Conference: America and Europe: A Time For Unity, A Time For Vision 21-22 Feb. '97

Panel Five: Sharing Hopes and Ambitions: Meeting External Challenges "The Middle East and the Gulf"

Executive Summary Despite the complexity of the numerous problems and challenges facing individual nations in the Middle East, definite regional trends that foreshadow a politically and economically difficult future for the area as a whole have surfaced. These trends warrant more serious U.S.-European dialogue and even concerted action-regardless of the fact that the two parties have different interests and priorities in the region-because ultimately, the forces driving these problems may intensify the instability and violence in the most heavily armed region of the world. Such an outcome will significantly impact U.S. and European energy, defense, and foreign policies; thus, a better understanding each other's positions and strategies as well as steps toward a level of unity in dealing with these problems are critical. In the long term, the most dire challenges facing the Middle East are economic and demographic. Lagging economic development is a result of a number of factors including population growth, low oil prices, continuing conflict, outdated (and unsustainable) welfare programs, and nepotism. Absolute growth, real per capita income, and productivity are bleak when compared to most other developing regions. The region's demographic trend-a rapidly growing population that is disproportionately young-will continue to seriously exacerbate problems in infrastructure development and job creation. Policymakers in the United States and Europe must also address the host of shorter-term problems that plague the region. Priorities should include the Arab-Israeli peace process, the Islamic movements and civil wars continuing in North Africa, the "rogue states" of Iran and Iraq, arms sales, terrorism, and proliferation in the region, and growing U.S. and European dependence on Gulf energy resources. Although even the best concerted U.S.-European effort will not prevent some of these situations from reaching the crisis stage, it is in the best interests of both the United States and European nations to improve Transatlantic cooperation. In this context, question participants may want to address include: (1) What elements are needed to develop a coordinated U.S.-European work plan to assist Israel and its Arab neighbors to continue working toward the final settlement issues, to resolve the future of Lebanon, and to establish a workable peace between Israel and Syria? (2) How effective is the U.S. policy of "dual containment?" And are European nations too tolerant of Iran and Iraq as a result of economic and energy interests? (3) Are market forces able to handle the international energy supply and demand effectively-as the U.S. and Europe believe-or should alternative strategies be devised to deal with unexpected energy crises? (4) What actions, if any, can the US and Europe take to limit exports of arms to the most dangerous states in the Middle East and to develop a transatlantic approach to the problems of proliferation in the region? (5) What strategies might be formulated to assist the Middle East in alleviating the structural economic and demographic problems that are plaguing the region? European nations and the United States face an increasing complex set of challenges in the Middle East. Some of these challenges are structural and region-wide: They include broad economic and demographic problems that set the stage for extremism, instability, and violence. Other challenges are more specific. The Arab-Israeli peace process is faltering and the Coalition's victory in the Gulf War has not brought stability to the Gulf, or led to a lasting unity within the West. Dependence on Middle Eastern oil exports is increasing at a time when Europe and the United States have declining readiness for energy emergencies, less flexibility in reducing their dependence on energy imports, and declining power projection capabilities. Islamic extremism, failed or weak secular regimes, and economic and demographic problems affect the internal security of a wide range of states, including Algeria, Bahrain, Egypt, Libya, and Saudi Arabia. Terrorism presents a growing challenge and creeping proliferation is adding a major new threat to one of the world most heavily armed and violent regions. Differences in American and European Interests and Perspectives The Middle East is a region where the U.S. and Europe have important differences in the strategic interests, diplomatic priorities, and political and economic interests. US ties to Israel, for example, are much stronger than those of any European or Asian state. The US emphasis on sanctions, "dual containment," and labeling Libya, Iran, Iraq, and Syria as terrorist or rogue states has some support from Britain, but little support from other European countries. Europe is emphasizing trade, arms sales, and critical dialogue at a time when the US is emphasis strategic stability and power projection. There also are