring in even bigger companies to develop the vastly larger fields in southern Iraq. In October 2009, Shahristani signed a deal -- without parliamentary approval -- with oil giant BP to rehabilitate the Rumaila oil field. Then came ExxonMobil, with a contract for the 8.7 billion-barrel West Qurna Phase 1 field. Those two fields hold more proven oil reserves than the entire United States has, and if the terms of just those massive contracts are met, Iraq will reach more than half of Saudi Arabia's current production before the end of this decade.

Shahristani's contracting spree was driven at least in part by political motives, and his ambitious projections could easily run aground on some harsh practical realities. For one thing, if Iraq's fields were to increase production any further right now, the oil would have nowhere to go. There aren't enough pipelines, storage tanks, refineries, and export terminals. Iraq is building many of these facilities, but probably not fast enough for the production rates that the state is now contractually obliged to support.

Nor is it clear whether world markets could stand so much new supply. If Iraq were actually able to increase production to the unprecedented height of 13 million barrels per day within seven years, the price of oil would likely drop just as steeply. Not only would this destroy Iraq's profit margins, but it would also provoke dangerous levels of anger from nearby producers such as Saudi Arabia and Iran, both of which possess superior military power.

Worst of all, perhaps, Iraq has lost full control of its production strategy. The deals don't just require the companies to boost production aggressively -- they require Iraq to pay for the contracted volumes. If the companies hold up their end of the bargain, but the government has to make cuts for any number of reasons -- infrastructure constraints, market pressures, or OPEC politics -- Iraq could be forced to pay companies for oil they're not producing. As the gatekeeper of the world's third-largest oil reserves, Shahristani is hardly powerless to renegotiate these deals. Still, the contracts do surrender a remarkable degree of economic sovereignty for a government still struggling to formalize its own powers.

One dramatic expression of Iraq's declining power over the oil giants came on Oct. 18, 2011, when ExxonMobil signed a massive exploration deal with the Kurdistan region. The move directly violated Shahristani's policy of unitary authority. In past cases, Shahristani punished oil companies for signing with Kurdistan by blacklisting them from his contracting auctions. But now, with ExxonMobil pumping more than one-tenth of Iraq's crude from the West Qurna Phase 1 field, the government found itself with much less leverage. (ExxonMobil has not acknowledged any contract with Kurdistan and has declined to comment, though multiple officials in the Kurdish and central governments have confirmed the deal.)

Baghdad is now left with two bad options. It could banish ExxonMobil, risk a loss of production, and probably provoke a lawsuit that would stoke the anxiety of other investors. The more likely scenario is that the federal government will seek some sort of compromise that will eventually validate some of the contracting powers Kurdistan has already claimed.

Nevertheless, Kurdistan isn't likely to win the complete autonomy that it desires anytime soon. Baghdad continues to hold two trump cards. First, it controls the pipeline network to the Mediterranean port in Ceyhan, Turkey, through which any large-scale exports must travel. Second, it controls the sale of oil and the collection of export revenues -- and therefore the flow of money from oil sales back to both Kurdistan's budget and its contractors. Hawrami, the natural resources minister, has suggested that he wants to increase Kurdish oil exports from their current level of about 175,000 barrels per day to 1 million barrels per day within five years. For that to become a reality, he needs a deal with Maliki and Shahristani.

Indeed, a truce between Kurdistan and Baghdad could be in the works. When Maliki visited Washington in December, he met privately with Exxon CEO Rex Tillerson. One of Maliki's advisors, speaking anonymously, confirmed to me that Maliki asked Tillerson to "freeze" the Kurdish contracts. The advisor said the government is proposing a quid pro quo: If all parties agree to a new oil law, then Baghdad will endorse a mechanism to recognize ExxonMobil's Kurdish contracts. Maliki is essentially trying to borrow ExxonMobil's new leverage with the Kurds, asking the company to pause its new deal in order to force the Kurds into a grand oil bargain. This could be a pragmatic solution that uses ExxonMobil's influence with both governments to reconcile the two sides. But, assuming it would even work, this plan would transform the oil giant into one of three main parties, alongside the federal and Kurdish governments, that shape the country's oil sector.

ExxonMobil is hardly to blame; Iraq is simply too divided to realize its potential strength.

