Could the Great Oil Price Crash of 2014 Be a Disaster in the Making?

Christopher Whalen

December 19, 2014

The sharp drop in the value of oil in the second half of 2014 is just another aftershock of the financial crisis.

Oil prices have fallen by nearly half in the past year, cheering up American consumers who are under the gun due to persistent inflation in the cost of living. Gasoline prices are below $3 per gallon in many states as crude oil has reached a five-year low on global markets. Low gasoline prices mean more money in the hands of consumers, a happy thought if you are a retailer looking at modest sales data for the 2014 shopping season.

According to AAA, the average cost of gasoline is down almost $0.75 to $2.51 per gallon over the past twelve months, a remarkable change over a very short period of time. Indeed, the striking thing about the move in oil prices in 2014 is how quickly the price has changed and how completely this move has caught traders, bankers and energy producers by surprise. While the benefit to U.S. consumers may be very positive, the sharp and sudden move in oil prices is causing chaos for banks, energy companies, global financial markets and entire nations.

The most obvious negative impact from oil prices is seen in energy-producing nations such as Russia, Venezuela and Nigeria. Natural gas prices have fallen more than 12 percent this year. And oil prices have fallen by over 40 percent due to a glut of new supply and weak demand growth in many developing economies. The International Energy Agency has cut its estimates for demand for crude five times in the past six months, the Wall Street Journal reports.

The price of the Russian ruble has declined in tandem with oil prices, raising concerns about whether Russia will be able to service its hard-currency debt. But the decline in oil prices is more than just a supply phenomenon. The lack of growth in the demand for oil, coupled with rising supplies in the United States and elsewhere, has raised concerns in the minds of investors about the overall health of the global economy. Perhaps the leading concern is Russia, a nation largely dependent upon commodity exports for its survival in a financial sense.

"Putin's Asia Strategy for 2015"

Morena Skalamera, Post-doctoral Research Fellow, Geopolitics of Energy Project

December 16, 2014

In the midst of a confrontation between Russia and the West evocative of the Cold War, Russia has reinforced its pivot to Asia. With large-scale international sanctions launched against Russia over Ukraine, the ruble has fallen to near record lows and Western investments have disappeared as Russia’s economy is facing zero growth and a likely recession. To add fuel to the fire, the price of oil has fallen below $70 a barrel at the time of writing, with disastrous consequences for an economy where the energy sector makes up 70% of the annual exports and over half the federal budget.

These economic challenges have made President Vladimir Putin more desperate than ever to dip into China’s robust finances. The West has also imposed many rounds of asset freezes, financial restrictions, and prohibitions on purchases of Russia’s widening debt. At the same time, Russian state banks are now excluded from raising long-term loans in the European Union (EU), and exports of dual-use military equipment to Russia are banned, as are future EU-Russia arms deals and transfers of a wide range of Western energy industry technology. Many in the West hope that toughened sanctions will make Putin change course on Ukraine, but that has not been the case. At home, where he is wildly popular, renewed pride in the country has been far more consequential than retaining Western money. Challenging new threats to isolate Russia, Putin has pledged that the country is again realizing its greatness. But the sober reality is that Russia is a deeply troubled nation, both politically and economically. Brushing off the West will only be possible at a huge cost: becoming a junior resource appendage to China.

In 2015, Putin will appeal to Asia’s resources as a part of his foreign policy toward the region. Asian capital markets, including Hong Kong, Singapore, and Shanghai, are not obliged to accept the sanctions adopted by the United States and the EU. Yet in the last decade the share of Asian investors in Russia’s financial markets has been extremely low, meaning that they are not familiar with borrowers from Russia. Generally, Asian investors are also quite conservative and rarely make quick investment decisions, given that these capital markets are less “deep” than the Western ones. Due to these factors, Asian investors will be more prudent with purchases of Russian debt and building trust will take time. Therefore, we should not expect a rapid influx of Asian capital to Russia.

Japan, Asia’s largest financial market, is now part of the financial sanctions that limit international economic ties to Russia. What is more, at the end of September Japan announced a hardening of sanctions, banning the issuance of securities in Japan by certain Russian banks and tightening restrictions on defense exports to Russia. From Putin’s perspective, these measures emphasize the extent to which Japan’s ability to conduct foreign policy independently from its alliance with the United States and overall alignment with the West is limited.

Regardless, left with very few friends, Russia needs to knock at China’s door. Both Putin and Prime Minister Dmitry Medvedev have taken great pains to emphasize that bolstered cooperation with China is unrelated to the current political situation. A year ago, Russia’s overtures toward China were motivated by showing the Europeans that Russia had options to the East, while it still hoped to reap the benefits of doing business with both. Today, China is Russia’s only option, and Beijing has immediately risen to the challenge by filling a gap that emerged subsequent to the closing of European capital markets. On October 13, a Chinese delegation in Moscow signed more than 30 agreements with Russia, including a deal on the supply of gas through the new Power of Siberia pipeline and a currency swap of 150 billion yuan ($24.5 billion), which will allow Russia to issue bonds in yuan, the Chinese currency, and convert the proceeds into rubles, thereby bypassing foreign banks.

Russia's Moment of Crisis: Moscow Might Be Down, but Not Out

Nikolas K. Gvosdev

December 18, 2014

Western commentators reporting on events in Russia have a tendency to swing from one extreme to the next. Seven months ago, when oil prices were high and the Kremlin had seemingly amputated Crimea off from Ukraine without firing a shot, the narrative was about an unstoppable Vladimir Putin who would soon be overrunning all Eastern and Central Europe. Today, he is being placed on deathwatch, with prognosticators speculating about precisely when the Russian economy will collapse and Putin will be overthrown. With the precipitous fall in the value of the ruble—something a major interest-rate hike by the Russian Central Bank seemed unable to reverse—some pundits are even crowing that the Ukrainian hryvnia is doing better than the Russian currency.

