Sunday, February 10, 2008

Internet interruption in the Middle East looks fishy

Using the Internet as a weapon

Internet interruption in the Middle East looks fishy

By John C. Dvorak

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Nobody knows what caused the cut cables in the Mediterranean that interrupted Internet service to parts of the Middle East last week, but there are now conspiracy theories galore written by bloggers and pundits.

Some say it will benefit terrorists and Iran somehow. In fact, the cut cables -- originally blamed on ships dragging anchors -- look more like a ploy by some intelligence agency to disrupt Iranian commerce, specifically an emerging oil bourse that the Iranians have been quietly establishing and hoped to roll out fully in the next 60 days.

This concept seems a little farfetched until you look at the details which were provided to me by one of my readers, Martin Kuplens-Ewart who has been following the story from the outset. He notes: "there is a substantial event that has effectively been killed by the loss of connectivity: the launch of the Iranian Oil Bourse.

"A marketplace for oil, gas, and various petrochemicals, the Iranian Oil Bourse would trade exclusively in non-dollars and probably substantial negative impact to the U.S. economy and financial system. The bourse was scheduled for launch this week (between Feb. 1 and 11. With complete elimination of Internet connectivity to the country, this launch is now impossible and unlikely to be achievable before month's end (given the estimate 10-14 days for repairs to fiber-optic cables)."

He cites various articles expressing the mystery behind the cut cables and describing the bourse and its overall threat to the U.S. economy, as well as how the thing could backfire, ruining the Iranian economy. See Seattle Times article. See World Press article. See Energy Bulletin item.

The second bourse article, written in 2005, discusses the early planning for the bourse and suggests or wonders if someone might take some covert actions against it.

Communication breakdown

In most instances Internet connectivity can be rerouted, and much of the Middle East has already done this. But what makes this situation unique is that the bourse was being established on Kish Island, a free-trade zone set up by the Iranians in hopes of creating a cool tourist destination.

For an example of what they are up to check out the Web site for one of the new hotels here. See link to Dariush Grand Hotel.

There doesn't seem to be an alternate Internet connection to the island other than the cut cables. I attempted to email the three top hotels on the island and all the email bounced. I was also unable to make a telephone call there indicating a large telecommunications failure.

The Web sites for the hotels are likely to be hosted off the island and are still working.

This sort of telecom and Internet failure/collapse, no matter what the cause, is unlikely to give anyone confidence in an international oil trading system on Kish Island. Too much money is at risk. The island obviously needs satellite access or some form of connectivity back up that is foolproof.

There has always been talk about disrupting commerce by screwing up the Internet. We've just seen a proof of concept, whether done on purpose or by accident.

It doesn't make a lot of difference how it happened if we want to learn a lesson as to how delicate the Internet mechanism can be.

If the cut cable was done on purpose you can expect the U.S. to get blamed although it could have just as easily benefited Britain, China or even Saudi Arabia for that matter. I'm guessing we will never know how it happened or who suffered the most. All I can say for sure is that it does look fishy.

More importantly, investors should know more about this sort of risk and which companies in their portfolio could suffer a negative impact from this sort of event.

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