In a post-Osama world, risk is still high
May 3, 2011: 8:00 AM ETGeopolitical risks remain largely the same as the day before Osama bin Laden was killed, since his legacy – operatives trained by al Qaeda – remains alive and well.
By Daryl Jones, Hedgeye
FORTUNE -- There is no question the United States has achieved a moral victory by finding and killing al Qaeda leader Osama bin Laden. More practically, the implications relating to geopolitical risk are much less certain. While some would argue that killing the head of al Qaeda is a positive development, there is also a credible case to be made that this action could potentially accelerate terrorist activity if bin Laden is perceived as a martyr by his brethren.
In assessing the impact of the death of bin Laden, it is important to note that he has been on the run from U.S. Special Forces for almost a decade. While figuratively bin Laden remained the head of al Qaeda, there is no doubt that being on the run reduced his effectiveness from an operational leadership perspective. With the entire CIA looking for him and a massive award on his head, bin Laden realistically didn't have the capability to micro manage al Qaeda operations. Therefore it is unlikely that the killing of bin Laden will dramatically reduce the threat from al Qaeda in the short term.
Stepping back for a moment, it is also important to note that the very nature and organization of al Qaeda remains very much in question. There are some analysts that question whether al Qaeda is as organized as is often portrayed by the press. In fact, as Marc Sagemen, a former CIA agent based in Islamabad, and author of Leaderless Jihad: Terror Networks in the Twenty-First Century, wrote:
"There is no umbrella organization. We like to create a mythical entity called al-Qaeda in our minds, but that is not the reality we are dealing with."
This is a controversial position and is widely disputed, but the reality is that al Qaeda is most certainly not organized akin to a Western criminal organization with specific command and control functions.
To this point, as of 2004, it was estimated that almost two-thirds of the senior leadership of al Qaeda had either been captured or killed. If this were a typical American crime family, it would be safe to assume the family would be out of business. This has not been the case for al Qeada. In fact, the July 2005 London bombings purportedly occurred without specific leadership from abroad. Conversely, the 2009 plot by three Londoners to detonate seven bombs on airliners bound for North America was tied directly to al Qaeda. These actions suggest that al Qaeda is alive and well despite this loss of "leadership."
While al Qaeda, as led by bin Laden, may have once provided funding or training for some of these groups, currently many them, as characterized by the 2005 London bombings, likely work largely independently. In fact, while bin Laden had at one time bankrolled al Qaeda, his ability over the past decade to do so was limited by the fact that he was cut off from the family fortune; and even if he still had some independent wealth, moving those funds would have likely given U.S. operatives information as to his whereabouts.
Conceptually, bin Laden's key role over the past decade seemed to have been to fan the flames of discord against the United States, and the Western world generally. In this effort, he was certainly successful and the al Qaeda network will likely need to fill this vacuum.
Ultimately, the real legacy of bin Laden is the hundreds of thousands of operatives that have been trained in al Qaeda terrorist camps. In fact, Gary Bernsten, a former senior ranking CIA official, and author of Jawbreaker, has estimated this number to be as high as 800,000. Despite the death of bin Laden, this large group of like-minded Islamic terrorists continues to exist.
It is also important to note that, based on the evidence, al Qaeda activities are typically planned years in advance of when they are actually intended to occur. Therefore, even if bin Laden were more directly involved in orchestrating broader terrorist activities of the al Qaeda network than we believe he was, it is still not likely that any potential attacks currently in the pipeline would necessarily be thrown off course. The primary example of this process is the September 11th attacks in the United States. According to reports, the idea for these attacks was germinated in 1996 and planning began in 1998, which was a full three years before they occurred.
Not surprisingly, equity markets, as a proxy of investors' propensity to accept more risk, have completely shaken off any potential positive impact of bin Laden's death. This is partially because of the points outlined above, which suggest that killing bin Laden likely won't halt terrorist activity in the intermediate term, but also because there is real potential that bin Laden's death accelerates terrorist activity on the basis of avenging bin Laden. In fact, Hamas started stirring such emotions by stating the following in a press release:
"We condemn the assassination and the killing of an Arab holy warrior. We ask God to offer him mercy with the true believers and the martyrs."
We certainly won't suggest that the world is not a better place with the death of bin Laden, but it is not quite clear that is a safer place, or that geopolitical risk premiums should be reset lower as a result. While the head of the serpent has been cut off, the snake is still very much alive.
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