Non-financial savvy reporting of financial news : Sony City Osaki edition

A colleague of mine sent the below post to our mailing group as breaking news.

Sony unloads ‘Sony City Osaki’ building for $1.2 billion, will remain as lessee

In a bid to bolster its bottom line, Sony’s been selling properties like a desperate monopoly player, and the latest space on the board to go is the Sony City Osaki building for 111.1 billion yen ($1.2 billion). That follows the sale of its NY headquarters for a similar sum, and the move of its mobile HQ from Sweden to Tokyo. The Osaki building has been purchased by a Japanese holding company who will lease the building back to Sony for a period of at least five years, which seems to be the trend for electronics companies lately. The Japanese conglomerate said all the property deals are being made to “transform its business portfolio and reorganize its assets.” Translation? Sony needs the cash, natch.

There is so much wrong in this small news item. As I didn’t have much time, so I sent him a short reply within five minutes highlighting what is wrong here in first read. Obviously if one does some research online, one can refute the above with links to actual numbers

Firstly, for a company that is engaged in a business of selling consumer electronics, bottom-line will not be bolstered by selling a building. Analysts will discount the profit if any from this transaction as one-off extraordinary income from an unrelated business segment (I don’t know what is the actual accounting term to describe such a profit/loss in income statement). Moreover, the article doesn’t even tell us if they sold the property for a profit or a loss.

Secondly, against a one time profit if any, the company will regularly be lease payments to the lessor for next many years thus reducing the income of Sony for subsequent years.

Thirdly, the article says Sony needs the cash. I don’t think so as all these electronic giants are hoarding cash. I don’t think they will pay down debt as no corporate entity is stupid nowadays to return money when you don’t know if you can access it again.

I can put forward two guesses and they are just guesses at the moment till I have reviewed the accounts of statements of Sony.

One, they want to reduce the size of their balance sheet to show better return on assets.

Two, they fear that BoJ may weaken the yen to stimulate Japanese exports/economy and Sony thinks its better to liquidate dead assets and invest in USD/commodities/other foreign assets (my suggestion would be to stand clear of Silver). Even if foreign asset returns are nominal, they’ll at least gain from yen weakening if and when that happens which will translate into foreign currency translation gains. But I consider this as a weaker of the two reasons.

It took me five minutes to draft the above email without doing any research. I wish the author of the above piece or the editor could have spent more time thinking before giving their opinion on the reason behind the news.

How investment bankers destroyed industry

I am fan of Michael Lewis, author of such masterpieces as Liar’s Poker and Moneyball. I make it a point to read his writings when I come across them and have read most of what he has written for Vanity Fair and Bloomberg. Other day I came across a review of John Lanchester’s Capital done by Lewis in New York Review of Books. He wrote admiringly about Lanchester’s ability to keep the reader hooked to his writing and his ability to explain novel concepts. Lewis noted Lanchester’s book “I.O.U.” for being very readable and stating that it has very good explanations for layman about exotic financial concepts and instruments. May be Lewis was repaying the favor to Lanchester who had reviewed the former’s book Boomerang earlier in the same pages. I am a finance guy and have a relatively very clear idea of what went wrong before, during and after the financial crisis. However, I was intrigued by Lewis’s recommendation of I.O.U. John Lanchester isn’t a financial guy. He is a writer, a novelist. He was researching the material for his novel set in the backdrop of financial crisis and he realized that he has such extensive idea of what went wrong that he ended up writing I.O.U. So I bought the book and it was such a pleasure to read, despite the fact I already knew most of the stuff, that I ended up finishing the book in two sittings late into the night. Its not a page turner but the prose is so beautiful that you want to keep on reading it. Here is an excerpt from the book where author explains how when the financial sector (we are talking about City of London here to which the author refers to simply as “the City”) took over industries, they became businesses.

“What was new was the extent to which financial interests were not just important but uncontestedly paramount. A lot of British economic history concerns the struggle between the financial and industrial interests—between the City and men from the Midlands—and a good deal of that history boils down to a sense of grievance and misunderstoodness on the part of Britain’s manufacturers. From the point of view of people who make things, the City always wants to make its money too quickly and too irresponsibly; it wants to take too big a share of the business in return for its capital, is impatient with slow growth, doesn’t understand the importance of investment and of relationships, and wants only to achieve a spectacular casino-like payout in the shortest possible amount of time.