divisions within Europe. Northern Europe tends to place more emphasis on human rights issues and non-proliferation. Central and Southern European states place more emphasis on trade, energy supplies, and arms sales. Key nations like Germany place their strategic emphasis on Eastern Europe, the expansion of NATO, and the FSU while Mediterranean and Southern European nations like France, Portugal, Spain, and Switzerland are far more concerned with the risk of instability in North Africa and of increased problems with Arab immigration. There are significant differences within given Western nations over the seriousness of the threat posed by terrorism, proliferation, arms transfers, and the transfer of dual-use technology. The US Congress, for example, has tended to take a harder line on Iran than the Executive Branch. In contrast, the intelligence and judicial branches of the French and German governments have shown more concern with Iran's sponsorship of terrorism than their respective foreign offices and political leadership. There are often significant internal differences within governments and industry over the control of dual use technology and the emphasis that should be given to strengthening the enforcement of various arms control treaties affecting the Middle East -treaties and agreements like the Missile Technology Control Regime (MTCR), Nuclear Non-Proliferation Treaty (NPT), Chemical Weapons Convention (CWC), and Biological Weapons Convention (BWC). Similar differences exist over the extent to which the revival of Islam poses a threat to the West, and whether the West should provide direct support to secular regimes, whether repressive or not, in suppressing Islamic movements. In contrast, Western governments are united in giving steadily less de facto attention to energy planning at a time they project a steady increase in dependence on Middle Eastern exports of oil and gas. The West is becoming increasingly dependent on market forces to deal with energy emergencies, and energy supply and demand balances. Although the OECD has a formal agreement for responding to energy emergencies as part of the functions of the International Energy Agency, member states have steadily reduced their inventories of oil and strategic reserves, and have steadily increased their dependence on the on-time flow of oil without significant interruptions. OECD nations do not project significant further oil import savings from conservation and alternative energy supplies. All members tacitly or overtly assume that market forces will ensure suitable export availability at affordable prices. These differences in the European and American perspective towards the Middle East are not the product of inattention or misunderstanding. They reflect the steadily growing complexity of the regional problems in the Middle East. In the short term, the West faces immediate problems in dealing with the Arab-Israeli peace process, Iran and Iraq, proliferation, Islamic extremism, and terrorism. In the mid to long term, the West must also deal with the problem of energy dependence, the failure of regional economic development, growing demographic problems, and the need for political reform. It is far from clear that Europe and America can agree on any unity of action in dealing with this complex matrix of challenges. There are, however, many specific areas where common action may be possible. At a minimum, Europe and America need to understand each other's perspectives and different interests. The Middle East seems likely to grow steadily more volatile in the near and mid-term and may become a serious source of tension between North American and European states unless a concerted effort is made to improve the depth of Transatlantic dialogue and cooperation. Underlying Economic and Demographic Problems Shaping the "New Middle East" It is tempting to concentrate on the immediate issues that affect the stability of the Middle East, and which are the key source of the present tensions between Europe and North America. At the same time, such a narrow focus ignores the key structural pressures affecting the region's politics and economics and which have been the focus of attention by the World Bank and IMF. It also lends itself to treating Islam or a "clash of civilizations" as the source of the region's problems rather than deal with the root causes of the region's problems. Accordingly, any European and North American effort to examine the need for better Transatlantic coordination and communication must recognize that major region-wide economic and demographic challenges affect the search for unity and a common vision. Lagging Economic Development There are many national, ethnic, and sectarian reasons for tension and conflict in the Middle East, but the region faces broad structural economic problems that reinforce these individual causes of tension. These problem also do a great deal more to explain the revival of Islam and tensions in the region than mysterious "clashes of civilization." The Middle East lagged behind East Asia and most other developing