It helps to step back and put the larger picture in perspective. The hryvnia is the currency of a country facing a major contraction in its GDP and on the verge of bankruptcy; investors are gambling that beyond the $27 billion aid package from the International Monetary Fund, the European Union and the United States will fund an additional $15 billion bailout. Ukraine's energy supply is also quite tenuous, depending on a fragile agreement brokered with the Kremlin and conditional upon prepayment for supplies. Take out any of these factors from the equation and the hryvnia looks much less attractive as a bet.

The collapse in global energy prices, the impact of Western sanctions and the free fall in the ruble's value are all quite serious economic problems for Russia. They will put tremendous strain on the Russian government and may even force radical revisions in some policies. But to assert that Russia is on the verge of collapse seems a bit premature. Moreover, Putin believes that he can ride out the short-term turbulence without having to make serious concessions to the West.

The ruble is losing value because both investors, as well as ordinary Russians are looking to lock in whatever they can salvage from the value of their savings. A seventy-year-old Russian will have lived through a series of currency devaluations in his or her lifetime (the introduction of "new rubles" in the Khrushchev era or the massive inflationary wave that came as a result of "shock therapy" in 1992). The current ruble is not backed by gold or oil and it freely floats, so, given worries about whether one's 2013 rubles will be worth less than half of that value in 2015, it is not surprising that the run has accelerated as people seek safer storehouses of value for their currency holdings—which even a major interest-rate hike on the part of the Russian Central Bank is not sufficient as an incentive for keeping rubles. As the ruble loses value, imports become much more expensive—meaning that not only luxury goods, but a wide range of daily consumer products, including many foodstuffs, will become pricier. People will either have to do without—something that can fuel popular discontent over time—or the Kremlin will push for wage increases, creating the possibility of a destabilizing inflationary spiral. More ominously, Russian companies who borrowed funds for corporate expansion denominated in dollars or euros, but whose businesses are largely paid in rubles for their goods and services, are witnessing their debt burdens nearly double at an instant.

“The myth of national sovereignty helps big corporations screw us over”

French economist Thomas Piketty has put inequality back on the map and is being hailed as the Karl Marx of the 21st century. He talked to Max Tholl and Florian Guckelsberger about a globalization gone wrong, a Eurozone parliament and our obsession with economic growth.

The European: Mr. Piketty, not just Paul Krugman and Joseph Stiglitz have praised your book, but also Marine Le Pen, who applauded it for showing what globalization inevitably leads to: inequality.

Piketty: Did she say she read it?

The European: Yes.

Piketty: Nobody told me that she likes the book! Did she really say that she read my book?

The European: You seem surprised.

Piketty: I am! I would be surprised if she had actually read it but if that is the case, I can only wonder what she makes of it.

The European: She fundamentally disagrees with the solutions you propose but praises the evidence of the book as an attack against the globalized world.

So Maybe Putin Wasn’t an Omnipotent Supergenius

By Joshua Keating

Earlier this year, when Russian President Vladimir Putin was racking up an impressive run of geopolitical victories, the conventional wisdom among American pundits was that the president was a shrewd and calculating strategist, outwitting his Western rivals at every turn. This view was always flawed. Putin’s biggest political victory, the now seemingly irreversible seizure of Crimea, was made possible by the chaos following the overthrow of Ukraine’s pro-Russian government, which should be counted as a much more significant defeat.

Joshua Keating is a staff writer atSlate focusing on international affairs and writes the World blog. 

Now that the ruble has gone into a free fall, losing 22 percent of its value against the dollar this month and 11 percent Monday alone despite thegovernment hiking interest rates, anumber of commentators are pointingout that Putin isn’t looking so smart today.

Russia now expects a recession and 10 percent inflation this year, and the country’s deputy prime minister said Tuesday that poverty will “inevitably rise” as a result. Putin’s gamble, that Russia could weather the impact of Western sanctions resulting from its military incursions into Ukraine, now doesn’t appear very shrewd. “Talk of a new cold war, comparisons between Putin’s Russia and the USSR, look a bit silly now, don’t they?”writes the New York Times’ Paul Krugman.

Russia Seen from Within

By George Friedman

December 17, 2014

Last week I flew into Moscow, arriving at 4:30 p.m. on Dec. 8. It gets dark in Moscow around that time, and the sun doesn't rise until about 10 a.m. at this time of the year - the so-called Black Days versus White Nights. For anyone used to life closer to the equator, this is unsettling. It is the first sign that you are not only in a foreign country, which I am used to, but also in a foreign environment. Yet as we drove toward downtown Moscow, well over an hour away, the traffic, the road work, were all commonplace. Moscow has three airports, and we flew into the farthest one from downtown, Domodedovo - the primary international airport. There is endless renovation going on in Moscow, and while it holds up traffic, it indicates that prosperity continues, at least in the capital.

Our host met us and we quickly went to work getting a sense of each other and talking about the events of the day. He had spent a great deal of time in the United States and was far more familiar with the nuances of American life than I was with Russian. In that he was the perfect host, translating his country to me, always with the spin of a Russian patriot, which he surely was. We talked as we drove into Moscow, managing to dive deep into the subject.