The reciprocal view, from the City, has been that manufacturers whine all the time, that they lost the ability to control their workforces and allowed themselves to be held hostage by unions, that they had a farmer-like tendency to complain about trading conditions in all weathers (“The pound’s too high! No one can afford our stuff!”; “The pound’s too low! We can’t afford raw materials!”), and that they were obtuse about the fact that the final point of all business is to make money and that everything else is a means to that end. That was the most important cultural difference.

There is a profound anthropological and cultural difference between an industry and a business. An industry is an entity which as its primary purpose makes or does something and makes money as a by-product. The car industry makes cars, the television industry makes TV programs, the publishing industry makes books, and with a bit of luck they all make money too, but for the most part the people engaged in them don’t regard money as the ultimate purpose and justification of what they do. Money is a by-product of the business, rather than its fundamental raison d’être. Who goes to work in the morning thinking that the most important thing he’s going to do that day is to maximize shareholder value? Ideologists of capital sometimes seem to think that that’s what we should be doing—which only goes to show how out of touch they are. Most human enterprises, especially the most worthwhile and meaningful ones, are in that sense industries, focused primarily on doing what they do; health care and education are both, from this anthropological perspective, industries. At least that’s what they are from the point of view of the people who work in them.

But many of these enterprises are increasingly owned by people who view them not as industries but as businesses: and the purpose of a business is, purely and simply, to make money. The attitudes of a business owner are different from those of people who work in an industry, and from the point of view of business, an industry’s ways of doing things are often the unexamined inheritance of the past, willfully inefficient, willfully indifferent to fundamental realities of how the world works. Money doesn’t care what industry it is involved in, it just wants to make more money, and the specifics of how it does are, if not exactly a source of unconcern, very much a means to an end: the return on capital is the most important fact, and the human or cultural details involved are just that, no more than details.

To workers in an industry, the attitudes and thinking of business are often summed up by the shorthand term “accountants,” as in, we want to do such-and-such but the accountants won’t let us, or such-and-such used to work well but then the accountants got hold of it. Hollywood, for instance, used to be an industry, involved primarily in making films, in the days when it made many more of them; now it is a business, whose primary preoccupation is to make money. The films are bigger and stupider and there are fewer of them, but when they do succeed, they make so much money that, in the words of the late Julia Phillips, the producer of Jaws, “there is no bottom line.”

Excerpt From: John, Lanchester. “I.O.U.”

Buy the book and read it even if you are a finance grad from an top business school like me.

Iranian nuclear program and role of A.Q. Khan network in it

Iran’s nuclear aspirations had deep roots. They predated the 1979 Iranian Revolution that brought the current theocratic government to power, originating in the critical period of the mid-1970s. Flush with oil money, the Shah of Iran publicly declared that he wanted to move forward with an ambitious nuclear energy program. In 1976 Iran signed a deal with a Ger- man company to build nuclear reactors at Bushehr, on a sandy peninsula in the South East of Iran, on the coast of the Persian Gulf. Though the plant in Bushehr would ostensibly be devoted to nuclear power, U.S. intelligence suspected that the Shah also had a modest clandestine weapons development program or was at least keeping that option open through research work. As the same enrichment plants and reactors can be used for either purpose, it is difficult to tell whether facilities are for civilian purposes or for nuclear weapons. For the Shah, as with Iranian leaders decades later, nuclear technology was not just a means of delivering security but also a matter of prestige, a means of restoring status to the proud Persian people who had once ruled an empire.

Whatever the Shah’s real intent, his decision in turn led Saddam Hussein in Iraq to press his own officials to move forward with a nuclear program to balance that of neighboring Iran, a typical domino effect created by nuclear ambitions. Iran’s move was a “triggering factor,” explains Iraqi nuclear chief Jafar Dhia Jafar as Saddam purchased a reactor from France.1 Iran and Iraq were conscious of living in a dangerous neighborhood and were wary of each other’s ambitions. Each was fearful of being outpaced by the other. The smallest suspicion of a nuclear program on the part of a neighbor was enough to drive the other forward. Each would maintain the story that it was only nuclear power they were after not the bomb, but both knew that the same technology could easily be used for both.