regions in absolute growth during the 1980s and has lagged badly in per capita income. Further, population growth, low oil prices, and conflict have meant that Middle East has lagged in the growth of real per capita income. The real per capita income of all developing countries rose by 3% annually over the period from 1980-1991, and the real per capita income of East Asia rose by an average of 5.6%, while the real per capita income of the MENA region dropped by an average of 2.7%. The Middle East was the only region in the world to exhibit a net drop in productivity from 1960-1990, and the productivity of the MENA region dropped by around 6% while East Asian productivity rose by 54%. Many of these economic problems were self-inflicted wounds. Conflicts heavily affected the economies and societies of Algeria, Djibouti, Iran, Iraq, Kuwait, Saudi Arabia, Somalia, Sudan, and Yemen. Middle Eastern states are still heavily dependent on state-managed economies, protectionism, and complex mixes of bureaucracy, licensing and permitting barriers, nepotism, monopoly, and corruption. Algeria, Egypt, Israel, Jordan, Mauritania, Morocco, and Tunisia have made some progress because of structural economic reform, but none have fully executed reform or done so on a sustained basis. Privatization is grindingly slow, major barriers exist to efficient internal and external investment, and regional economic summits have done little to remove major barriers to intra-regional trade and investment in a region with one of the lowest volumes of intra-regional trade in the world. Demographics and Population Growth Regional demographic trends that have created a very young and rapidly growing population which may well limit or prevent development unless there is drastic and sustained economic reform. Algeria is a particularly critical case. It grew from 25 million in 1990 to 28 million in 1995, and is projected to rise to 39 million in 2010. Egypt grew from 54 million in 1990 to 58 million in 1995, and is projected to rise to 63 million in 2000, and 73 million in 2010. Libya will nearly double during 1990-2010, Morocco will rise from 25 to 35 million, and Tunisia will rise from 8 to 12 million. Population growth threatens Syria's development. Syria grew from 12 million in 1990 to 14 million in 1995, and is projected to rise to 20 million in 2005 and 23 million in 2010. Jordan grew from 3.2 million in 1990 to 4.4 million in 1995, and is projected to rise to 5.1 million in 2000 and 6.7 million in 2010. The demographic problems of the Palestinians are reaching the crisis point. Gaza's population grew from 610,000 in 1990 to 795,000 in 1995, and is projected to rise to 953,000 in 2000 and 1.37 million in 2010. The West Bank grew from 916,000 in 1990 to 1.15 million in 1995, and is projected to rise to 1.37 million in 2000 and 1.84 million in 2010. These demographic trends mean that most of the Gulf has, or will, lost much of its oil wealth measured in terms of per capita income. Population growth, swings in oil revenues and war have combined to cut Saudi real per capita income to levels well below 50% of the peak level in the mid-1980s. Iranian real per capita income has dropped to the pre-oil boom levels of 1972. Iraq's real per capita income dropped 50% between 1980 and 1989, and the imposition of UN sanctions has since cut it to the crisis level. Iran grew from 56 million in 1990 to 65 million in 1995, and is projected to rise to 75 million in 2000 and 96 million in 2010. Iraq grew from 18.1 million in 1990 to 21.0 million in 1995, and is projected to rise 32.5 million in 2010. This population growth is creating major problems in construction, infrastructure, water, education, job creation, import, desertification, and social stability for all countries in the area. At the same time, the combination of population growth and the previous problems in economic growth limits the ability of governments to meet expectations -- particularly among the youngest and most politically volatile portion of the population. It exacerbates the impact of the failure of most governments to broaden their political base and "legitimacy." It discredits popular confidence in secular solutions to social and economic problems. It makes it difficult or impossible to couple peace and prosperity, and it encourages political and religious radicalism. The "Youth Explosion" Economic and demographic trends, and the failure of regional governments to deal with social and political change, have created a potential "youth explosion" in a region where projected future declines in the rate of population growth will not affect the region for a decade or more. Today, nearly 40% of the population is under 14, the educational system is breaking down and is often irrelevant to global competitiveness. Roughly 15-20% of the population must leave home in the next five years, and direct and disguised native unemployment among young men averages 25% to 40%, with little improvement in sight. Islamic extremism and other forms of political radicalism are further encouraged by government