Lebanon and Beyond

August 2006 Dr. Hans Black

Since early July when tensions began to rise, and particularly since two Israeli soldiers were kidnapped in a raid across the border from southern Lebanon, investors have been on edge. Market participants all over the world have been assessing daily news stories and, above all, the deep significance of the events unfolding on a daily basis. At Interinvest, it has become one of our main preoccupations, along with what my friends refer to as our “other constant worries”. In an atmosphere of already heightened tensions given the Iranian nuclear situation, investors are right to ask where all of this is leading. Since 2003, too many have been underestimating the ferocity of fundamentalist groups in the Middle East. As the situation in Iraq becomes increasingly difficult, could this be a second front in order to draw another player, namely Israel, into the fray and at the same time to remove attention from Iran?

The question of whether or not the kidnapping of the Israeli soldiers was carefully planned — a trap — also needs to be asked. In the first few days after the kidnapping, and during the G8 meetings in St. Petersburg, there was almost a relaxed feeling about the Israelis’ capabilities and their ability to teach Hezbollah a lesson. As the days wore on, it became clearer that Hezbollah had been planning this for quite some time. The sheer number of rockets used against Israel has been astounding — the most reliable numbers we have seen count as many as 3,500 missiles targeting Israeli cities in the north as well as, of course, Haifa. Resupplied by air transport from Iran to military fields north of Damascus, the rockets are then passed on to Hezbollah fighters by truck, usually at night time. As this is being written, 200 such missiles have been launched at Israel in the past 24 hours. Syria, for its part, badly needed to assert itself in Lebanon, after the humiliation of being asked to withdraw just last year following the assassination of former prime minister, Rafik Hariri, who also had great Saudi connections. Those observers who considered the aftermath of the Hariri assassination a potential victory for the region have been severely disappointed and this time it seems the Israeli army is in no mood to let this episode occur every five years. It must be remembered that in 2000 Israel had agreed to withdraw from areas in South Lebanon it had occupied for almost a decade. It has been repeatedly suggested by quite a number of observers on both sides of the Atlantic that one of Hezbollah’s goals is to engage the Israeli army in a drawn-out process that will ultimately find them once again in South Lebanon, bogged down and, similar to many units in Iraq, the object of repeated guerrilla attacks.

Anyone in Syria reading the Israeli newspapers might be getting the wrong idea. During the past three weeks, there have been abundant commentaries on the supposed failings of the Israeli defence forces in Lebanon. The Israeli chief of staff, Lt. General Halutz, who was once head of the airforce, has been thoroughly criticized, as indeed has the new prime minister, Ehud Olmert. Furthermore, many have argued that in the past six years of counter-terror warfare against the Palestinians, the Israeli army has become too focused on small tactics for keeping local groups under control. Others have criticized the Israeli military for relying too much on air power and high-tech weapons, which have not been effective on an enemy that has chosen to hide in well-concealed tunnels.

While observers in Washington and London have been disappointed with the slow progress of the Israeli army in South Lebanon, it must be remembered that it has faced an extremely well trained and well dug-in force. We would also point to the many reports we have read from first-hand observers claiming that they have heard Farsi spoken by military advisors to Hezbollah. To what degree Iran is involved (other than sending military hardware) is of course open to conjecture, but suspicions have been raised in many quarters. A further constant concern has to be whether Syria becomes more involved in this conflict. So far Syria, which clearly must be relishing what is going on in Lebanon after its humiliating exodus 14 months ago, has largely remained quiet. Other than increasing the readiness status of its armed forces, they are, at the time of this writing, not directly involved. Should President Assad be heartened by the seeming successes of Hezbollah, or perhaps even more importantly, perceive an opportunity to increase his stature in the Arab world, there is a danger that he might involve the Syrian army to a greater or lesser extent in the Golan Heights. This, then, becomes a potential turning point — and, from our own point of view, a danger point — in the entire affair.