From 1984 nuclear research in Iran had begun to pick up under the Speaker of Parliament (and later President) Hashemi Rafsanjani. Rafsanjani was a wily, enigmatic politician who would become a key proponent of developing Iranian nuclear capability. His task would not be easy: the 1979 revolution had left Iran with a paltry scientific and technological base with which to develop its own program. Thousands of students were sent abroad again and Iran even tried to lure former scientists back to the country but this was largely unsuccessful.5

China’s cooperation with Iran began in the mid-1980s in the field of missile technology. The first nuclear agreement came in 1989. In 1991 a major nuclear deal was signed when a senior Chinese official visited Iran, touring around facilities near the ancient city of Esfahan, one of Iran’s most historic sites situated south of Tehran. Secretly that year, China provided Iran with three cylinders, one large and two small, containing 1.8 tons of Uranium ore, a deal that Iran did not report to the IAEA. This allowed the Iranians to carry out experiments in the 1990s without the IAEA noticing any diversion of existing material that the agency had been monitoring. China also agreed to build the Iranians a complete uranium conversion plant at Isfahan. As the decade wore on, China grew warier of Iran’s intentions and the United States began to exert more and more pressure on China to halt its support. Eventually, a 1997 deal with the United States led China to cut off remaining assistance. But Iran already had the plans and continued to build the conversion facility at Esfahan using the Chinese designs.

Through the 1990s as China’s support waned, Russia was perceived as the main facilitator of any Iranian nuclear program.

The United States put in enormous amounts of diplomatic time and energy during the 1990s to try and prevent Russia and China from passing on technology to Iran in the field of both missile and nuclear technology. But while Russian and Chinese help was useful to the Iranians, there was another secret partner. Iran, just like Pakistan in the 1970s, had realized that the plutonium reprocessing route to the bomb was highly visible and thus subject to diplomatic pressure, but enrichment could be much easier to conceal. It was to be the enrichment route pioneered in Pakistan by A. Q. Khan and then exported to Iran that would bring Iran closest to the bomb. In many ways, the Iranian path would be a close parallel to that of Pakistan.

In 1985 the Iranian leadership made the decision to begin work on its own enrichment program. Researchers were told to scour through publicly available technical literature for any clues on how to master the complex technology. But the Iranians would find that it was far easier to buy in outside help than do all the difficult research themselves. They knew that Pakistan was developing the bomb and that Khan was the man who was working on it and so discreet inquiries began. It was under President Zia’s watch that the first contacts were made between Pakistan and Iran in the nuclear field and these were on an official state-to-state level.

Even though they were secret, some of the contacts were at the highest level between the two states. Iran-Pakistan relations had been difficult in the early 1980s as Pakistan was closer to Saudi Arabia who in turn was backing Iran’s enemy in its war, Iraq. But relations began to improve from around 1983. By 1986 economic and technical cooperation was increasing as Pakistan began importing Iranian oil. The Iranian president, Ali Khamenei, who would later become the country’s supreme leader, was a long-time proponent of the nuclear option and paid a visit to Pakistan in February 1986.

Iran signed up for a package from the Khan network comprising of P-1 designs, five hundred components for P-1 machines, as well as drawings for the more advanced P-2 centrifuge. The first deal provided designs and a shopping list, but this time the Iranians were getting more centrifuges and components, as well as designs for a much more efficient machine with which to enrich uranium. Following payment, these parts were delivered to Iran in two more consignments in late 1994 and early 1995. Tahir personally arranged for the transhipment of two containers of parts via Dubai using a merchant ship owned by an Iranian front company. Some components were shipped from storage in Dubai before payment was received, an unusual occurrence, making it possible that the network wanted to clear out the parts in a hurry from the ware- house in Dubai where they were stored, perhaps because they feared someone was on to them.

The centrifuges and components that Khan provided were secondhand cast-offs from the Pakistan program. It some ways, the deal looks almost like a “clear-out” sale from the warehouse run by the Khan network, offloading the bits and pieces no longer required that were stored in Dubai. This seems to be the case as there were odd numbers of components rather than a coherent set with the same quantities of each different part. It also explains why some of the material was shipped even before payment. Khan had been busy from the mid-1980s updating the centrifuges at Kahuta from the P-1 with its aluminium rotor to the more efficient P-2, which used maraging steel, leaving used machines and surplus components that could be sold.24 These were supposed to be sent to a company in Pakistan to be scrapped and destroyed. Instead, they appear to have been sold in a hurry on this occasion.