policies that result in: Lack of effort to educate population in need for family planning and official denial of the seriousness of the problem. Failure to perceive that the Middle East must train its youth to be globally competitive with youth in lead developing countries such as those in East Asia. Breakdown and/or gross over-crowding of schools. Underpayment of teachers and a shift to lower cost, lower quality contract teachers in many Gulf states. Severe cutbacks in the number or value of scholarships and education abroad. Shift to Islamic education in some states without regard to lack of relevance to real-world economic needs. Failure to anticipate housing needs and plan for the impact of population growth. Over-reliance on foreign labor in the Gulf states -- often coupled to cultural and economic barriers to the entry of younger nationals into the work force. Failure to educate women and/or use them effectively in the labor force. Use of state employment and the military to create meaningless "non-jobs" that do not develop skills or a work ethic. Tolerance of nepotism and influence to create further "non-jobs". Concentration of new jobs in service industries whose primary function is to increase the need for imports. Exacerbation of ethnic and sectarian problems through economic discrimination against youth in "have not" groups. An employment climate that often means years of waiting for jobs after education and/or years in non-productive jobs that destroy work ethnic, provide no real training, and waste educational skills. Systematic lack of economic rewards for productivity and efficiency. Beyond Democratization, Human Rights, Legitimacy, Islamic Extremism, Terrorism, Alienation, and Clashes of Civilization These structural economic and demographic problems do not make near-term political and security problems less important. The West does faces the kind of region-wide political and ideological challenges that have become the focus of such political "buzz words" as "democratization," "human rights," "failed states," "rogue states," "legitimacy," "Islamic extremism," "terrorism," "alienation," "the new Middle East," and "clashes of civilization." But, the scale of these economic and demographic problems illustrates the fact that any American and European approach to the Middle East that focuses solely on short-term issues is not a basis for long-term policy or meaningful unity of action. Policy dealing with the Middle East cannot afford the luxury of over-simplification or unsustainable optimism based on solutions to part of the problem. These economic and demographic problems also demonstrate the danger of assuming that radicalism and extremism in the region is simply the product of culture and religion, or that peace negotiations and political reforms alone can bring stability. They show that failed secular regimes and ideologies have almost certainly done far more to cause the region's problems than Islam, and illustrate the risks that efforts at democratization that do not follow economic reform may well turn into "one man-one vote-one time." The West cannot hope to create a stable flow of oil and gas from a region with over 60% of the world's proven oil reserves without considering how the West can best encourage economic reform and reductions in population growth. The Reversible Arab-Israeli Peace Process At the same time, Europe and North America face a wide range of short-term problems that require immediate efforts at improved coordination and communication. It is all too obvious that that issues like peace negotiations, arms control, "dual containment," proliferation, terrorism, power projection, energy, and trade are a source of growing tension between Europe and North America. The Arab-Israel peace process is a grim demonstration that there is neither a new world order or an end of history in the Middle East, and that peace is anything but irreversible. In fact, a December public opinion poll in Israel found that 63% of Israelis feared the prospect of another war. Yasser Arafat has publicly threatened a "new Intifada," Egypt has talked about exercises targeted on the Israeli "threat," and both Israel and Syria have exchanged threats over the Golan and Southern Lebanon. No workable political and diplomatic base now exists for a coordinated European and American effort to help Israel and its Arab neighbors to move on to the final settlement issues, resolving the future of Lebanon, and establishing a workable peace between Israel and Syria. The US interest in Israel and the European focus on the Arab world has lead to natural divisions in policy and these divisions affect Middle Eastern states than are not involved in the peace process -- particularly in the Gulf. Yet, today's problems are only the prelude to equally serious future problems in the peace process. These include the "final settlement issues," the future of Lebanon, and economic integration and coordination. Further, the peace negotiations have so far only touched upon the issues of conventional arms control and the problem of proliferation. The