If the state were functioning well, then politicians and technocrats would fight their battles within policymaking bodies and through private debates. On the international stage, they would speak with a single voice to the oil majors and neighboring countries. Such a unified front would help Iraq enormously. Its negotiating power would rise and likely its production too. This kind of successful policymaking would probably look something like the passionate arguments at the Alwiyah Club -- and indeed, many of the speakers there pointed out that, with strong institutions and a dose of compromise, everyone would benefit.

But this isn't how it works today. In the arena of Iraqi identity politics, leaders don't trust each other -- often for good reasons -- and power looks like a zero-sum proposition. Such perceptions can be self-fulfilling. For the oil sector, the dysfunction of the government has already set projects back; ExxonMobil's willingness to risk its relationship with Baghdad is one sign of well-informed pessimism. As we look ahead, the atmosphere of crisis and improvisation seems unlikely to break, and the outlook for Iraqi production seems uncertain at best. But in a fledgling country where everyone is still jockeying for power, this much is still clear: Oil is king.



Who Was That Masked Man?

With a mixture of righteous indignation and outrageous prankery, the hacker collective Anonymous has emerged as a surprisingly potent actor in global politics. But what do they actually want, and how should governments respond?

It's been denounced by NATO, targeted by the FBI, and subjected to dozens of frenzied editorials. Targets as varied as Bank of America, Sony, the Justice Department, and the government of Egypt have felt its wrath. Its trademark symbols have appeared everywhere from the streets of Cairo to Occupy Wall Street to the Polish parliament.  For a group that sprang organically from an Internet forum normally devoted to anime cartoons and cat videos, the amorphous hacker/prankster collective known as "Anonymous" has become a surprisingly potent actor in global politics. But to understand the forces that make the group tick, let's look back to a time before SOPA and the Arab Spring and consider the strange story of one "Agent Pubeit."

On Jan. 14, 2009, an 18-year-old man emerged shirtless from the New York City subway system and walked through Times Square, heading toward the Scientology center on West 46th Street. The man was about to become the face -- and hairy chest -- of the Anonymous movement. If his skin looked a bit shiny, this wasn't a trick of the light; "Agent Pubeit" had been slathered in petroleum jelly. Toenail clippings and piles of -- to put it delicately -- non-cranial hair had been carefully stuck all over his back, chest, and arms.

The effect was obscene -- but then, according to a sizable number of "Anons" -- so was the Church of Scientology. No longer content with the pure prankery of their early days, such as bombarding a California student with pornography and pizza deliveries for having the temerity to run a "No Cussing Club," Anonymous found in Scientology an adversary that provided a moralistic dimension for the group's antics. Anons argued that the church was, in fact, a dangerous cult that brainwashed its overcharged members and that its tax-exempt status should be revoked.

Throughout 2008, Anonymous's online campaign led to offline protests against Scientology around the world, in which the (mostly) young and (mostly) male Anons showed up with signs and wearing their signature Guy Fawkes masks from the movie V for Vendetta. Other Anons flooded the Scientology website with data, shutting it down for several days.

But nothing could have prepared Scientology for Agent Pubeit, who entered the 46th Street center and began, in the immortal words of the New York Daily News, to "'desecrate' the Church of Scientology with a wacky weapon -- Vaseline." Agent Pubeit touched everything he could put his greasy body on and then walked out of the center and into Anonymous infamy. A fellow Anon had followed him through Midtown with a camera to record the inevitable YouTube video that would accompany his exploits; the clip has been viewed 164,000 times.

The broader campaign against Scientology garnered Anonymous its first mainstream media attention, but it was the Pubeit operation that perfectly embodied the group's schizophrenic embrace of both morality and pranksterism. Anonymous routinely veers sharply among earnest actions against censorship and repression, online vigilantism, outright cybercrime, and pranks -- the more outrageous, the better. When Fox News anchor Bill O'Reilly angered Anonymous in 2008, for instance, the group hacked his website in protest -- but the spat didn't end there. FBI documents released under the Freedom of Information Act show that some Anons couldn't resist using a credit card stolen in the attack to send "penile enlargement" products to one of the talkshow host's female fans; they then sent out pictures of -- in the FBI's own words -- "three men performing oral" to everyone in the woman's electronic address book.

The most important single thing to know about the group is that it's not actually a "group" at all. There is no leader, there are no members, and there are no dues. No single person speaks for Anonymous, and no coordinating council drafts manifestos. Predictably, the result looks like chaos from the outside; even the group's many "press releases" can be written by anyone and often propose crazy plans of actions that are quickly shouted down by others. (An Anon once proposed Operation WakeUp, for instance: "Simply Wake Up on March 9th and know, the world is one --think about this on March 9th. We are together on this planet." The idea went nowhere.)