It is clear that Khan’s support was critical to Iran’s nuclear program and that Khan helped Iran overcome major technical hurdles. Both in the 1980s and 1990s, Khan helped jump start the Iranian program, allowing them to move much faster by providing plans, blueprints, technology, and advice.

But slowly Iran began to master the complex technology. By 2000 Iran was ready to begin the construction of the two enrichment facilities at Natanz: the smaller pilot plant was to have one thousand centrifuges, the larger fifty thousand. This would provide the capacity to produce highly enriched uranium for twenty to thirty nuclear weapons each year. Natanz was carefully built with deep bunkers reinforced by triple layers or con- crete and then covered with earth to hide their existence and to provide protection against any possible air strikes. A dummy building covered the vehicle entrance ramp and power lines were hidden. A building that housed the power supply was made to look like a cafeteria.

Analysts believe Iran could be pursuing is creating a secret parallel program, for a so-called “sneak out” capacity. A large declared facility makes it much easier to run a parallel undeclared facility since it provides cover for research and procurement activities. The fear is that Iran may have pursued such an option based around the P-2 information (and possibly material) it received from Khan.

The problem was that the scale and persistence of the contacts between Khan and Iran and particularly the large mid-1990s deals were missed (there were some rumors but no more). In the mid-1990s, just as the Iranian program was actually picking up a gear and becoming more secret, the expansion was missed, a failure that would have major consequences. U.S. intelligence on Iran became weaker with fewer sources. It was only at the end of the 1990s that there would be some signs of renewed Iranian activity. This was based around procurement patterns as European states began to report that dual-use technology, in other words technology that could be used for civilian or military purposes, was being sent to Tehran. British and American intelligence officials following Iran’s program had been aware that Iran was conducting research in both enrichment and reprocessing and was trying to buy components and materials. In the late 1990s some technical analysts in Britain warned that if Iran had enough fissile material, they judged the country would be able to build a bomb, perhaps, even a relatively advanced implosion device. However, at the time policymakers were trying to take advantage of the election of the moderate Mohammed Khatami as Iranian president in 1997, and there was resistance in pushing such views higher up the intelligence chain. Around 2000 the CIA also tried to pass on flawed information on the triggering mechanism for a nuclear weapon to the Iranians through a Russian agent, an- other indicator of the level of awareness and concern over the Iranian program long before it became public.47 The Iranians may have uncovered that operation but U.S. and Israeli intelligence are also believed to have tried to pass other flawed machinery and equipment to Iran to disrupt its program and cause technical difficulties.

Beginning in 2000 intelligence analysts in London and Washington watched Natanz being built. Every day they scoured satellite photography of the site they noted how the Iranians were clearly aware of the points at which satellites were not overhead to carry out certain work, leaving dis- crepancies between sequences of images (a trick they had apparently learned from the Indians in their 1998 test). The evidence of what was going on at the site was limited and no one was sure what was going on inside. There was some debate over what to do with the knowledge. Should it be made public? Should it be provided to the IAEA? But it was pointed out that building an enrichment site secretly did not actually break any of Iran’s international agreements, only the introduction of uranium and the carrying out of enrichment without notification would violate agreements and there was no proof yet of this kind of activity.

Every site that was revealed by the Iranian opposition in 2002 was already known to the British and American intelligence, but they had chosen not to show their hand. “It was not publicly known as it was secret information but it was shared among the close allies that work on this issue,” says Gary Samore who was in charge of non-proliferation in the White House until the start of 2001.48 But it was not appreciated just how far the Iranians had gone. Nor was Khan’s pivotal role in the Iranian program appreciated until it was too late. It was only after February 2003 when Olli Heinonen and the IAEA entered Natanz that a more complete picture began to emerge and with it the evidence of just how central Khan had been and how he had helped the Iranians move far faster than anyone suspected. Even now, much is still unknown about the scale of his assistance.