Continuing Crisis in North Africa It is unclear whether Europe and American can create a common policy towards North Africa, but it is all too clear that the area is volatile. Algeria and Libya are now experiencing serious problems with Islamic movements and extremists, and a major civil war continues in Algeria. Morocco, Tunisia, and now Algeria are taking important steps to implement economic reform, but progress is slow and is heavily dependent on national persistence and external economic factors. Libya remains isolated by UN sanctions. At the same time, some European states are heavily dependent on Algeria and Libya for energy exports and that most Southern European states fear the kind of Islamic extremism that might drive waves of new immigrants across the Mediterranean. There are serious divisions between the US and many of its European allies over how to deal with the these problems. The US and Britain are more hard-line in deal with Libya while the US tends to be softer than France in dealing with the Islamic movements in Algeria. There are also important differences of emphasis within Europe. The stability of the Mahgreb is major strategic priority for Southern European states, but of only secondary priority to Germany, and Northern and Central European countries. Iran's Challenge to the Security of the Gulf and the Region "Dual containment" is fading from the American diplomatic lexicon, but there are major divisions between the US and many European states over the best way of dealing with Iran and Iraq. These differences center around the US effort to isolate Iran and Iraq as "rogue states," but they affect all of the major elements of policy in dealing with Iran and Iran: the issues of how best to characterize each regime, how to conduct political and foreign relations, trade and investment, transfers of dual use technology, proliferation, conventional arms transfers, and terrorism. The US has focused on Iran as a major threat to regional stability and peace. The major Iranian military build-up that some US analyst predicted in the early 1990s has not taken place. However, Iran is actively deploying chemical weapons, may be deploying biological weapons, and has purchased long-range missiles and strike aircraft. It has active biological, chemical, and nuclear weapons programs, and has built up a significant capability for unconventional warfare in the Gulf. Iran has joined Syria in sponsoring and arming the Hezbollah in Lebanon, has committed a number of acts of terrorism, and trains extremists from a number of countries. The US feels that there are no "pragmatists" or "technocrats" among Iran's senior leadership who have not participated in its acts of extremism and terrorism, and that the political trends in Iran favor hard-liners with whom no dialogue is likely to produce moderation or useful change. Bahrain, Britain, Israel, and Saudi Arabia share US perceptions to varying degrees. At the same time, many European states, Japan, and other Arab nations believe that US policy is all "sticks" and no "carrots," and dialogue, trade, and investment, are the best route to moderating Iran and that the US is exaggerating the Iranian threat and demonizing the Iranian regime. They focus on the fact that Iran's annual imports have averaged over $18 billion (in constant $US 1996) since the end of the Iran-Iraq War, and its exports have averaged over $15 billion. It has been a major arms buyer in the past, averaging well over $2 billion annually during 1984-1991. Most important, Iran has some 67-90 billion barrels of oil reserves (roughly 10% of total world reserves) and 620-741 trillion cubic feet of gas. IEA projections indicate that Iranian oil production must increase from about 3.9 MMBD in 1996 to around 4.3 MMBD in 2000, and 5.5 MMBD in 2010, to meet world demand without a major rise in oil prices. Many European and Arab states believe that a policy of "constructive engagement" or "critical dialogue" will do more to moderate Iran than isolation, and believe that trade and investment are the best routes to strengthening Iran's secular movements, defusing the charges of Iran's hard-liners and ensuring that Iran can maintain and expand its energy exports. Iraq's Challenge to the Security of the Gulf and the Region Many of the same problems affect US and European attitudes towards Iraq. The US has never officially said that it is seeking to use US sanctions to remove Saddam Hussein from power, but it has taken a much harder line towards Iraq than most European states. The US clearly views Iraq's remaining conventional military capabilities and "break out" capabilities to revive its missile and biological, chemical, and nuclear weapons programs as a major threat to regional peace and to US capability to provide security for the Southern Gulf states. Europe shares many aspects of the American perception of Saddam Hussein's regime, but key European states like France and Russia increasingly feel that rigid efforts to maintain sanctions and the military status quo in the Gulf are policies with no end game that