Israel's Spy Revolt

The war of words over an Israeli attack on Iran is splitting the political leadership from military and intelligence chiefs. And that dangerous divide in Jerusalem might well lead to real war.

Something has gone very wrong with Israel's posture on Iran's nuclear program. While Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak lead a confrontational approach -- including dramatic interviews and speeches to U.S. audiences that have convinced many that Israel might soon strike Iran's nuclear facilities -- the former heads of Israel's intelligence agencies have come out publicly against the government's position. First, Meir Dagan -- who headed the Mossad until late 2010 and coordinated Israel's Iran policy -- called an attack on Iran "the most foolish thing I've heard." In April, Yuval Diskin -- the previous head of the domestic intelligence service, the Shin Bet -- voiced a scathing and personal critique of Netanyahu and Barak. Diskin questioned not only the leaders' policy, but also their very judgment and capacity to lead, warning against their "messianic" approach to Iran's nuclear program.

Given these differences, should the United States -- and Iran -- fear an Israeli strike more, or should they relax as Israel busies itself with internal arguments? Although it may be tempting to think that the Dagan-Diskin campaign lessens the chance of confrontation, in truth it raises two dire possibilities. First, if the former spy chiefs are correct about Netanyahu's and Barak's lack of judgment, this is hardly cause for comfort. If, however, Dagan and Diskin are mistaken and Israeli strategy is in fact calculated and sober, then undermining Israel's credibility -- as they themselves have done -- makes an Israeli strike more likely, not less. The less credible the Israeli threat, the more likely Iran is to try to call an Israeli bluff, and thus the more likely Israel is to try to back up its words with deeds.

At the core of the question is how one interprets Israel's confrontational approach to Iran. Some view the Netanyahu-Barak strategy as a deliberate attempt to push the United States and the international community into decisive action, including tough sanctions and the threat of U.S. military action, lest Israel strike unilaterally. Israel, in this view, is acting as a "rational madman," calculating that appearing reckless will compel the United States, the international community, and Iran to heed its warnings. In an interview with the Hebrew daily Israel Hayom, Barak in effect said as much: The critics "travel the world, and their words weaken the considerable achievement of Israeli policy, where we made the Iranian issue a major, urgent issue, not only for Israel but for the world." For Barak, Israel's strategy has been manifestly successful, focusing the attention of a reluctant, distracted international community on Iran's nuclear program and producing stifling sanctions on the Iranian banking system.

But not all view the Israeli strategy this way. Some observers, both foreign and Israeli, are convinced that Netanyahu and Barak are genuine in their doomsday rhetoric and resolve to attack Iran's nuclear facilities. If Netanyahu is willing to evoke the Holocaust and warn of the Iranian "existential threat," the argument goes, he cannot mean anything less -- nor can he politically afford anything less -- than overt military action. Netanyahu indeed has been preoccupied with the Iranian question for decades and may view stopping Iran's nuclear ambitions as a generational challenge that will define his term. In this view, the Netanyahu-Barak rhetoric is meant to prepare the international community for an Israeli strike, which, according to Barak, would require international legitimacy.

The confusion over what Netanyahu and Barak actually mean is no accident. The key to deterrence is the credibility of the deterrent; the key to a "rational madman" strategy is that others do not see his posture as a bluff. From outside the prime minister's office, therefore, the two explanations for Israel's position are, by design, functionally equivalent.

One's view of the Dagan-Diskin critiques therefore depends on one's assessment of Netanyahu and Barak. If Diskin is correct about the leaders' lack of judgment, the former spy chiefs are breaking their silence to stave off a grave danger. But if Diskin is wrong, the former spy chiefs' words hold serious consequences for Israeli strategy -- by undermining the credibility of the threat of military action. On the face of it, accusations of messianic tendencies fit perfectly with a madman posture, further scaring the world into action. Dagan in particular was exposed to -- and indeed produced -- the most classified intelligence on Iran's program; he helped manage Israel's covert response to the program for years and participated in some of the most sensitive meetings with the political leadership. If the former intelligence chiefs, who should know best, are so concerned as to speak publicly against their own leadership -- something that appears odd to most Israelis, as it does to many abroad -- then surely foreign observers should believe the sincerity of the Israeli warnings.