Excerpted from “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network

Role of piracy in Ottoman conquest of North Africa

The Ottoman conquest of North Africa was achieved more through piracy than traditional warfare—though, of course, one man’s pirate is another’s admiral. Sir Francis Drake used piracy to great effect in fighting England’s wars against the superior Spanish fleet in the sixteenth century, yet as a knight of Elizabeth I’s realm and one of her most trusted advisors he hardly conjures the image popularly held of maritime brigands. So it was with Khayr al-Din “Barbarossa”—so called by European contemporaries for his red beard—one of the greatest admirals in Ottoman history. To the Spanish he was a ruthless pirate, the scourge of their Mediterranean shipping, who sold thousands of Christian sailors captured in battle into slavery. To the inhabitants of the North African coastline he was a holy warrior carrying the jihad against the Spanish occupiers, whose war booty was an important component of the local economy. And to the Ottomans he was a native son, born around 1466 on the Aegean island of Mytilene just off the coast of Turkey.

At the turn of the sixteenth century the Western Mediterranean was the arena of an intense conflict between Christian and Muslim forces. The Spanish conquest of the Iberian Peninsula culminated in the fall of Granada in 1492, bringing to an end nearly eight centuries of Muslim rule in Spain (711–1492). Faced with life in Catholic Spain, where religious proselytism soon gave way to forced conversion, most Iberian Muslims left their native land to seek refuge in North Africa. These Muslim refugees, known as Moriscos, never forgot their homeland or forgave Spain. The Spanish monarchs, Isabella of Castile and Ferdinand of Aragon, relentlessly pursued their holy war across the Mediterranean to the Muslim kingdoms in which the Moriscos took refuge. They established a string of fortress colonies, or presidios, along the North African coast from Morocco to Libya and forced local leaders in the inland towns to pay tribute to Spain. Two of these colonies—Ceuta and Melilla—still survive as Spanish possessions on the Moroccan coastline.

The Spanish faced little opposition to their aggressive expansion from the Muslim mini-states of North Africa. Three local dynasties based in Fez (in modern Morocco), Tlemcen (in Algeria), and Tunis ruled in Northwest Africa. They paid tribute to the Spanish crown and dared raise no challenge to the Spanish fortresses that dominated their main ports and harbors. The Muslim rulers’ cooperation with the Spanish invaders discredited them in the eyes of their subjects, and soon local zealots began to organize their own forces to rebuff the invaders. Because the presidios were resupplied by sea, Spanish shipping was more vulnerable to attack than the strong fortresses themselves. Local sailors who armed ships and took their jihad to sea came to be known in the West as the Barbary corsairs (the term Barbary derived either from the Greek for “barbarian” or, more charitably, from the indigenous Berber people of North Africa). While these corsairs took plunder and slaves from the Spanish shipping they attacked, they viewed their war as a religious conflict against Christian invaders. Their bold attacks against the Spanish made the corsairs local heroes and gained them the support of the Arab and Berber inhabitants of the coast.

Khayr al-Din was the most famous of the Barbary corsairs. He followed in the footsteps of his brother, Aruj, who created an independent ministate in the small port of Jijilli, to the east of Algiers. Aruj extended the area under his power across the Algerian coast to Tlemcen in the west, which he captured in 1517. He was killed by the Spanish the following year in a vain attempt to defend Tlemcen. Khayr al-Din understood that the corsairs would need the support of a powerful ally if they hoped to hold their gains against the might of the Spanish Empire, and he raised the corsairs’ jihad to a successful war machine by entering into alliance with the Ottoman Empire.

In 1519 Khayr al-Din sent an envoy to the Ottoman court, bearing gifts and a petition from the people of Algiers, to request Sultan Selim’s protection and offering to place themselves under his rule. Selim the Grim was near death as he agreed to add the Algerian coastline to the territories of the Ottoman Empire. He sent Khayr al-Din’s envoy home with an Ottoman flag and a detachment of 2,000 Janissaries. The greatest Muslim empire in the world had now engaged battle with the fleet of Spain, shifting the balance of power in the Western Mediterranean decisively.

Encouraged by their new alliance with the Ottomans, the Barbary corsairs pressed their attacks far beyond the coast of North Africa. Khayr al-Din and his commanders struck against targets in Italy, Spain, and the Aegean Islands. In the 1520s he seized European ships carrying grain and, like a sea-faring Robin Hood, delivered the food to the people of the Algerian coast, who were suffering shortages from drought. His ships rescued Moriscos from Spain and brought them back to settle in the towns under his control to join the fight against Spain.