Even today, the group has no single website, Twitter account, or chat room. Anonymous's disparate factions don't always coexist peacefully. Internecine arguments repeatedly break out between the Anons simply in it for the "lulz" -- laughs -- and the more earnest "moralfags" who see the group's shadowy army as a force for progress and freedom.

Anonymous emerged gradually from the morass of 4chan, an almost-anything-goes image board that discards the convention of named accounts common on most Internet forums. Instead, everyone posts as "Anonymous"; it's the content, not a name, that matters. While much of what happens on 4chan is little more than the harmless celebration of randomness for its own sake -- it's also the birthplace of such now-ubiquitous Internet tropes as LOLCats and Rickrolling -- some of the activities took on a more aggressive edge. The people who gathered on 4chan's infamous "/b/ board" -- the most unfiltered of the site's forums --  to prank or harass others gradually organized themselves into forces outside the site, forces that gradually took the name "Anonymous" and made it their own. By 2008, the Anonymous collective had forged a strong sense of itself.

In operations, as in communications, Anonymous follows a simple model: Anyone can propose anything. The measure of success is simply whether other Anons join in. Want to hack Muammar al-Qaddafi's websites? Take down MasterCard? Wipe out a child-porn haven? Put out the word and start doing it. The result has been a dazzling series of "ops" against everyone from the government of Sweden to right-wing billionaires David and Charles Koch to the strategic consulting firm Stratfor.

Such wide-ranging operations might seem almost comical -- and many have little effect -- but when the Anonymous hive gets prodded, the prodder usually finds himself covered with bee stings and begging for mercy. After several payment processors stopped handling donations for WikiLeaks, for instance, Anonymous attacked -- and overwhelmed -- websites for Paypal, MasterCard, Visa, and PostFinance. In 2010, a controversial antipiracy lawyer in Britain had his website knocked offline, his e-mails taken and then released to the world -- an act that eventually led to the lawyer's bankruptcy and to recent professional sanctions. More recently, on Jan. 19, the group took down websites for the FBI and the Department of Justice in retaliation for the arrest and shutdown of file-sharing site Megaupload. The pranksters have steadily become "hacktivists" -- and their target list is growing.

Most famously, a subset of Anons infiltrated security firm HBGary Federal in early 2011 after CEO Aaron Barr claimed he was about to expose the group's top "leaders" to the FBI. The retaliatory hacks were complete, taking control of the company's website, infiltrating its mail server and Barr's Twitter account, and Anonymous released the company's classified security work to the world. This little bit of cyber-vigilantism paid unexpected dividends: Barr had also been involved with dodgy plans to keep tabs on labor unions and to attack WikiLeaks, among other things. The sordid saga ended with Barr's firing, the company closing, and comedian Stephen Colbert commenting, "To put this in hacker terms, Anonymous is a hornet's nest, and Barr said, 'I'm going to stick my penis in that thing.'"

These sorts of dramatic exploits, and the sheer amount of press they generate, have fueled the Anonymous sense of sitting on something politically powerful. It's summed up neatly in the five-phrase Anonymous calling card:


Part of the appeal of Anonymous is the comic-book-style mythology in which it has cloaked itself: the projection of invisibility, the claim to omnipresence, the almost shocking sense of omnipotence. As one Anonymous "press release" put it when going after the "God Hates Fags" protestors of the Westboro Baptist Church:

"We, the collective super-consciousness known as ANONYMOUS - the Voice of Free Speech & the Advocate of the People - have long heard you issue your venomous statements of hatred, and we have witnessed your flagrant and absurd displays of inimitable bigotry and intolerant fanaticism. We have always regarded you and your ilk as an assembly of graceless sociopaths and maniacal chauvinists & religious zealots, however benign, who act out for the sake of attention & in the name of religion...

"Should you ignore this warning, you will meet with the vicious retaliatory arm of ANONYMOUS: We will target your public Websites, and the propaganda & detestable doctrine that you promote will be eradicated; the damage incurred will be irreversible, and neither your institution nor your congregation will ever be able to fully recover."

But despite the group's mythology, its members aren't always hard to find -- especially now that the world's great powers have taken notice.