will simply create a revanchist Iraq and alienate the Arab world. Japan, most Arab states, and many other Third World states share these perceptions to varying degrees. There are also important differences in economic interests. Iraq has not been a major recent trading partner of the US, but the total annual value of is imports averaged well over $12 billion (in constant $US 1996) a year from 1984-1990 -- in spite of the Iran-Iraq War. Iraq was also becoming a major buyer of European arms, averaging over $1 billion a year during the five year period before the Gulf War. Iraq is also becoming even more important to the world's energy supplies than Iran. It has some 91-125 billion barrels of oil reserves (roughly 10% of total world reserves) and 109 trillion cubic feet of gas. IEA projections indicate that Iraqi oil production must increase from about 0.6 MMBD in 1996 to around 4.4 MMBD in 2000, and 5.7 MMBD in 2010. Given these realities, many European and Arab states believe that maintaining sanctions does more to make Iraq a revanchist state allow Saddam to blame the West for the domestic impact of sanctions and Iraq's problems than drive him from power. Kuwait and Saudi Arabia are now the only Arab states that have not eased their policies towards Iraq. Turkey and Iran are also emphasizing trade, and there is almost no regional support for Western measures that interfere with Iraq's treatment of its Kurds and Shi'ites. At the same time, it is unclear that such European and Arab states have a clearer policy of their mid to long-term policy towards Iraq than the does US. If the US tends to have a policy that is all sticks and no carrots, European and Arab states tend to have a policy that is all carrots and no sticks. Broader Problems in Gulf Energy Dependence North American and European differences over Iran and Iraq tend to disguise uncertainties and differences regarding the rest of the Gulf. The uncertainties are greatest in terms of Gulf political stability and energy exports. It is clear that the economic and demographic problems cited earlier are depriving most of the Southern Gulf states of their ability to support rentier economies based on welfare and foreign labor. Saudi Arabia is in its 13th year of budget deficits, is experiencing serious internal unrest for the first time since 1973, and has had to make major cuts in its welfare services. The smaller Emirates in the UAE face growing economic problems, and even Oman's well run economy is under acute pressure because of its high population growth. The Gulf Cooperation Council has failed to make more than token political, economic, and military progress in uniting the Southern Gulf states, and serious questions exist as to whether the individual states can cope with their current plans to reduce dependence on welfare, expel foreign labor, privatize and reform their economies, and modernize their political and educational systems. At the same time the West expects the Southern Gulf states to make massive increases in energy production. IEA projections indicate total Gulf production must increase by over 40% between 1996 and 2000, and by over 90% between 1996 and 2010. At the same time, these same projections indicate that the percentage of total Gulf exports going to Asia will rise from 40% to over 60% -- changing the strategic focus of dependence on Gulf exports. Further, most of the increase in oil and gas exports will have to move by sea. As a result, the number of tankers that must carry energy out of the Gulf region will have to more than double by 2010 while simultaneously meeting a global need for progressively more demanding and reliable delivery schedules and minimal stocks and inventories. While many oil companies have notably smaller estimates of the required increases in Gulf exports, it is clear that both North American and European states increasingly rely on market forces to resolve all of the necessary problems, and that both national energy supply and demand and energy emergency policy have steadily lower priority. Broader Problems in Western Power Projection and Middle Eastern Security These shifts in energy dependence are occurring at a time when the US has become the de facto Guardian of the Gulf, and when there is no meaningful consensus over the future of Western power projection capabilities in the Middle East. Political rhetoric, token deployment capabilities, bilateral security agreements, and arms sales cannot disguise the reality that the US is the only Western power capable of significant military operations in the Gulf area and the only Western power capable of military operations in a nuclear-biological-chemical environment. Even at the time of the Gulf War, the US flew over 90% of the special purpose sorties in the Gulf War, over 70% of all attack sorties, and provided over 70% of the heavy armor and artillery use in long-range maneuver operations. While the US has cut its forces by over 35% since the Gulf War, European cuts have been even sharper, and there is little substance to support European statements regarding improved