Yet Khayr al-Din and his men were best known for their exploits against Spanish shipping. They sunk galleys, freed Muslim slaves, and captured dozens of enemy ships. Barbarossa’s name provoked fear all along the coasts of Spain and Italy—with reason. The number of Christians his men captured numbered in the thousands, with nobles held for high ransom and commoners sold into slavery. For the Muslim corsairs there was a sense of poetic justice: many of them had previously been held captive and sold as galley slaves by the Spanish.

The Spanish navy needed an admiral to match wits with Khayr al-Din. In 1528 the emperor Charles V engaged the celebrated commander Andrea Doria (1466–1560) to lead the fight against him. Doria, a native of Genoa who had commissioned his own fleet of war galleys and hired his services out to the monarchs of Europe, was no less a corsair than Khayr al-Din.

Doria was a great admiral, but Khayr al-Din was greater. In their eighteen years of dueling across the Mediterranean, Doria seldom got the better of his Ottoman adversary. Their first encounter, in 1530, was a case in point. Khayr al-Din’s forces had taken the Spanish fortress in the Bay of Algiers after a short siege in 1529. The Spanish captives were reduced to slaves and made to dismantle the fort, whose stones were used to create a breakwater to shelter the harbor of Algiers. Charles V was outraged by the loss of the strategic fort and convened a council of state. Andrea Doria suggested an attack on the port of Cherchel, just west of Algiers. Doria’s forces landed near Cherchel in 1530 and freed several hundred Christian slaves but met with stiff resistance from the Moriscos who inhabited the town, who were spoiling for a fight with the Spanish. Khayr al-Din sent a relief force, and Doria, who did not want to risk engaging the larger Ottoman fleet, withdrew his ships—abandoning the Spanish soldiers in Cherchel. Those Spaniards who fought were killed, and those who surrendered were enslaved. Khayr al-Din had dealt two humiliations to the Spanish and secured his position in Algiers.

Barbarossa had also raised his standing in the eyes of the sultan, and in 1532 he was invited to Istanbul to meet with Süleyman the Magnificent. He set off with a fleet of forty-four ships and ravaged the coast of Genoa and Sicily along the way, seizing eighteen Christian ships—which he robbed and burned. Finally he arrived in Istanbul, where the sultan invited him to the palace. When he was ushered into the sultan’s presence, Khayr al-Din prostrated himself and kissed the ground, awaiting his sovereign’s command. Süleyman bid his admiral to rise and promoted him to commander of the Ottoman navy, or Kapudan Pasha, and governor of the Maritime Provinces. Lodged in a royal palace for the duration of his stay in Istanbul, Khayr al-Din met regularly with the sultan to discuss naval strategy. In a final mark of favor, Süleyman pinned a golden medal to Khayr al-Din’s turban during a palace ceremony, to demonstrate his gratitude to the Kapudan Pasha for his role in expanding the territory of the Ottoman Empire in North Africa and delivering victories against his Spanish foe.

On his return from Istanbul, Khayr al-Din set about planning his next major campaign: the conquest of Tunis. He mounted an expedition of nearly 10,000 soldiers and took Tunis without a fight in August 1534. The Ottomans were now in control of the North African coast from Tunis to Algiers, placing Charles V’s maritime supremacy in the Western Mediterranean in jeopardy. Andrea Doria advised the emperor to drive the corsairs from Tunis. Charles agreed, accompanying the fleet himself. He wrote of the vast assembly of galleys, galleons, carracks, fusts, ships, brigantines, and other vessels that carried the Spanish, German, Italian, and Portuguese troops—some 24,000 soldiers and 15,000 horses—to Tunis. “We left [asking] for the aid and guidance of our creator . . . and with divine assistance and favour, to do that which seems most effective and for the best against Barbarossa.”

As the massive fleet approached Tunis, Khayr al-Din withdrew his forces, knowing that he could not withstand the armada. Tunis now fell to Spanish forces. Charles V claimed in his letters home that the Spanish freed 20,000 Christian slaves. Arab accounts claim that the Spanish killed at least as many of the local inhabitants in the sack of Tunis. In strategic terms, the conquest of Tunis placed the Straits of Sicily, the gateway to the Western Mediterranean, firmly in Spanish hands. The only Muslim stronghold left was Algiers.