From him, and from conversations with Russian experts on most of the regions of the world - students at the Institute of International Relations - and with a handful of what I took to be ordinary citizens (not employed by government agencies engaged in managing Russia's foreign and economic affairs), I gained a sense of Russia's concerns. The concerns are what you might expect. The emphasis and order of those concerns were not.

Russians' Economic Expectations

I thought the economic problems of Russia would be foremost on people's minds. The plunge of the ruble, the decline in oil prices, a general slowdown in the economy and the effect of Western sanctions all appear in the West to be hammering the Russian economy. Yet this was not the conversation I was having. The decline in the ruble has affected foreign travel plans, but the public has only recently begun feeling the real impact of these factors, particularly through inflation.

But there was another reason given for the relative calm over the financial situation, and it came not only from government officials but also from private individuals and should be considered very seriously. The Russians pointed out that economic shambles was the norm for Russia, and prosperity the exception. There is always the expectation that prosperity will end and the normal constrictions of Russian poverty return.

The Global Conflicts to Watch in 2015

URI FRIEDMAN

DEC 15 2014

A survey shows which countries matter more to U.S. policymakers—and which matter less

Center for Preventive Action/Council on Foreign Relations

Foreign policy often involves making difficult and debatable choices about which parts of the world matter more to a given country—and which, by extension, matter less. It's about defining national interests and determining where those interests are most evident and endangered. This is why the United States has done far more to stop ISIS in Syria and Iraq than, say, sectarian war in the Central African Republic.

In short, it's about priorities. And according to a new survey of U.S. foreign-policy experts and practitioners, those priorities could look a lot like the map above in 2015, at least from America's point of view. The map sorts potential conflicts around the world into three tiers of risk: red for high-priority threats, orange for moderate-priority threats, and yellow for low-priority threats. According to Paul Stares, the report's lead author, it's a color-coded snapshot of "where the balance of U.S. attention and resources should be devoted" in the coming year. As such, it's also a guide to the places and conflicts that are likely to receive relatively little attention from America's national-security apparatus in the months ahead.

The survey, this year's edition of a study conducted annually by the Council on Foreign Relations' Center for Preventive Action, flagged violence in Iraq between ISIS and the Iraqi military, and between Sunnis and Shiites more broadly, as the top priority for the U.S. in the coming year. Other high-priority potential scenarios include a major attack on the United States or a U.S. ally; a cyberattack on U.S. infrastructure; a crisis involving North Korea; the prospect of Israeli military strikes against Iran's nuclear sites; a confrontation between China and its neighbors over territorial claims in the South China Sea; an escalation of the Syrian civil war; and growing instability in Afghanistan. Notably, they also include two contingencies that weren't raised in last year's report: an intensification of fighting between Ukrainian forces and Russian-backed militias in Ukraine, and heightened violence between Israelis and Palestinians.

Reforming France: Emmanuel Macron's Impossible Mission

By Julia Amalia Heyer

French Economics Minister Emmanuel Macron: "If being a politician means wanting to be re-elected at any price, then I'm not one."

Thirty-six year old Economics Minister Emmanuel Macron has been tasked by French President Hollande with reforming the country. But it won't be easy. Socialists view him with suspicion and the party's left wing is already preparing for battle.

Recently, he gave voice to the question himself. It was last Thursday at 8:30 a.m. and Emmanuel Macron, dressed in a teal suit coat and navy blue tie, found himself at a podium in the Grand Palais in Paris. "Why am I actually a Socialist?" he asked his audience.

For a former investment banker who was recently assigned with the unenviable task of reforming his country as economics minister, it is an excellent question.

Macron's audience last Thursday morning was made up of perhaps 70 business leaders in an event organized by an economics magazine. Most of them were just as elegantly dressed as Macron himself, and they chuckled with amusement at his question.

But instead of answering his own question, the minister for economics, industry and information technology unfurled his far-reaching vision for a reinvigorated France. He spoke of the common welfare, which needed to once again take precedence over individual interests. And he underscored his exposition with a quote from the Socialist reformer Jean Jaurès from the year 1887.

It is the French way, a method of situating one's self in the grand arch of history. And it suits Macron well.

France must change, he said last Thursday from the podium in the vast palace on the Champs-Élysées, and it wasn't the first time he had uttered the sentiment. The country isn't doing well, he continued. "Those who say we can continue on like this for another 10 years are lying." Macron's tone was far from shrill. Rather, he spoke calmly, almost quietly.

Emmanuel Macron has been France's economics minister for three-and-a-half months now and, at 36 years, he is the youngest member of Hollande's cabinet. Since he was appointed to renew the country, he has been called everything from a "high-flyer," to a "beacon of hope" to a "careerist." The magazine Marianne recently even referred to him as a "wolf in sheep's clothing." There are some within François Hollande's inner circle who say he is the president's "last wildcard."

Symbolic Break

Krassimir Yankov: Eastern Ukraine slides towards disaster

by Krassimir Yankov

Dec. 17, 2014

Pro-Russian separatists ride on top of a tank near the town of Krasnyi Luch in Luhansk Oblast, eastern Ukraine, on Oct. 28, 2014. (AFP)

LUHANSK -- It’s not easy getting to Luhansk nowadays. One must either cross an active frontline and risk getting shot at, if coming from the north, or take an eight-hour detour from the south through the self-proclaimed “Donetsk People’s Republic”, which is under the control of pro-Russian separatists. I decide to opt for the latter and, after quickly fixing my papers with the de facto authorities in Donetsk, my companions and Iare on our way.