Last year, a NATO report from the Britain's Lord Jopling pointed to the HBGary Federal attacks and warned that Anonymous might soon go after government targets more directly. But the report expressed confidence that the longer Anonymous existed, "the more likely countermeasures will be developed, implemented, the groups will be infiltrated, and perpetrators prosecuted." (Anonymous claimed to have hacked NATO and taken a gigabyte of documents in retaliation.) Indeed, Anonymous chat rooms are filled with jokes about who in any particular channel might be a "Fed."

There was reason to be nervous. Several months after the attacks on PayPal and Visa, the FBI executed 40 search warrants across the United States. The effect on the young targets was immediate; they took to chat rooms and Internet forums to post pictures of busted-in front doors and accounts of the searches. "The FBI showed up at my door with a search warrant for any electronic devices that may have been used in the attack," wrote one. "I'm not retarded, I invoked my 5th amendment rights and didn't say anything so now they are taking everything. Yes, I'm f**king dumb." In July 2011, the FBI picked up 14 Americans for alleged involvement in the PayPal attacks, while police arrested five more people overseas -- including two believed to be high-profile Anons: "Tflow" and "Topiary." The pair turned out to be 16 and 18 years old, respectively.

Local police have been happy to get involved, too. In the Agent Pubeit case, the New York City police used Scientology security tapes to find and arrest the prankster and his cameraman a few days after their stunt; both were charged with hate crimes.

The question of how to respond to Anonymous's increasingly political activities is a perplexing one for governments. Many of the group's activities are criminal and, especially where fraud and damage are involved, should be prosecuted. But sentences can be too harsh. For instance, an Iowa State student joined the online attacks against Scientology's website from his dorm room on January 24, 2008 -- a full five days after they began. Scientology claimed that it spent $20,000 in extra funds on a security company that helped stem the floods of data. While investigating the case, federal agents tracked down and arrested the student, charged him with federal crimes and took him all the way to Los Angeles to answer for them. The student eventually pled guilty to a single count, was imprisoned for a year, and, despite the fact that hundreds or thousands of people may have taken part in the attack, was ordered to pay the full $20,000 in restitution.

Such harsh measures can be counterproductive. Despite their anti-authoritarian streak and juvenile tendencies, a significant faction of Anons stand for values supported by many democracies, such as freedom of speech, an open Internet, and government transparency -- and they have a hatred for repressive regimes that would kindle the heart of the staunchest neoconservative. As one Anon put it during the group's electronic attacks on the Libyan government last year, "Anonymous is willing to bring its help to the brave people of Libya... We, the people, will not remain silent while dictators fire upon their citizens." The ideology can be inconsistent and is often unformed, as it always will be in a "group" like Anonymous; the irony of shutting down websites you don't agree with in the name of free speech and transparency seems to be lost on many of them.

But Anons tend to be young, their views still forming and their political thinking in flux. While governments can hardly countenance disorder and vigilantism on the Internet, they might more productively reach out, at least rhetorically, to Anonymous and similar movements, emphasizing shared values and encouraging innovative online dissent and activism through legal channels. The current strategy of mere opposition and tough federal penalties is unlikely to shut down a burgeoning international movement, and it's no way to bring an upcoming generation of Internet activists into the political process.

Engagement makes sense simply as a practical matter. Anonymous's ideals and symbolism continue to spread, even entering the governments that have opposed them. When Anonymous began ginning up opposition to a new intellectual property treaty called the Anti-Counterfeiting Trade Agreement after the European Union signed the agreement in late January, a bloc of Polish MPs objected to the secret way that the deal had been crafted (and with good reason). When the legislators decided to protest on the floor of parliament, what symbol did they hold up before their faces? Paper versions of the Guy Fawkes mask beloved by Anonymous.

Groups like Anonymous speak, sometimes in extreme form, to real demands of the "Internet generation": a more balanced copyright policy, more transparency, less censorship. Such demands can be seen in the fact that Swedish "Pirate Party" has members in the European Parliament. They can be seen in the massive recent Internet backlash against the Stop Online Piracy Act, where even Wikipedia shut down its English-language site for the day. Governments ignore the common concerns being expressed here at their peril.

None other than Secretary of State Hillary Clinton has warned against efforts to "impose a system, cemented in a global code, that expands control over Internet resources, institutions, and content and centralizes that control in the hands of the government." Clinton would no doubt prefer to think that established human rights groups or dissident bloggers are in the vanguard against this control. But sometimes it's greasy avenging angels like Agent Pubeit.