On the other hand, although the Netanyahu government firmly commands the military (full-scale military disobedience is not even contemplated in Israeli society), it does not operate in a vacuum. The heads of the military, the Mossad, and the Shin Bet are household names whose assessments carry weight in Israeli public opinion. When such high-profile officials publicly question the leadership's judgment, Israelis listen. Although some (such as Barak in his Israel Hayom interview) have questioned Dagan's and Diskin's motives in speaking publicly, and although Netanyahu's political allies have struck back forcefully and impugned their civic responsibility, few doubt the sincerity of their position. Dagan and Diskin, moreover, are not alone. Former military commanders, and even the current chief of staff, appear to hold different views from the political leadership on the severity of the Iranian threat. The new vice prime minister and former defense minister, Shaul Mofaz, voiced his support of Diskin before joining the Netanyahu government. Even among the most hawkish senior ministers, there is opposition to Barak's approach, especially on the urgency of a strike; Vice Prime Minister Moshe "Bogie" Ya'alon, a former chief of staff like Mofaz, has implicitly criticized Barak's notion of a "zone of immunity" -- a point at which Iran's facilities would be immune to an attack if Israel did not act quickly -- noting, "Anything fortified by a human can be penetrated by a human."

With all this opposition, it may be no surprise that the public is wary of a unilateral strike; according to a recent survey by Shibley Telhami of the Brookings Institution, only 19 percent of Israelis endorsed an Israeli strike without U.S. support, and 32 percent opposed an attack regardless. Israeli public opinion may simply not permit the political leadership -- always careful of the electoral ramifications of its actions -- to undertake a step as bold as a unilateral military strike. Most importantly: Iranian and international observers know this. 

With the U.S. presidential election in November and ongoing talks between Iran and the permanent members of the U.N. Security Council plus Germany (P5+1), the possibility of an Israeli strike will likely remain low for the time being. An Israeli airstrike would require carefully orchestrated precision bombing that would be sensitive to weather conditions, meaning that the next window for an Israeli airstrike would likely be in the spring of 2013. Still, if Israel has any say in the matter, the Iranian nuclear issue will not go away. If the results of the P5+1 negotiations do not ensure the verifiable end to high-level uranium enrichment and the removal of existing highly enriched uranium from Iran, Israel may return to the warpath. And the new national unity government in Israel, though it may moderate the leadership's position somewhat, will also grant the government valuable domestic political cover for a strike, should one be ordered.

The lesson from the intelligence chiefs' "revolt" in Israel, therefore, should not be complacency, but concern. Toward the end of 2012, the world will face either an Israel that is determined to use overt force to stop a nuclear-armed Iran, as Dagan and Diskin suggest, or a "rational madman" who believes he needs to repair the credibility that some of Israel's most prominent military and intelligence chiefs have undermined. Either way, it is vital that the international community maintain its focus on the Iranian nuclear program so that the Israeli bluff -- if there is one -- is not tested.



Uh-Oh. Pakistan Can't Pay Its Electric Bills.

How an energy crisis became an economic and political crisis too.

Over the course of its four years in office, the embattled government of Pakistani Prime Minister Yousuf Raza Gilani has weathered challenges from opposition parties both new and old, threats of military intervention or coup, and most recently, a conviction sentence from Pakistan's iconoclastic judiciary for its unwillingness to seek the reopening of corruption charges against President Asif Ali Zardari -- which may eventually lead to Gilani's disqualification from office. Although the government has shown remarkable tenacity in the face of these challenges, its fights for political survival -- taking place as relations with Pakistan's principal sponsor, the United States, have plummeted -- have obscured the worsening state of the country's economic health at home.

Pakistani leaders have, of course, long grappled with mounting debt obligations, chronic revenue shortages, and a persistent power crisis that threatens Pakistan's ability to meet its growing population's need for energy and sustained economic growth. But a new warning sign came this week when nine of the country's independent power producers invoked charges of sovereign default against the government, saying they would pursue legal suits unless they received approximately $375 million in outstanding dues, dating back to last fall, before week's end. These producers have used such brinkmanship tactics in the past to force government action, and officials are now scrambling to take out new loans to make the payments. Even if this latest challenge is resolved at the eleventh hour, however, the cumulative trend is clear: Pakistan can't keep the lights on.

Demand for energy in Pakistan now outstrips its capacity to supply electricity to industry and households by several thousand megawatts. With preliminary census projections of a population of more than 192 million and the share of the urban population rising, the challenge to power Pakistan will only grow more difficult. Already, hours-long interruptions in power have dragged down productivity in key sectors like the textile industry and sparked confrontations between rural and urban political leaders and the transportation, agricultural, and manufacturing sectors for priority access to what energy is produced.