Driving through the Donbas, the coal-mining region of eastern Ukraine, has always been a special kind of journey. The landscapes are gray, rolling flat fields with slag heaps from nearby mines dotting the skyline every now and again. The winter, which has already settled in, adds to the gloom with its sub-zero temperatures and ice on the occasional houses we pass by. But after a while I start noticing something even more sullen – the almost complete lack of people on the streets.

The region has suffered six months of fighting between the Kyiv-controlled and pro-Russian separatist forces. At least 4,707 people have died, according to the latest report from the UN, but the worst may still be yet to come with the region sliding into economic blockade. Things have worsened after Kyiv decided last month to cut off the region from the Ukrainian financial system, effectively banning all banking activity and severing payment of wages, pensions and social benefits. On top of this, vital medical and energy infrastructure have been destroyed during the conflict, while social services are all but absent after the withdrawal of the Ukrainian government from Donetsk and Luhansk regions.

The de facto authorities in Luhansk, nestled in the former state administration building – now pompously called the House of the Government – are quick to assure me that everything is in order. Humanitarian aid is being distributed by extensive volunteer networks, 38 soup kitchens have opened across the separatist-controlled parts of Luhansk region, and no one is left out, they assure me. But they hasten to add that more than 60 per cent of the population are entirely dependent on humanitarian aid for their basic daily needs. 

I decide to go on my own to see whether these statements are true.

Israeli Defense Ministry Covering Up Facts Surrounding Second Failed Test of ARROW Anti-Ballistic Missile

Yossi Melman

December 17, 2014

Israel’s defense establishment lies about failed missile test - again

For the second time in three months, Israel has failed in tests of the Arrow anti-ballistic missile system.

For the second time in three months, Israel has failed in tests of the Arrow anti-ballistic missile system.

And for the second consecutive time, the Defense Ministry has published statements which did not tell the entire truth in order to conceal the embarrassing failure.

To put it mildly, the statement misled Israeli defense reporters and commentators and the public at large.

More blatantly, one can say that the ministry tried to lie and was caught red handed.

Representatives of the Israel Air Force, Israeli Aerospace Industries, the maker of the system, and the US Pentagon (a partner in the project) gathered at the seaside Palmahim Base, Israel’s missile site 15 km. south of Tel Aviv, to watch and evaluate the test.

It was aimed to comprehensively check all the components of the Arrow 3 system: the target missile, the intercepting missile, the radar, and the ground station.

As is customary in tests of this kind, an IAF fighter plane fired a target missile from over the Mediterranean hundreds of kilometers away to simulate an incoming Iranian Shihab-3 ground-to-ground missile. The radar and other systems identified the target and were supposed to lock onto it.

A two-speed IT architecture for the digital enterprise

by Oliver Bossert, Chris Ip, and Jürgen Laartz

December 2014

Source Link 

Delivering an enriched customer experience requires a new digital architecture running alongside legacy systems.

Digital business models have become essential for companies across a range of industries. With social networks and e-commerce websites setting new benchmarks for speed, agility, and user-friendliness, consumers expect similar online performance from banks, retailers, and telecommunications companies. Attackers born in the digital age give consumers what they want, but many older companies struggle to meet customer expectations. For them, going digital is now a prerequisite for surviving and thriving. Success requires strong capabilities in four areas.

First, because the digital business model allows the creation—and shorter time to market—of digital products and services, companies need to become skilled at digital-product innovation that meets changing customer expectations. One such new offering for consumers is car-insurance policies enabled by geolocation-tracking technology, where the price of the policy depends on how much and how aggressively a person actually drives.

Second, companies need to provide a seamless multichannel (digital and physical) experience so consumers can move effortlessly from one channel to another. For example, many shoppers use smartphones to reserve a product online and pick it up in a store.

Third, companies should use big data and advanced analytics to better understand customer behavior. For example, gaining insight into customers’ buying habits—with their consent, of course—can lead to an improved customer experience and increased sales through more effective cross-selling.

Fourth, companies need to improve their capabilities in automating operations and digitizing business processes. This is important because it enables quicker response times to customers while cutting operating waste and costs.

A two-speed IT architecture will help companies develop their customer-facing capabilities at high speed while decoupling legacy systems for which release cycles of new functionality stay at a slower pace.

Implications for enterprise architecture

Each of the four levers poses a substantial challenge for IT. For example, many banking-product lines—among them credit cards, investments, and checking and savings accounts—are managed in silos. This makes it difficult to get a comprehensive view of customers quickly, for example, to assess their loan applications. What’s more, channels are often managed and tracked independently, complicating matters for customers who wish to use multiple channels as they pursue a transaction. For instance, customers starting a loan application on their smartphones may find that they have to reenter data when they switch to desktop computers to fill in the more detailed information required. Weak systems integration and slow database-access times can prevent customers from enjoying a real-time shopping and purchasing experience. Analytics capa­bilities are especially difficult to integrate with operational process flows. Manual steps in these processes, such as rekeying and trans­ferring information, present major obstacles to both analytics and automation of processes.

While a few players have overcome some of these hurdles, it is a big challenge for many IT executives to implement all four levers so customers can, for instance, purchase individually tailored products across multiple channels. One important reason is that the legacy IT architecture and organization, for example, which runs the supply-chain and operations systems responsible for executing online product orders, lacks the speed and flexibility needed in the digital marketplace.