In 1541 the Spanish mounted a massive siege force to take Algiers and defeat Khayr al-Din once and for all. An armada of sixty-five galleys and over 400 transport vessels carrying 36,000 soldiers and siege machines set sail in mid-October. Sayyid Murad, the Algerian chronicler, wrote: “This fleet covered the entire surface of the sea, but I was unable to count all the vessels for they were so numerous.” Against the Spanish, the Barbary corsairs raised a force of 1,500 Ottoman Janissaries, 6,000 Moriscos, and several hundred irregulars. Faced with an invasion force that outnumbered his own troops by a margin of more than four to one, Khayr al-Din’s situation looked desperate. One of his officers tried to raise the morale of his troops, saying, “The Christian fleet is enormous . . . but do not forget the aid that Allah gives his Muslims against the foes of religion.” His words seemed prophetic to the local chronicler.

On the eve of the Spanish invasion, the weather suddenly turned and violent gales drove the Spanish ships onto the rocky shores. The soldiers who did manage to reach shore in safety were drenched by torrential rains, and their gunpowder was spoiled by water. The defenders’ swords and arrows proved the more effective weapons in these conditions, as the drenched and demoralized demoralized Spanish were driven to retreat after 150 ships were lost and 12,000 men killed or captured. The Barbary corsairs had inflicted a decisive defeat on the Spanish and secured their position in North Africa once and for all. It was Khayr al-Din’s greatest triumph, celebrated each year in Algiers for the rest of the Ottoman era.

Five years later, in 1546, Khayr al-Din Barbarossa died at the age of eighty. He had succeeded in securing the coast of North Africa for the Ottoman Empire (though the final conquest of Tripoli and Tunis was achieved by his successors later in the sixteenth century).

Rogan, Eugene, “The Arabs”

Why Arabs were under represented in Ottoman power elite

Like the Mamluks, the Ottomans operated their own system of slave recruitment, primarily in their Balkan provinces. Young Christian boys were taken from their villages in an annual conscription known in Turkish as the devshirme, or “boy levy.” They were sent to Istanbul, where they were converted to Islam and trained to serve the empire. Athletic boys were sent for military training, to fill the ranks of the crack Janissary infantry regiments. Those with intellectual promise were sent to the palace to be trained for civil service in either the palace itself or the bureaucracy.

By modern standards, the boy levy appears nothing short of barbaric: children sent into slavery to be raised far from their families and forcibly converted to Islam. At the time, however, it was the only means for upward mobility in a fairly restrictive society. Through the boy levy, a peasant’s son could rise to become a general or grand vizier. Indeed, entry to the elite ranks of the Ottoman military and government was more or less restricted to devshirme recruits. The fact that the Arabs, who in their great majority were free-born Muslims, were excluded from this practice meant that they were greatly underrepresented among the power elite of the early Ottoman Empire.

Rogan, Eugene, “The Arabs”

Ottoman conquest of Mamluk empire

The hot summer sun beat down upon al-Ashraf Qansuh al-Ghawri, forty-ninth sultan of the Mamluk dynasty, as he reviewed his troops for battle. Since the founding of the dynasty in 1250, the Mamluks had ruled over the oldest and most powerful Islamic state of its day. The Cairo-based empire spanned Egypt, Syria, and Arabia. Qansuh, a man in his seventies, had ruled the empire for fifteen years. He was now in Marj Dabiq, a field outside the Syrian city of Aleppo, at the northernmost limits of his empire, to confront the greatest danger the Mamluks had ever faced. He would fail, and his failure would set in motion the demise of his empire, paving the way for the conquest of the Arab lands by the Ottoman Turks. The date was August 24, 1516

On this day, Qansuh was about to engage in battle with the ninth Ottoman sultan, Selim I (r. 1512–1520), nicknamed “the Grim.”