These gaps in capacity are compounded by the "circular debt" crisis facing the power sector, which lies at the heart of this week's charges. The short version -- without attempting to untangle at length the complicated networks of government-managed and private energy suppliers, generators, and distributors involved -- of the circular-debt story is that Pakistani government regulators have habitually set end-consumer energy prices below the cost of production. But the government's inability to keep up with its pledges to make subsidy payments has left the power sector struggling and trapped in this cycle of interconnected debts.

Those difficulties have been further exacerbated by theft, leakage, and weak collections, including from the government, which routinely can't even pay its own electricity bills, let alone the subsidies. As these dues go unpaid, distribution companies are unable to repay their debts to generators for the purchase of energy, which are in turn unable to repay debts to suppliers for the purchase of the oil or natural gas by which energy is produced.

The energy crisis has been bubbling underneath the surface of Pakistan politics for several years now. Efforts to gradually bring subsidized prices more in line with actual costs inevitably draw widespread protests from those most affected and have on occasion cost the government the support of groups like the Muttahida Quami Movement -- a key swing bloc in national ruling coalitions with a strong political hold over the country's largest city, Karachi -- forcing a rollback. Last November, the government attempted to resolve the issue by assuming responsibility for approximately $3.4 billion in power-sector circular debt, transforming it into sovereign debt and borrowing heavily to do so. Private debts among producers, suppliers, and distributors have continued to mount, however, and the fundamental disconnect that drives circular debts in the power sector remains unresolved.

These nine independent power producers -- which collectively produce 8 to 9 percent of Pakistan's energy supply -- now warn that they can no longer continue operations if government payment is not immediately forthcoming. With fresh borrowing plans, the government is likely to negotiate another settlement with these companies. But the overall state of the power industry offers few incentives for large-scale investment, with grim implications for efforts to increase production capacity.

Here again, Pakistan's tangled politics are forestalling solutions. The Pakistan People's Party government's efforts to preserve the broadest coalition of supporters possible to guard against its many rivals have hampered its ability to advance serious structural reforms -- such as the removal of exemptions on politically powerful sectors such as those on agricultural income -- that could close the budget gap and allow it to make good on its subsidy pledges. At approximately 9 percent of GDP, Pakistan has one of the lowest rates of tax revenue collection in the region (though the exact calculation has been called into doubt thanks to a back-and-forth dispute between statistics officials and the Finance Ministry over the exact size of the economy itself). Pakistan's debt crisis is significant and growing; approximately half of this year's federal budget expenditures were devoted to debt repayment, far eclipsing military spending, government salaries, or development investments.

Prior to the power-sector default, the IMF had projected that Pakistan would need to refinance the equivalent of 30 percent of its GDP this year to cover maturing debt and budget deficits; with this additional blow to its creditworthiness, borrowing costs are likely to increase in the future. Buoyed by approximately $16.4 billion in foreign currency reserves, cushioned by several years of high remittance flows from Pakistanis living abroad, Pakistani finance officials have expressed confidence in their ability to remain in good standing on external debt repayment obligations; the most recent World Bank figures from 2010, however, estimate that its reserves amount to only 4.7 months' worth of imports.

As foreign lenders turn leery, the government over the past year has turned to domestic sources, becoming the country's largest borrower and amassing domestic debts equivalent to approximately 38 percent of GDP as of December 2011 (total debts exceed 62 percent of GDP). To date, Pakistani banks have shown willingness to continue purchasing government treasury bonds -- judging them a safer bet than nonperforming private-sector loans -- but the country's central bank has repeatedly warned that government borrowing is crowding out other potential borrowers from domestic sources of credit, choking off the country's growth. Again, the story here only gets grimmer: More than half of Pakistan's domestic debt is in the form of short-term loans that must be rolled over with new financing at least once per year -- the costs of which may now increase.

For all the focus on Islamic militancy and drone strikes, it is the mounting energy and debt crises that may present the most serious threat to Pakistan's future, bringing not only severe pain to Pakistani citizens in the near term but also preventing them from investing effectively in their future. With a history of coups and extraconstitutional transfers of power, Pakistani political leaders have limited experience with being held publicly accountable for their management of the country's economic development. But the prospects for Pakistan's democracy and long-term stability will ultimately depend on it.