Marines take cyber warfare to the front lines

By Kevin McCaney

Dec 16, 2014 

Source Link

It’s been over three years since the Pentagon formally declared cyberspace a domain of warfare, but the typical image of a cyber warrior usually involves an operator sitting in front of a monitor in a network command center. The Marines, however, recently demonstrated cyber war on the battlefield, with a mix of technologies that includes Google Glass-like augmented reality glasses and other systems to conduct cyber and electronic warfare in parallel with physical military operations.

During the amphibious Bold Alligator exercise last month off the coast of Virginia, Marines working in signals intelligence, or SIGINT, could monitor, intercept and interpret radio and radar signals while on maneuvers in an urban combat environment, and do it without information overload.

The package of technologies, sponsored by the Office of Naval Research, is called the Tactical Cyber Range and it combines networking, communications, sensors, unmanned systems and augmented reality technology in an on-the-go arrangement.

“Our goal for the Tactical Cyber Range is to extend cyberspace training to the radio frequency physical environment to better integrate information related capabilities with traditional fires to support mission objectives at the tactical edge,” Maj. Christian Fitzpatrick, ONR tactical cyber special projects officer, said in an ONR release.

During Bold Alligator, a joint, bi-annual exercise intended to test new technologies, Marines used the Tactical Cyber Range to both emulate enemy communications in a crowded electromagnetic spectrum and work to disrupt them.

“The Tactical Cyber Range really helped me coordinate realistic SIGINT and cyber training for my analysts and operators,” Staff Sgt. Johnathon Krahnke, a SIGINT team lead, said in the release. “The environment was realistic and noisy, and my Marines had to work together to solve the tactical problem. This would be a valuable capability for the Marine Corps to define cyberspace tactics, techniques and procedures.”

The Objective: Dominating the Enemy's Frequency Spectrum

Ami Rojkes Dombe 

6/3/2014

The warfighters of the electronic warfare layout of the IDF C4I Corps operate alongside the combat elements at the front line and are responsible for the warfare effort against the enemy

According to the IDF doctrine, the EW (Electronic Warfare) elements are a part of the fire delivery plan, and the elements of this layout operate close to the combat units," explains Col. Avi, head of the EW layout administration who also serves as the IDF EW officer attached to the General Staff during wartime. Unlike kinetic weapon systems, EW attacks are carried out in the electromagnetic spectrum and their objective is to disrupt/jam the communication and data networks of the enemy during combat operations. 

The EW unit was established in 1964, under a cloak of secrecy and was regarded as a special unit. Only after the Yom-Kippur War of 1973, when the IDF supreme command realized that the Egyptian and Syrian armed forces also possess EW capabilities, the unit evolved into a layout with a structured administration in the IDF C4I Division, and an OrBat that includes an EW officer, with suitable equipment, attached to every IDF division. 

According to Col. Avi, EW operations are complex deception and subterfuge activities that require a high degree of creativity and severely undermine the other side's ability to operate. One Example of EW attacks is neutralizing the communication network of a hostile infantry battalion. 

Unlike the western doctrine, as used by the IDF, Arab countries such as Egypt and Syria rely on Russian equipment and on the Russian doctrine. "While we differentiate between EW and SIGINT, according to the Russian doctrine, these disciplines are combined. It is because their SIGINT and EW capabilities are intended for offensive purposes. In Israel, the SIGINT world is not used solely for offensive wartime purposes, and our monitoring units are a national asset that serve more than just the IDF. This is the reason for the differentiation." 

It is important to note that the EW layout of the IDF C4I Division is not responsible for the EW suits of such IDF weapon systems/platforms as aircraft or naval vessels. The manufacturers (either local or foreign industries) providing the weapon systems to the IDF are responsible for these suits. 

Unlike other western armed forces, the IDF have a unique operating concept for the EW layout, with the activity divided into three primary axes: attack, defense and electromagnetic compatibility management. In other armed forces, each one of these axes is the responsibility of a separate arm. In the IDF, the entire activity is carried out by the Lotem unit of the C4I Division. 

"Regarding the attack axis, I do not care what the IDF have, but rather what the enemy has. We have communications officers who know how the enemy implements and uses his communication networks and that makes the attack more effective. This applies primarily to offensive electronic warfare against enemy ground forces," says Col. Avi. 

"The second axis of our activity is what we call 'counter-EW'. It is our responsibility to ensure that the IDF develop effective solutions for the enemy's EW attacks. These solutions provide protection for the communication networks of the IDF. In this case, too, owing to the familiarity of our communications officers with the enemy's systems as well as with the systems of the IDF, we know how to provide the manufacturer with a reference threat. 

Israel’s New National Cyber Operations Center

Amir Rapaport 

13/11/2014

A first glimpse at the new operations center known as CERT 1.0. Nir Peleg, senior division head at the National Cyber Bureau explains how the new center operates

In the cyber world, boundaries are blurred and the issue of prompt cooperation is critical,” says Nir Peleg, while presenting the national cyber operations center, established in a trial version during the month of August 2014, for the first time. 

At this stage, the cyber operations center is physically located in a standard-size room at the National Cyber Bureau which resides in a standard high-tech office building in northern Tel-Aviv. There are no signs outside the building to indicate the activities taking place inside. In about a year, the operations center will reside at Cyberpark (the cyber environment combining technological incubators, start-up companies, established IT companies, the Ben-Gurion University and in the future – units of the IDF Intelligence and C4I Directorates that had relocated to the south). The cyber operations center will employ dozens of computer specialists, operating around the clock. 

