BASRA: ONE YEAR AFTER CHARGE OF THE KNIGHTS

C O N F I D E N T I A L SECTION 01 OF 03 BASRAH 000017

SIPDIS

E.O. 12958: DECL: 4/09/2019
TAGS: PGOV PREL ECON EINV MARR IZ
SUBJECT: BASRA: ONE YEAR AFTER CHARGE OF THE KNIGHTS

REF: A. Basra 15

B. 08 Basra 26

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CLASSIFIED BY: Ian Sheridan, Economic Officer, ECON, State
Department.
REASON: 1.4 (b),(d)




1. (C) Summary. One year after the Iraqi Army (IA) routed
militia groups (with US and UK military help) during Operation
Charge of the Knights (CoK),Basra Province has stabilized.
Continued gains in security, a boost to investment, and
improvements in governance appear tantalizingly possible.
Violence increased again, however, shortly before the March 31
transition from British-led MND-SE to American-led MND-S
command, showing that militia cells and the conditions that feed
them are still present. Basrawi voters rewarded Prime Minister
Maliki's decision to authorize CoK by voting heavily in January
for the Da'wa-led State of Law coalition, which will govern the
province with an absolute majority. The prospect of a united
provincial governing team that can work well with Baghdad augurs
well for a province that has suffered from divided, ineffective
and corrupt government, but inexperience and schisms within
State of Law cause concern. With a firmly loyal Iraqi Security
Forces (ISF) and provincial government, Maliki has the
opportunity to deliver peace and prosperity to a devastated,
strategically vital city that is still just a shell of its
former self. But Baghdad's plans for Basra are still unclear.
End Summary.

The Impact of Charge of the Knights
--------------


2. (C) The Charge of the Knights, initiated in late March 2008,
changed the fortunes of Prime Minister Maliki, Basra, and Iraq
as a whole by removing Sadrists militias from the city and
particularly from control over its ports and related government
agencies. In recent discussions with poloff, Iraqi intel and
Ministry of Defense officials estimated that pre-CoK militia
revenues from Basra ran between five and ten million USD per
month, and had been used to fund activities countrywide. (MoD
Advisor Majid as-Sari told us that intercepted telephone
conversations had indicated that the Office of the Martyr
Sadr/Najaf received a two billion ID monthly share; other
provincial OMS offices and SG cells also received money
regularly.) These funding sources, once removed, have never
been replaced. The early stages of CoK were highly disorganized
and required much American and British help (ref C). This is
not widely recognized by Basrawis, however, who overwhelmingly
credit Maliki for the operation's success. MND-SE and MNF-I
polling shows that Basrawis highly rate the ISF's ability to
provide security (over 80 percent express support) and see
little need for a continued American military presence beyond
providing training. As a result,
the aggressive ISF Provincial Operation Command center, so
controversial in other provinces for its direct links to the
Prime Minister, is widely accepted in Basra. Even incoming ISCI
Provincial Council (PC) member Furat al-Shar'a, a sharp Maliki
detractor, praised the ISF command in a recent meeting with
poloff.

Maliki's Reward
--------------


3. (C) The Prime Minister was rewarded for CoK with the
overwhelming victory of his State of Law list, which won 20 of
35 seats in the January provincial election. Maliki's wave of
post-CoK support grew gradually. In summer and fall 2008,
politically non-aligned Basrawi leaders consistently complained
to us about the Prime Minister, the mismanagement of $100
million in post-CoK reconstruction funds by Dr. Safa as-Safi,
and the general lack of services. But by year's end, after a
few months of peace and quiet, many detractors, such as leading
cleric Abdel al-Moussawi and even outgoing Governor Mohammed
Wa'eli (Fadhilah),began conceding praise to the Prime Minister.
Others, such as Sheikh Sabah Armash Taki al-Maliki, moved 180
degrees from indignant hostility in our June 2008 meeting (for
misusing tribal support) to outspoken boosterism in early 2009
(for beginning to deliver services in the marsh areas). In the
run-up to election-day, it was apparent that State of Law's
stock was rising in a hurry.


4. (C) The province's governing team has not yet been announced,
but most of our sources believe that State of Law will hold off
efforts by ISCI/Badr and a motley collection of smaller parties
to peel away the Da'wa-led coalition's "Independents" branch and
thereby form its own ruling coalition (ref A). Southern Oil
Company Chief of Operations Dayaa Jaafaf Hajham and Dr. Chaltag
Abud, both from Da'wa Central, are the two leading
Maliki-approved candidates who could be appointed Governor. PC
members from rival parties consider the former to be the more
likely choice due to his management experience and more secular

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public image. In three meetings with the REO and poloff over
the past two months, Dayaa has given the impression that he
would be a competent, nationalistic, U.S.-friendly technocrat.
He is new to politics, however, as are nearly all the 20 new
State of Law PC members, and their ability to govern effectively
is open to question. State of Law's main asset will be its
close relationship to the Prime Minister, and the presence of
coalition-affiliated ministers in the crucial Oil, Trade,
National Security, Education, and Electricity ministries.