power projection capabilities outside the Mediterranean area. Europe is heavily engaged in simultaneously expanding NATO, cutting forces, and down-sizing its procurement plans while US advances in the "revolution in military affairs" have created new C4I/BM systems and tactics which are making it steadily more difficult for US forces to operate with most European power projection forces in highly intense conventional operations. The situation is more complex inside the Mediterranean area. Rightly or wrongly the US is the only Western power likely to play any military role in the event of another Arab-Israeli conflict. Southern Europe, however, is deeply concerned about the stability of North Africa, and a serious debate has emerged over whether the US should retain command of NATO's Southern Command. There is also a difference within Europe as to the priority that should be given to possible "out of area" operations dealing with North Africa. It is not clear how much can be done to improve this situation. Cuts in defense spending force the US to focus on contingencies in the Gulf and Northeast Asia and efforts to exploit the "revolution in military affairs" as efficiently as possible on a national level. Europe is forced to concentrate on Europe, the Mediterranean and North Africa, and the expansion of NATO. At the same time, rhetoric about cooperation and Coalitions is not a substitution for an honest understanding of war fighting capabilities, and Europe and the United States need to develop some basis for better dialogue on the long-term implications of the US military role in the Gulf. The Issue of Arms Sales European and North American states are competitors in arms sales to the Middle East at a time when the down-sizing of Western military industries is making such exports far more competitive and far more important to the survival of many firms. At the same time, the total volume of Middle East arms sales is dropping sharply. In spite of reports that the Gulf War led to a massive new influx of arms sales, even the Gulf imported fewer arms in constant dollars in the five years following 1990 than it did in the five years before the conflict. This was true of Saudi Arabia, by far the region's largest arms importer. Much of this drop reflects the loss of mass flows of arms from the FSU, sanctions against Iraq, and a combination of US efforts to halt sales to Iran and Iranian economic problems. The end effect, however, is that several key Middle Eastern states now have critical problems in sustaining their conventional forces -- much less modernizing them. These states include Algeria, Iran, Iraq, Jordan, Lebanon, Libya, the Sudan, Syria and Yemen. For all its problems, the US policy of "dual containment" has almost certainly played a major role in weakening Iran and Iraq's conventional capabilities. Arms sales do, however, present a problem for Europe and North America. The US has a strong strategic interest in limiting all arms sales to states like Iran, Iraq, Libya, the Sudan, and Syria. It has an equally serious interest in seeking to standardize the forces of the Southern states with US forces or to make them as interoperable as possible. Further, the US has good reasons to emphasize training, readiness, and sustainability over sales per se -- emphasizing deterrent and war fighting capabilities over modernization. European and other arms exporters must penetrate Middle Eastern markets to survive and the Middle East is also a key market for dual-use items. This creates a natural conflict between the US emphasis on security and Europe's emphasis on exports. The practical question is what more, if anything, can be done to limit exports to the most dangerous or destabilizing states, agree on limitations to the export of critical conventional weapons and technologies, and emphasize interoperability. Proliferation and Counter-Proliferation Proliferation is both a regional problem and a problem that is steadily complicating the Arab-Israeli and Gulf military balances. At present, this process is moving relatively slowly. Key nations like Algeria and Egypt are making only low profile efforts, and Israel's nuclear program is relatively mature. Libya's sometimes grandiose problems are having minimal practical results, and Iraq is heavily contained by the efforts of the IAEA and UNSCOM. Iran and Syria are making significant progress in acquiring long-range missiles and extensive stocks of biological and chemical weapons but not on the massive scale Iraq had underway before the Gulf war. Iran is the only state that seems to be firmly committed to joining the nuclear club, and it is unlikely to make rapid progress unless it can find an outside source of fissile material. While most advanced Middle Eastern states are acquiring the capability to weaponize biological weapons with the lethality of small nuclear weapons, they are unlikely to succeed in the large scale deployment of such weapons for roughly half a decade. This process of creeping proliferation, however, is inherently unstable. The Iran-Iraq and Gulf Wars