The threats are very real: Nir Peleg told us that during Operation Protective Edge, for example, the State of Israel was under a constant cybernetic attack. That attack caught the new cyber operations center just as it was setting up the trial version, known as CERT 1.0. 

“We have seen the trend of increase in the number of attacks against Israel as a state and against Israeli websites,” says Peleg. “We have also seen the diversity of the attacks. During Operation Protective Edge, which was a fairly long campaign, many offensive efforts were made, and I think the major challenges are still ahead of us, as it is an evolving, asymmetrical combat zone with no boundaries. Cooperation must be international as well as local, between corporations and organizations. That is the only way in which we will be able to cope with the extensive range and diversity of cybernetic threats that keep growing all the time. 

“This particular space presents a low level of risk to the attackers. The ability to catch and damage them – just like in the physical world – is limited. This encourages the attackers to keep on attacking. At the same time, despite the large number of attacks during Operation Protective Edge, eventually there were no highly irregular incidents, or incidents that had an effect on the functional continuity at the state level. This says something about our situation, as in some areas we provides effective solutions, however we are not looking at the threats of today, but at those we can expect in two to three years from now.” 

Israel’s National Cyber Bureau 

The National Cyber Bureau, established in early 2012 by the Prime Minister, operates along the "seam" between the covert and overt worlds, although the bulk of its activity takes place in the civilian sector. Heading the Bureau is Dr. Evyatar Matanya, formerly the commander of the "Talpiot" program of the IAF and a former senior executive of the Weapon System & Future Infrastructure R&D Administration at IMOD. 

"Operation Protective Edge brought the Future into the Present Reality"

Ami Rojkes Dombe 

16/11/2014

Colonel A., who commanded the IDF electronic warfare center during the Operation Protective Edge, in a rare interview about the center's activity and the implementation of "Network IDF"

The Second Lebanon War was a constitutive event for the IDF C4I Directorate. As far as the technology aspect was concerned, IDF authorities had realized that they must be able to share visual and aural information in real time, all the way down to the tactical echelon. Eight years later, that insight was implemented in the context of Operation Protective Edge – which has also evolved into a constitutive event. This time, the IDF realized that it was necessary to provide the command echelons with a decision support system that would enable flesh-and-blood officers to cope with the flood of information coming in from the field. The fragrance of a technological revolution is evident in the corridors of the IDF C4I Directorate. The name of this revolution is "Network IDF". 

"You cannot look at Operation Protective Edge without referring to Operation Pillar of Defense," says Colonel A., who commanded the IDF electronic warfare center during Operation Protective Edge and today commands the C3 center of IDF Central Command. "Looking through a more farsighted prism, you can say that between the Second Lebanon War and Operation Cast Lead we had closed the gaps in the field of EW and recovered. 

"As far as we were concerned, Operation Pillar of Defense was a model (practice run) and Operation Protective Edge was the actual operation. A technological organization that has the opportunity of running a 'wet' model before actually entering the combat zone enjoys a definitive advantage. During Operation Pillar of Defense, that model was not executed. Eighteen months later, during Operation Protective Edge, it was executed, and we entered it better trained and prepared. As a fire element, you can say that during Operation Protective Edge the Network IDF concept was implemented, and we saw it in the fire employment process. It was the largest network-centric operation we have staged to this day. It brought the future into the present reality." 

Asymmetrical Warfare 

From Weapon Systems to Managed Information Security Services

Ami Rojkes Dombe 

24/7/2014

The technological developments in the field of cyber have compelled the defense industries to change – and fast. "We are competing in an arms race where the bad guys are winning", says Esti Peshin, Director of Cyber Programs at the ELTA division of IAI

"We are competing in an arms race where the bad guys are winning,” explains Esti Peshin, Director of Cyber Programs at the ELTA division of IAI. “You are always one step behind the hackers’ technology. Organizations are beginning to realize that.” 

Peshin explains that one of the main problems faced by the information security world today is the long time constant required for the assimilation of new solutions. In effect, says Peshin, it is a time-consuming process that can take between 18 months and three years. “Information security is like a balloon – a pin is all you need in order to burst it, but in order to protect it you must see to it that the pin cannot be driven into any point in its surface area. The same with cyber. The bad guys have the advantage because all they need is a pin. This is why they are ahead. Organizations are vulnerable and are normally positioned three years behind the hackers.” 

The Transition to Managed Services 

In order to cope with the challenge, organizations implement working methods that would enable them to shorten the assimilation of protective products. One of the solutions is to change from boxes to managed services (MSSP, Managed Security Service Providers). In this way, assimilating a new technology or a new capability can be accomplished quickly. In this configuration, the organization does not install products. Instead, it is remotely monitored by the systems of the service provider. It should be noted, however, managed services are not suitable for every scenario. 

When do you choose managed services and when do you opt for boxes? Well, the main difference stems from the extent of integration of the system you want to protect. Some systems, like CRM, ERP or the billing system are installed at the very core of the organization. These systems are linked to all of the organizational systems and protecting them through managed services will compel the client to expose to the service provider the most sensitive information of the business, a fact that normally does not take place in real life. In such cases, the client will prefer to purchase products, install them on the premises and manage the task of information security on his own. 

Conversely, in the case of such “peripheral” services as IPS, FW or IDS, managed services can provide an adequate solution. In most cases, these services monitor the organization’s incoming or outgoing communication channel, so in the context of this scenario a service provider will be able to protect the organization without the organization having to expose sensitive information to that service provider. 