Still Tense
--------------


5. (C) State of Law (as well as the incoming MND-S command) will
inherit an economically devastated province in which militia
violence is still feared. Basra, which until 2003 resembled
Baghdad in its relatively cosmopolitan outlook, now looks and
feels much more like Diwaniyah or Nasiriyah than the capital:
buildings are pockmarked and crumbling, women dress mostly in
abeyas, entertainment (and alcohol) is extremely difficult to
find. Although indications of the more open, tolerant Basra
began to emerge after CoK, in March 2009 the militias who were
responsible for much of Basra's previous transformation and
deterioration began to resurface. Over 50 IED explosions were
recorded for the month, and sporadic rocket fire at the
Coalition Operating Base returned. Many, perhaps most, of the
attacks target Iraqis: on April 4, 2009 an IED was found on a
downtown street where Governor Wa'eli and his motorcade were
supposed to travel later that day.


6. (C) Militia activity is highly fractured and difficult to
trace, but several sources -- Col. Hazim from Fusion Cell, Majid
as-Sari from MoD, Awad al-Abdan from National Dialogue Front --
recently told us that Ketaib Hezbollah (not Jaysh al-Mahdi or
its Promised Day Brigades) is the most prominent militia group
operating currently in Basra. Many former insurgents have
returned to Basra in recent months, risking arrest by an active
ISF corps. One OMS leader, Mohammed al-Furayji, has complained
to REO staff recently that he has more members returning than he
can track and control. The increase in violence and the return
of former militia members have created resistance within the ISF
and local Da'wa leadership to efforts by the Prime Minister's
office to speed the release of Sadrist detainees.

Prospects for Growth
--------------


7. (C) Basrawis universally emphasize that jobs and economic
growth are key to stopping militia activity in the long-term --
and vice-versa. Broad-based economic growth should eventually
take the critically important young male population off the
street; more security, in turn, will set the stage for
investment. According to the PRT economic team, visits by
investors to the Province, the Basra Investment Commission and
the PRT are now running at about three per week, compared with
few or none eight months ago. And they're not just interested
in oil and gas, but also hotels, the airport, the port, a steel
plant, and other things. However, there has been little actual
investment so far. While some investment projects are ready,
submitted and awaiting approval, many prospective investors
indicate that they will need to see more durable and sustainable
stability and growth before they commit themselves to Basra.


8. (C) The oil sector is central to both Basra and Iraq in
general. Around two-thirds of Iraq's GDP and 90% of GOI revenue
is obtained from this sector; of this, about 70% of reserves and
85% of exports go through Basra Province. However, while the
oil is largely located in Basra, decisions related to the sector
are out of the province's hands. With the exception of oil and
gas service contracts, big oil and gas projects are negotiated
in Baghdad, not Basra. Nonetheless, oil services companies are
determined to establish a presence in Basra, and are ready to
improve South Oil Company's failing production infrastructure.

Iran Investment Controversial
--------------


9. (C) Investment by Iraq's neighbor to the east is more
controversial and, to most, far less welcome. Iranian
investment interest in the region has increased in the past year
-- most visibly through the Basra Investment Commission's
February approval of a $1.5 billion license for an Iranian
company to build housing and hotels (ref A). This project still
awaits GOI final approval, and we have heard that the original
investment could be scaled back from around $1.5 billion to
perhaps around $700 million. Many contacts blame Iranian real
estate purchases for having increased the price of housing in
Basra; likewise, Iranian agriculture is blamed for undercutting
local competition. Basrawis, who suffered disproportionately
during the Iran-Iraq War, are generally uncomfortable with any
Iranian influence, even apparently legitimate economic activity.
Fears of Iranian control helped sink Governor Wa'eli's late

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2008 efforts to force a referendum on region formation, since
most residents were not confident in the ability of a
prospective Basra Regional Government to defend itself (ref B).
Anti-Iranian sentiment also sunk the electoral chances of the
ISCI/Badr-led Shahid al-Mihrab list, which fell from 20
provincial council seats to five in the January election.

The ISF
--------------


10. (C) Iranian training and supplying of insurgents continues,
and Basrawis almost universally welcome American training of the
ISF to combat this threat. The Basra ISF, led by 14th IA
Commander MG Abd al-Aziz al-Dalmi, are widely respected in the
province; their success in providing security during the
provincial election season only enhanced their reputation. The
ISF in Basra, and especially the IP, are a delicate mix of Sunni
and Shi'a, Badr members and hypernationalists, tribal and urban,
Da'wa and Fadhilah. ISF reform will be contentious within the
new government, since many have called for the removal of Badr
members while other press for the reinstatement of Ba'athists.
Incoming council members Furat al-Shara (ISCI) and Hassan
al-Rashid (Badr) recognized the dilemma in meetings with poloff.
If the Prime Minister and the ISF command are able to remove
ISCI/Badr members as they prefer, it could affect security,
since Badr still receives funding from Iran.

Comment
--------------


11. (C) Its security gains suggest that, for Basra, the cup is
half full. However, it does not follow that filling the rest
will be easy or rapid. Investors will be cautious. The
province faces a long slog to generate growth from its own
sources, especially in the absence of a mature banking system or
a national strategy to assist agriculture. According to the
PRT, the new Provincial Council faces a fiscal dead-end; it
appears that its 2009 capital budget will not even cover
existing contract commitments. The PRT can build on some UK
initiatives, especially its aid to the Basra Investment
Commission and its business microcredit program. It will also
get a shot in the arm with access to U.S. military resources for
reconstruction. The new Provincial Council must face high
expectations in a dilapidated city, where corruption and bad
management continue to obstruct good government. The real
impetus must come from a smart Provincial Government and local
entrepreneurs. We will continue to work with them, while
reminding them that USG funds are dwindling and our focus is on
the GOI's own capacity-building. End comment.
NEGRON