Originally Published 2005-04-08 10:40:57 Published on Apr 08, 2005
The impact of terrorism on the oil and tourism industries and on financial institutions and "Democracy, Terrorism and the Internet" received considerable attention at the International Summit on Democracy, Terrorism and Security held at Madrid from March 8 to 11,2005.
Madrid Impressions - II: Economic Impact of Terrorism
The impact of terrorism on the oil and tourism industries and on financial institutions and "Democracy, Terrorism and the Internet" received considerable attention at the International Summit on Democracy, Terrorism and Security held at Madrid from March 8 to 11,2005.

The Panel on the impact on the oil industry, which was titled "the World Over a Barrel," saw assessments, which were realistic and not unduly alarmist. A point, which was underlined by the participants, was that often the nervousness in the industry was caused more by perceptions of a likely threat than an actual threat. The oil as well as the tourism industries were repeatedly projected as vulnerable, but resilient. Their ability to recover fast from the impact of a terrorist strike was highlighted by representatives of the two industries, who participated in the discussions.

Some of the interesting points made in the Panel on the impact on the oil industry were as follows:

Mr. Alastair Morrison, Chairman and CEO of Kroll International Security: Terrorists look for attacks to have maximum impact on the perceptions of the global population and to cause price panic or visible ecological disaster. The capability of terrorist groups to orchestrate attacks on the oil industry is limited, with Middle Eastern sources protected and the potential impact of single attacks limited by the thinly spread distribution of facilities. The intention of terrorist groups to make a sustained attack is not high. An attack on a tanker would have the desired spectacular impact and pipelines are perhaps the most vulnerable. But with the sophisticated ability of the industry to recover quickly after crises, the rewards of attacks are limited. 

Mr.Roger Diwan, Managing Director of PFC Energy, USA: The ability of a terrorist group to affect oil prices significantly is limited, but perceptions of a security risk bring a price risk, especially in an environment where demand is outstripping supply and capacity is declining. The industry is sensitive to security-related news, even though the risk of an emergency creating a real supply shortage is low. Supply sources are spread thinly around the world. And while there are four or five facilities where a successful terrorist attack could cripple global supply, they are heavily protected. 

Mr.Gary Hart, former US Senator: The US energy policy is based on an unstated guarantee of supplies of imported oil, on which the US economy relies heavily. National security is compromised by this reliance on imported energy. The US has invested a great deal in the Middle East to protect this guarantee of supplies. The economics of this policy are so attractive that there is little motivation to consider changes in the policy. But it is a policy that runs against environment, security and national interests. There are no policy leaders in the US willing to support alternative energy initiatives. 

The characterisations of threat perceptions that emerged from the discussions are as follows: 
Threats to pipelines and oil tankers ----Medium to high. 
Threats to production and storage facilities---Low to medium. 

These perceptions were based on the presumption that it is easier to provide effective physical security to the production and storage facilities than to pipelines and oil tankers. An important point stressed was the need for a thorough re-examination of the present concepts and assumptions underlying the strategy relating to strategic reserves of energy. It was pointed out that the present policy initiatives in this regard are based on perceptions of conventional threats to energy supplies from State actors. It was felt that the present policy framework has not paid adequate attention to the impact on the present policy due to threats from non-State actors.

The political aspect of a threat to energy security arising from factors such as the possible capture of power by pro-Al Qaeda elements in Saudi Arabia, the consequences of repeated terrorist strikes on foreign workers and experts in the oil industry etc did not receive the required attention.

The Panel on "Terrorism and the Travel Industry" also saw an interesting debate on the various dimensions of the problem. The salent points of the discussions are: 

Ms. Isabel Aguilera, Chief Operating Officer of NH Hotels, Spain: Tourism is a priority target for terrorists. The terrorist bombings in Madrid on March 11, 2004, immediately affected the capital´s hotel industry as Spaniards reduced their travel in the subsequent months. 