The working model of the service provider consists of a main operations center that provides services to various subscribers. The service provider ensures the survivability of the services (normally by dispersing the service to several server farms around the world), he ensures that his infrastructure is protected, and most importantly – he keeps the service current with all of the updates and patches, so that the subscriber always benefits from the most current protective service. 

The Objective is National Cyber Warfare Defense

Ami Rojked Dombe 

17/12/2014

http://www.israeldefense.com/?CategoryID=483&ArticleID=3265

Exclusive interview with Brig. Gen. (res.) Yair Cohen, who established the Cyber Division at Elbit Systems

We had met Brig. Gen. (res.) Yair Cohen, VP Intelligence & Cyber at Elbit Systems, about 5 years ago, when Elbit Systems entered the cyberspace field and decided to regard it as a growth engine. This move had been brought about, to a considerable extent, by the encouragement of MAFAT (IMOD's Weapon System & Future Technological Infrastructure Research & Development Administration) and the vision of the group's leadership. A lot has happened since then, and the vision has evolved into a reality. Cohen will be one of the primary speakers at the Israel HLS conference to be held in November 2014 at the initiative of the Israel Export & International Cooperation Institute with support and sponsorship provided by numerous national organizations. 

"Three things have happened," explains Cohen, formerly the commander of the IDF Intelligence Directorate's main SigInt element, Unit 8200. "First and foremost, many people have realized that the existing defensive measures are unsatisfactory. They are improving – but still unsatisfactory. The second element is the gap between the offensive measures and the defensive measures. This gap is growing constantly. You can see it through the incidents reported by the media, and especially through the incidents that are not publicized. A senior US official told me once: 'we built our future on the basis of capabilities that we do not know how to handle'. The third element is the interface between the defense/security sector and the public sector. The Prime Minister's decision to establish a national cyber authority is an example of the attempt to deal with it. It is an interesting decision. 

"There is a difference between the information security world and the cyber warfare world, which is sometimes hard to see. It lies in the different worldview. While information security is intended to provide pinpoint solutions to specific problems, cyber solutions are comprehensive. The cyber world we aim at deals with an integrated solution for a state or a military organization. In today's world they still rely on pinpoint defensive measures – and that is not enough." 

What is the difference between the situation today and the situation that has existed with regard to nuclear weapons? Back then they had also developed a technology that until this day they do not know how to handle 

"It is, without a doubt, an interesting analogy that keeps many people around the world preoccupied. A few years ago there was talk about the USA and Russia intending to set up a 'red phone' link for any eventuality of a cyber warfare attack, like the one set up to deal with a situation of the use of nuclear weapons," says Cohen. "At the same time, cyber warfare is more problematic, as the destructive potential of a cyber warfare attack is equal to or greater than that of an atom bomb. It involves damage to critical systems that control such basic resources as water, gas, electricity and so forth. The most substantial damage is inflicted mainly on civilian infrastructures – more than on military infrastructures. 

Sony Hack Attacks Presage New Warfare: The Weaponization of Code

Source Link

12/16/2014 

North Korea is a miserable, backward, hellhole of a place. It has a per capita GDP ofless than $2,000 -- trailing Yemen, Tajikistan and Chad -- and about one-sixteenth the size of the GDP of South Korea. The Hermit Kingdom derives its power through the twin pillars of state repression and an all-encompassing propaganda apparatus.

This poor, delusional country managed to wallop Sony after it objected to the content of some movie which I can't remember the name of at the present moment but which looks boring and stupid. Most of the press reporting is about the compromise of celebrity emails and some Hollywood chitter-chatter. Nobody will remember or care about these emails or chitter-chatter in a week.

What is important is that these hacks presage what is going to happen for years to come and at far greater cost than what is being imposed on Sony. We have had a good 20-year run since the advent of the commercial Internet, during which the worst that comes from our connectivity is (for the most part) spam, occasional identity theft and lots of time wasted on click-bait.

The weaponization of code is the most significant development in warfare since the weaponization of fissile material.

Sadly, there are few barriers to entry in the domain of cyber war. Any country that puts a little bit of time and effort into it can develop some pretty nasty offensive capabilities. It is not like the development of nuclear arms, which requires years of work, billions of dollars and access to the scarcest of scarce scientific talent and transuranium elements. Don't want to invest the time or effort? That's okay -- today'sLégion étrangère is the black hat hacker -- available on a fee-for-service basis. Just wire the money and they'll start shooting in the direction you point toward.

The very nature of cyber conflict shifts norms in transnational conflict. It is no longer just sovereign nation state versus sovereign nation state. The guys wearing blue uniforms versus the guys wearing red uniforms. No, increasingly cyber conflict will be directed from a country toward a company and from a company toward a country.

DOES THE ARMY PROMOTE COMPETENCE IN ITS OFFICERS?

By Maj. Melanie S. Kirchhoff

Does your heart swell with pride when you hear the words profession of arms, or do you find yourself scoffing at its inherent idealism? Presentations on the subject may make us feel proud of our profession, but we might not be meeting the levels of professionalism and esprit de corps that our profession demands. We must have faith in ourselves as professionals to manage our own field of expertise as well as give the community reasons to have that same faith in us.

The profession of arms calls for three Cs: character, competence and commitment. We are professing our expertise and professionalism without adequately measuring our current status in these areas. If true character, competence and commitment do not measure up to the profession of arms’ message, we stand to lose the faith and trust of the community as well as the interest and enthusiasm of our soldiers and leaders.

A quick search on the profession of arms will bring up a great deal of fascinating investigations and writings on Army ethics relating to character. These studies point to the importance of good moral character in Army officers for a multitude of reasons. There is not as much written in current literature, how-ever, about competence and very little about our current levels of competence (competence being defined as an underlying characteristic related to effective or superior performance).