The Mamluks fielded a great army, but the Ottoman force was greater by far. Its disciplined ranks of cavalry and infantry outnumbered the Mamluks by as much as three to one. Contemporary chroniclers estimated Selim’s army to number 60,000 men in all. The Ottomans also enjoyed a significant technological advantage over their adversaries. Whereas the Mamluks were an old-fashioned army that placed much emphasis on individual swordsmanship, the Ottomans fielded a modern gunpowder infantry armed with muskets. The Mamluks upheld medieval military values while the Ottomans represented the modern face of sixteenth-century warfare. Battle-hardened soldiers with extensive combat experience, the Ottomans were more interested in the spoils of victory than in gaining personal honor through hand-to-hand combat.

As the two armies engaged in battle at Marj Dabiq, Ottoman firearms decimated the ranks of the Mamluk knights. The Mamluk sultan, Qansuh al-Ghawri, watched in horror as his army collapsed around him. The dust on the battlefield was so thick that the two armies could hardly see each other. Qansuh turned to his religious advisors and urged them to pray for a victory he no longer believed his soldiers could deliver. One of the Mamluk commanders, recognizing the hopelessness of the situation took down the sultan’s banner, folded it, and turned to Qansuh, saying: “Our master the Sultan, the Ottomans have defeated us. Save yourself and take refuge in Aleppo.” As the truth of his officer’s words sunk in, the sultan suffered a stroke that left him half paralyzed. When he tried to mount his horse, Qansuh fell and died on the spot. Abandoned by his fleeing retinue, the sultan’s body was never recovered. It was as though the earth had opened and swallowed the fallen Mamluk’s body whole.

Victory at Marj Dabiq left the Ottomans masters of Syria. Selim the Grim entered Aleppo unopposed and went on to occupy Damascus without a fight. News of the defeat reached Cairo on September 14, some three weeks after the battle. The surviving Mamluk commanders gathered in Cairo to elect a new sultan. They chose Qansuh’s deputy, al-Ashraf Tumanbay, as his successor. Tumanbay was to be the last Mamluk sultan, his reign lasting only three and a half months.

Selim the Grim wrote Tumanbay from Damascus, offering him two options: to surrender, and rule over Egypt as a vassal of the Ottomans, or to resist and face total annihilation. Tumanbay wept with terror when he read Selim’s letter, for surrender was not an option. Fear began to grip the Mamluk sultan’s soldiers and subjects alike. In a bid to preserve discipline, Tumanbay issued a proclamation forbidding the sale of wine, beer, or hashish, under penalty of death. However, the chroniclers claim, the anxious inhabitants of Cairo paid no attention to his orders and sought relief from the imminent threat of invasion in drugs and alcohol.

When Selim reached the northern outskirts of Cairo on January 22, Tumanbay’s soldiers showed little enthusiasm for the fight. Unpaid, lacking in confidence, and largely unreliable, the Mamluk army approached the day of battle as a group of men fighting for their own survival rather than victory.

Within one hour the Mamluk defenders had suffered heavy casualties and were in full retreat. Tumanbay fought on longer than most of his commanders before he too retreated from the battle, vowing to fight again another day.

Selim did not rest easily in Cairo while the Mamluk sultan was still at large. So long as Tumanbay lived, the Ottomans knew that his partisans would plot his restoration. Only a very public death would dash those hopes forever. Selim the Grim was given the opportunity in April 1517, when the fugitive Tumanbay was betrayed by Bedouin tribesmen and handed over to the Ottomans. Selim forced Tumanbay to march through the center of Cairo to dispel any doubt that he was in fact the deposed Mamluk sultan. Tumanbay’s procession ended at Bab Zuwayla, one of the main gates of the walled city of Cairo, where he was taken by his executioners and hanged before the horrified crowd. The hanging rope broke—some say it broke twice—as if reflecting divine reluctance to permit regicide. Once he surrendered his soul, a loud cry went up from the crowd, the chronicler recorded, capturing the sense of public shock and horror at this unprecedented spectacle. “Never in the past have we witnessed such an event as the hanging of a sultan of Egypt at Bab Zuwayla, never!”

For Sultan Selim, the death of Tumanbay was cause for celebration. With the termination of the Mamluk dynasty, Selim completed his conquest of their empire and the transfer of all their wealth, lands, and glory to his own dynasty. He could now return to Istanbul having added Syria, Egypt, and the Arabian province of the Hijaz to the Ottoman Empire.

Excerpt From: Rogan, Eugene. “The Arabs.”