Mr.Francisco Frangialli, Secretary-General of the World Tourism Organization: The Madrid bombings have not greatly affected the overall regional and global tourism situation since the attacks were made. A whole series of recent shocks arising from terrorism, the tsunami and fears of disease have made it difficult to distinguish the effects of one factor from the others. 

Mr.Victor Aguado, CEO of Eurocontrol, Belgium: Air travel is more vulnerable than other modes of transport, mainly because of its international dimension. An incident at one airport has a tremendous impact on others around the world. At the same time, globalization tightens response times. After the 9/11 attacks on the United States, it was possible to stop all flights from Europe within four minutes. 

Mr.Pedro Argüelles, President of Boeing Spain: 9/11 had severely damaged the air travel industry, which is only now recovering. There is a need for intelligence-based solutions to improve the security of everyone involved in the travel industry. 

Mr.William Fell, International Risk Adviser, British Airways Corporate Security: The real change in the terrorist threat lies in the willingness of terrorists themselves to die in their own attacks. The costs of responding to the threat are immense. The British Airways had invested 150 million pounds just to reinforce cockpit doors (whereas in the U.S. this cost had been financed by government). And the costs continue to rise. Since 9/11,the U.S. watchlist of terrorist suspects has grown from 1,500 to 70,000 names and the list must be matched against passenger lists for every airline flight from Europe. 

I raised the issue of the tendency of the US and the UK to issue frequent travel advisories against travel to certain countries on the basis of weak intelligence or, in some instances, even rumours. I pointed out how this practice of these two countries has often created problems for India and other countries in Asia. I also narrated an instance of November,2002, when an American private bank in Thailand issued its own terrorism alert to its customers visiting Thailand, the nervousness it caused amongst tourists of all nationalities and the strong protests it evoked from the Thai authorities.

While there was no response to my intervention from any of the American experts present in the Panel, a British expert from their airline industry clarified that following strong representations from the airline industry, the British authorities are now much more careful before issuing such advisories. I also stressed that travel advisories, where really necessary, should be issued only by Governments on the basis of advice from their intelligence agencies and that the practice of private companies issuing their own advisories needs to be discouraged.

An interesting observation during the discussions was that whereas terrorism in the rest of the world has an immediate impact on the travel and tourism industries, this is not so in West Asia. This was because terrorism in West Asia does not affect domestic and regional tourists, who contribute the major share of the tourist traffic. Often, the immediate impact is on tourists from Europe, North America and Japan.

I referred, in this connection, to an observation made by a Thai expert during a discussion in November,2002, that while the Bali bombing led to panic cancellations from Europe, North America and Japan, it had no impact on the minds of travellers from India and China. There were no major cancellations from there.

The panel on the impact of terrorism on the financial institutions also covered its likely impact on the stock market and on the "feel good" feeling in the economy as a whole. The over-all view was that the stock markets had got used to periodic news of terrorist strikes in some part of the world or the other and do not exhibit enduring nervousness or panic. The negative effects have generally been of short duration.Panellists also agreed that corruption and a lack of co-ordinated attention to terrorist-related retail banking activity pre-9/11 contributed to the attack being allowed to take place. The salient points are: 
Mr.Alexander Schindler, a board member at Union Investment, Germany: The long-term impact of terrorism on stock markets has been negligible (save perhaps on the derivatives market). Markets have got used to terrorism. Still, the 9/11 attacks were of significance because of the atypical impact they had on markets both in the short term (with sharp declines) and in the long term (in structural costs, investment in security, and price increases). 

Mr.Reto Francioni, President and Chairman of SWX-Group, Italy: Terrorism was most damaging in the clearing part of the stock exchange chain. Though modern paperless markets have more traceability and transparency, the challenge now was to monitor higher volumes and analyze transactions to detect terrorist-linked activity. 

Mr.Peter Sutherland, Chairman, Goldman Sachs International: Corruption is a characteristic common to most terrorist movements. To penetrate the anonymity of terrorist-linked activity, he suggested legal changes making detection and prosecution easier. 