Why talk about competence? As the Army continues to pursue higher levels of professionalism and performance, it is critical to ensure that officer competence is understood in the context of Army culture and that it is effectively identified, recruited, trained, retained, rewarded and promoted. That is a vast and complex task, but the Army does it well on many fronts.

We need to ask ourselves two fundamental questions: 1) Does the Army, as an institution, value competence in its officers? 2) Does the Army, as an institution, promote competence in its officers? Only from there can we begin to assess the Army’s success at fostering and developing the competence necessary to call itself a profession.

We can narrow down the aforementioned questions even further: 1) Do established leadership development processes provide accurate tools for identifying competence and incompetence? 2) Are these tools being used to promote competence? 3) Does the Army reward competence in individual officers? 4) Is officer incompetence tolerated in the Army? If so, why? Is Army culture a factor?

Interviews and surveys with a number of field-grade and senior officers indicate that the Army does, in fact, promote competence in its officers. Not only do senior officers and Command and General Staff College students agree that overall, the Army promotes competence, but the list of Army practices virtually mirrors the Fortune 500 companies’ best practices for developing leaders. The evidence identifies certain areas for improvement, however, as well as some outright failures in the system.

Survey Results

Potential Conflict Powderkegs in 2015

Gregory Viscusi and Nicole Gaouette

The World Hot Spots You’ve Never Heard of That Could Ruin 2015

These places risk becoming household names in 2015. Can’t locate them on a map? Well, a lot of people couldn’t have found Donetsk in Ukraine or Raqqa in Syria as 2014 got under way.

As experts debate potential nasty surprises in 2015, certain scenarios keep coming up: a naval incident between China and one of its neighbors over a series of sparsely inhabited islands. A renewed push by Islamic rebels in Libya’s lawless south into West Africa. An implosion in North Korea.

Other possibilities include a Russian push into the Baltic countries, a third Palestinian intifada, an Israeli strike against Iran and a continued fall in oil prices that destabilizes countries from Russia to Venezuela.

“You can never predict the next crisis, but you can see some regions that are spring loaded,” said Michael Clarke, director general of the Royal United Services Institute, a research group, in London. “You don’t know where the mouse will pop up, but you know where the traps are set.”

Few analysts predicted that a disavowed trade pact between the Ukraine and the European Union would turn into the tensest standoff with Russia since the end of the Cold War. And the strength of Islamic State was underestimated in many corners of the world before its successful onslaught into Iraq.

“Geopolitical risk is going to be very prevalent next year: None of the conflicts from this year, whether it’s the Ukraine, Middle East or disputes between China and Japan, have been reconciled,” said Russ Koesterich, chief investment strategist at New York-based BlackRock Inc. “These frozen conflicts will be with us for some time and they’ll keep cropping up the way they did in 2014.”

CRASHING CURRENCIES

Unrest could also arise via planned elections from Israel to Greece to the U.K., where extremist parties threaten to disrupt the established groupings. Falling oil prices already pushed Russia’s ruble down 52 percent this year and Venezuela’s bolivar has fallen about 65 percent on the black market. Swaps traders are overwhelmingly betting that Venezuela will default.

COUNCIL ON FORIEGN RELATIONS

The northern reaches of the planet are melting at a pace few nations can afford to ignore, yielding potentially lucrative returns in energy, minerals, and shipping. But debate is mounting over whether the Arctic can be developed sustainably and peaceably. 

The remote latitudes of the Arctic have long been a province of natural beauty, high adventure, and untold riches. For centuries, mariners risked their lives plying the frigid waters and frozen expanses in search of new territory, trade routes, and treasure for king and country. Where a few, like Norwegian polar explorer Roald Amundsen, triumphed over uncommon challenges, many others, like British rear admiral Sir John Franklin, suffered tragedy and defeat. With rare exception, much of the promise of the Arctic remained out of reach, encrusted in the polar ice.

In the twenty-first century, many experts believe that climate change, technological advances, and rising global demand for resources may at last unlock the considerable economic potential of the Circumpolar North. The melting of Arctic sea ice to record lows in recent years has prompted many nations, principally those with Arctic Ocean coastlines—the United States, Canada, Russia, Norway, and Denmark (Greenland)—to reassess their commitments and interests in the icy reaches atop the globe.

Many forecast Arctic summers will be free of ice in a matter of decades, potentially opening the region up to hundreds of billions of dollars in investment, including energy production, shipping, and fishing. The thaw will also pose new security demands as greater human activity induces states to increase their military and constabulary presence. While most experts dismiss the prospects for armed aggression in the Arctic, some defense analysts and academics assert that territorial disputes and a competition for resources have primed the Arctic for a new Cold War.

Meanwhile, environmentalists are concerned that a new era of Arctic exploration and development could spoil one of the planet’s last great frontiers, a pristine habitat home to iconic wildlife and native communities that have subsisted there for thousands of years. Climatologists warn that the extraction of Arctic fossil fuels will contribute to global warming at a time when they believe nations should be paring back greenhouse-gas emissions and pursuing alternative energy sources.

But for many, the debate is less over whether the region should be developed, but rather if it can be done sustainably and peaceably. The Arctic is emerging on the world stage, and it is not yet settled whether businesses, governments, and other operators can fully manage the unique risks it poses.

I want to stress the importance of the Northern Sea Route as an international transport artery that will rival traditional trade lanes.

A Thawing Arctic