have demonstrated that regional states are willing to make use of weapons of mass destruction. Iran and Syria have major programs that they can increase with relatively short notice and visibility. Iraq almost certainly has new black programs that it has started since the Gulf War and hidden from UNSCOM, and which it will expand the moment it can end or undercut IAEA and UNSCOM inspections. A break down in the Arab-Israeli peace process would probably trigger new Egyptian and Algerian efforts. The problems that Iran, Iraq, Libya, the Sudan, and Syria face in funding and modernizing their conventional forces may also lead them to place emphasis on weapons of mass destruction as a means of compensating for US and Israeli conventional strength. The threats that affect the Gulf also affect Israel, and proliferation threatens to become a new source of prestige or "glitter factor" in the Gulf arms race. Middle Eastern states have never demonstration the ability to build the kind of stable balance of deterrence and escalation ladders that helped shape the Cold War. The risk of sudden and uncontrolled escalation is higher. Further, many Middle Eastern states are inherently vulnerable states with only one major city or heavily centralized regimes, and Iraq has already demonstrated that at least one Middle Eastern state deployed forces for a launch under attack capability. Proliferation is a major reason that the US now gives heavy emphasis to building counter-proliferation capabilities in US and regional forces, to limiting the transfer of related and dual-use technologies, to continuing the efforts of the IAEA and UNSCOM in Iraq, to strengthening regional arms control, and to strengthening international agreements like the MTCR, NPT, CWC, and BWC. Many European countries have also pushed for stronger arms control initiatives, have improved their intelligence efforts, and have tightened their export controls. There do, however, seem to be significant differences of emphasis regarding the seriousness of the problem relative to the importance of exports. Further, European military planning has given far less priority to counter-proliferation capabilities and the problems these pose for power projection. Improved cooperation has scarcely led to any common Transatlantic approach to the problems of proliferation in the Middle East. Terrorism and Counter-Terrorism European and North American cooperation in dealing with terrorism and counter-terrorism is probably considerably better at the intelligence and internal security level than many outside analysts realize. At the same time, European and North American states do have significant differences at the diplomatic and economic level over the seriousness of the threat posed by given movements and nations. These differences do not extend to the point where one man's "terrorist" is another man's "freedom fighter," but they are serious in the case of Algeria, Iran, Iraq, Lebanon, Libya, the Sudan, Syria and various Palestinian movements. More generally, some European states tend to feel the US exaggerates the terrorist activity of "rogue states" and give Israel's security too high a priority relative to the needs of the Palestinians and Lebanon. The United States tends to feel that nations like France, Germany, and Switzerland tolerate activity on their soil that does not threaten their nationals or expatriate moderates, and down play the risk that Middle Eastern terrorism poses for the US, Israel, and moderate Arab states. These problems may become more serious in the future for several reasons. Proliferation may gradually make weapons of mass destruction available to state-sponsored extremist groups or proxies, adding a new dimension to terrorism. The problems of Iran, Iraq, Libya, the Sudan, Syria and various extremist movements face in competing in conventional forces may also lead them to make steadily greater use of unconventional warfare, special forces, state-sponsored terrorism, and proxies as a substitute for regular conventional forces. Further, any break down in the Arab-Israeli peace process that led to a "new Intifada" would create potential divisions between European and North American states over whether one man's "terrorist" really is another man's "freedom fighter." European and North American Cooperation and Dialectics These potential divisions over policy towards the Middle East seem to be as serious in many respects as North American and European differences over how to treat internal NATO security issues, Eastern Europe, and the FSU. It is clear that a great deal more effort is needed to analyze and discuss these issues and to minimize the tendency to polarize around national lines. There is a need to strengthen cooperation where this is possible, and to tolerate and make constructive use of differences in national policy where cooperation is not possible. One thing is clear. These problems are likely to affect Europe and North America for at least the next decade, and even the best efforts at cooperation are unlikely to prevent some from reaching a crisis point.