The Dubai Deal You Don't Know About

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A member of the U.S. Navy stands guard near the U.S. ship Vicksburg at a port in Djibouti in late February.

With midterm elections approaching, no politician wanted to go home and explain to voters why a company controlled by the government of Dubai was taking over operations at six U.S. ports—without so much as a meow of protest from Congress. As it turns out, that won't be necessary. Dubai Ports World, the firm at the center of the controversy, announced today that it would give up its bid to manage U.S. ports, agreeing to transfer the contracts to a “U.S. entity."

Yet while one Dubai company may be giving up on U.S. ports, another one shows no signs of quitting the U.S.—or of giving up a contract with the Navy to provide shore services for vessels in the Middle East. The firm, Inchcape Shipping Services (ISS), is an old British company that last January was sold to a Dubai government investment vehicle for $285 million. ISS has more than 200 offices around the world and provides services to clients ranging from cruise ship operators to oil tankers to commercial cargo vessels. In the U.S., the company operates out of more than a dozen port cities, including Houston, Miami and New Orleans, arranging pilots, tugs, linesmen and stevedores, among other things. The firm is also a defense contractor which has long worked for Britain’s Royal Navy. And last June, the U.S. Navy signed on too, awarding ISS a $50 million contract to be the “husbanding agent” for vessels in most Southwest Asia ports, including those in the Middle East, according to an unclassified Navy logistics manual for the Fifth Fleet and a press release from ISS.

Why is a Dubai shipping services company doing business with the Pentagon when handing over U.S. port operations to the emirate would supposedly compromise national security? Because it makes sense. Call it the reality of living in a globally connected business world. Your IBM laptop is now manufactured by a Chinese company that may outsource customer support to an Indian firm and the logistics to FedEx. Dubai companies aren't just buying overseas assets like hotels in New York and wax museums in London; they're providing jobs and business for U.S. companies. Boeing, for one, can only hope it doesn't receive a frosty reception the next time it wants to sell airplanes to Dubai's booming airline, Emirates. Rival Airbus would be more than happy to take advantage of Washington's creeping protectionism.

The Navy, for one, has long understood that it would be virtually impossible to rely solely on Western-owned companies for critical services. It simply couldn’t operate without local firms providing logistics support at the 200 ports its ships visit around the world. After the bombing of the USS Cole in 2000, the Navy undertook a wide-scale review of contracting procedures, including those involving ship husbanding. As a result of that review, the Navy took several steps to increase the security of ships in foreign ports, but maintained its system of contracting. “We've been doing business in the Persian Gulf for 60 years,” says a Navy official who was unable to confirm the details of the ISS contract. Moreover, Dubai is considered one of the best-equipped ports for the Navy—it’s also a crucial logistical base for operations in the region, including those in Iraq and Afghanistan.

No question, the husbanding contract provides the potential for mischief. Husbanding agents arrange everything from fuel to spare parts to fresh vegetables for vessels at ports of call. More critically, they often provide security, like erecting concrete barriers and what the military calls “force protection.” Husbanding agents often learn weeks in advance of a ship’s schedule so as to be prepared when the vessel arrives, information that the Navy keeps closely guarded since it could be invaluable in the hands of terrorists. The suicide bombing of the Cole, for instance, occurred less than three hours after the ship had completed mooring in the harbor of Aden, Yemen. “It would have been much more difficult for the bombers to execute the attack without some previous knowledge of the ship's schedule and its intent to pull into Aden,” says a former Navy officer.

Contacted by TIME, a spokesman for ISS confirmed the existence of the contract, but said that confidentiality terms prevented him from discussing it. A statement issued by the firm declared that “ISS has undergone rigorous external security checks” and has “comprehensive internal policies on security.” Regarding its U.S. port operations, the company states that all port staff “are fully vetted and cleared and undergo a background check to enable them to work within the port limits.”

While ISS doesn’t appear eager to discuss its defense work, a press release issued last fall offers some details. The release states that ISS “will be responsible for providing all the logistics requirements of U.S. Navy and Coast Guard ships in ports throughout the [Middle East] region.” The release also notes that ISS may be asked to provide services for U.S. military training exercises and “contingency operations inland.” ISS’s partner for those services? None other than KBR, the division of Halliburton — Vice President Dick Cheney’s old firm — that has won billions of dollars in contracts for the Iraq war and reconstruction. Ironically, Halliburton's name has come up as a possible candidate to be the "U.S. entity" to take over the U.S. ports management from Dubai Ports World.

ISS, in fact, isn’t the only Dubai company that has won big business with the Pentagon. In December 2004, another such firm, Seven Seas Shipchandlers, won a $700 million contract to be the prime vendor for maintenance and repair operations for troops in the U.S. Central Command region, which includes the Middle East. Seven Seas has also provided food supplies to U.S. troops in Iraq. Another Dubai-based firm, MAC International, is under contract to deliver $67.2 million worth of police trucks to the Army. Those vehicles, however, will bear a stamp that should please any Washington pol: Made In Detroit. —With reporting by Sally B. Donnelly/Washington and J.F.O. McAllister/London