Mr.Rico Carisch, journalist: There is no single method for raising funds for terrorism. Governments must rethink their entire strategy for suppressing terrorist financing by working multilaterally, opening up corporate registries and in other ways expanding and speeding access to financial information across borders. 
Mr.Peter Eigen, Chairman, Transparency International: Bank secrecy must be made less legitimate, encouraging "knowing the customer" at all levels of the financial system and rendering financial systems more transparent. All sectors of society, private and public, must work together to overcome the failures of governments to deal with the crucial issue of corruption. Terrorism offences should now occupy a separate system away from the confines of the criminal legal system. 

13. Security and counter-terrorism experts were hardly represented in the Panel on Democracy, Terrorism and the Internet. I appeared to be the lone voice, with the rest of the members, almost all in their late 20s and early 30s, enthusiastic votaries of unrestricted access to the Internet. Some of them had a highly romanticised vision of the Internet as an instrument which would pave the way for global self-governance, with the role of the State and its agencies steadily reduced to irrelevance. My plea that they should take note of the concerns of the security agencies regarding the misuse of the Internet by the terrorists had very few takers for inclusion in their final report. Some of the salient points of the debate are: 

John Gage, Chief Researcher at Sun Microsystems: The Internet is a type of technology with embedded democratic values-and even terrorists exploit those characteristics. The Internet is a tool that can be used to communicate, to give access to information, and to create a community. The technology of the Internet imparts power to information by expanding its reach and increasing the speed with which it can be made available to others. 

Ms.Rebecca MacKinnon, Media Fellow, Joan Shorenstein Center for Press, Politics and Public Policy, Harvard University: The fight against terrorism is a battle of hearts and minds. New tools such as "blogs" give a voice to the silent majority. The openness of the Internet makes it a potent alternative to the traditional controls inherent in mass media. The Internet provides a critical means of subverting filters in older media, whether they are controlled by editors or by censorship. 

Mr.Dan Gillmor, Founder of Grassroots Media Inc.:Restricting access to the Internet could harm democracy more than terrorism. Terrorism can't bring down the Internet or subvert its democratic principles. Governments should be extremely reluctant to restrict the operation of the Internet; such attempts would likely prove ineffective, and could moreover weaken the Internet as a useful tool against terrorism 

Mr.Martin Varsavsky, President, the Safe Democracy Foundation, Spain:The connectivity that the Internet provides can be more powerful than bombs or military action in preventing or containing terrorism. Internet access is correlated to wealth. By providing access to impoverished areas where terrorism often finds its roots, the Internet can empower people with critical access to the many voices of reason on the web. 

Mr.Noriko Takiguchi, a Japanese journalist and author: The Internet is a complementary technology-not one that wipes out what came before. Rather than make direct comparisons to the other forms of media, one should view the Internet as an access point to information that works alongside traditional means of information dissemination. 

The points made in the different Panels on the economic impact of terrorism did not find a place in the Madrid Agenda issued by the Club of Madrid on March 11, 2005. Nor did the keynote address of Mr.Kofi Annan, the UN Secretary-General, on March 10, 2005, cover this important aspect. The likelihood of maritime terrorism and its impact on the economy figured in passing during the discussions in the Panel on the impact on the Oil Industry. Otherwise, this important subject did not receive the attention it deserved. A possible reason for this could be the fact that counter-terrorism experts from South-East and East Asia and Australia , who are the most concerned about this problem, were weakly represented at the summit. 

The writer is Additional Secretary (Retd), Cabinet Secretariat, Govt. of India, and, presently, Director, Institute for Topical Studies, Chennai, and Distinguished Fellow and Convenor, Observer Research Foundation (ORF), Chennai Chapter . E-mail: [email protected]

Courtesy: South Asia Analysis Group, New Delhi, Paper no. 1328, April 7, 2005.



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