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KABUL (Reuters) - Attacks on the Iraqi embassy and a Shi'ite mosque in Afghanistan have reinforced fears that Islamic State militants are seeking to bring the group's Middle East conflict to Central Asia, though evidence of fighters relocating from Iraq and Syria remains elusive.

Islamic State said it carried out Monday's attack against the embassy in Kabul, which began with a suicide bomber blowing himself up at the compound's main gate, allowing gunmen to enter the building and battle security forces.

The group also claimed responsibility for an attack Tuesday that killed at least 29 and wounded more than 63 at a Shi'ite mosque in Herat, an area in western Afghanistan that had previously escaped Islamic State's sectarian attacks.

The choice of target in the Iraqi embassy attack, three weeks after the fall of Mosul to Iraqi troops, appeared to back up repeated warnings from Afghan security officials that, as Islamic State fighters were pushed out of Syria and Iraq, they risked showing up in Afghanistan.

"This year we're seeing more new weapons in the hands of the insurgents and an increase in numbers of foreign fighters," said Afghan Defence Ministry spokesman Gen. Dawlat Waziri. "They are used in front lines because they are war veterans."

One senior security official put the number of foreigners fighting for both Islamic State and the Taliban in Afghanistan at roughly 7,000, most operating across the border from their home countries of Pakistan, Uzbekistan or Tajikistan, but also including others from countries such as India.

While such foreign fighters have long been present in Afghanistan, there has been growing concern that militants from Arab countries, who have left the fighting in Syria as pressure on Islamic State there has grown, have also been arriving in Afghanistan through Iran.

"We are not talking about a simple militant fighter, we are talking about battle-hardened, educated and professional fighters in the thousands," another security official said.

"They are more dangerous because they can and will easily recruit fighters and foot soldiers here."

The United States, which first came to Afghanistan in 2001 after Al Qaeda's attacks on New York and Washington, is considering sending more troops to Afghanistan, in part to ensure the country does not become a haven for foreign militant groups.

But while Afghan and U.S. officials have long warned of the risk that foreign fighters from Syria could move over to Afghanistan, there has been considerable scepticism over how many have actually done so.

In April, during a visit to Kabul by U.S. Defense Secretary James Mattis, the commander of NATO forces in Afghanistan, Gen. John Nicholson, said that, while ISIS had an "aspiration" to bring in fighters from Syria, "we haven't seen it happen".

U.S. commanders say that, in partnership with Afghan security forces, they have severely reduced Islamic State's strength over the past year with a combination of drone strikes and Special Forces operations.

But according to Afghan intelligence documents reviewed by Reuters, security officials believe Islamic State is present in nine provinces, from Nangarhar and Kunar in the east to Jawzjan, Faryab and Badakhshan in the north and Ghor in the central west.

"In recent operations, we have inflicted heavy losses on them but their focus is to recruit fighters from this area," said Juma Gul Hemat, police chief of Kunar, an eastern province where Islamic State fighters pushed out of their base in neighboring Nangarhar have increasingly sought refuge.

"They are not only from Pakistan or former Taliban, there are fighters from other countries and other small groups have pledged their allegiance to them," he said.

Afghan officials say newly arrived foreign fighters have been heavily involved in fighting in Nangarhar province, Islamic State's main stronghold in Afghanistan, where they have repeatedly clashed with the Taliban.

Security officials say they are still investigating Monday's embassy attack and it is too early to say whether there was any foreign influence or involvement.

Islamic State put out a statement identifying two of the attackers as Abu Julaybib Al-Kharasani and Abu Talha Al-Balkhi, Arabic names that nonetheless suggest Afghan origins. Khorasan is an old name for the Central Asian region that includes Afghanistan, while Balkh is a province in northern Afghanistan.

What little contact is possible with fighters loyal to Islamic State in Afghanistan suggests that the movement itself is keen to encourage the idea that foreign militants are joining its ranks.

"We have our brothers in hundreds from different countries," said an Islamic State commander in Achin district of Nangarhar.

"Most of them have families and homes that were destroyed by the atrocity and brutality of the infidel forces in Arab countries, especially by the Americans," he said. "They can greatly help us in terms of teaching our fighters new tactics, with weapons and other resources."

Editing by Alex Richardson

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Embassy, mosque attacks fuel fears ISIS bringing Iraq war to Afghanistan - Reuters

For too long, the Saudis have complained about the 'loss' of Iraq to Iranian influencewithout acknowledging that their almost complete refusal to establish ties with Baghdad achieved little other than creating the vacuum that Tehran has sought to fill. But there are signs that Riyadh has changed tack and has decided to contest Iran's influence in Mesopotamia.

Work on reopening the border crossing between Iraq and Saudi Arabia at Arar has been completed and there are plans to open the other seven crossings. Having been closed for the most part since Iraq's invasion of Kuwait in 1990, this is a potentially significant event.

The border reopening follows on from an increasingly active effort at establishing some person-to-person links through senior visits. In February, Saudi Foreign Minister Abdel al-Jubeir broke a 20-year drought by visitingBaghdad. Iraqi Prime Minister Haider al-Abadi visited Saudi Arabia in June this year and last month the Saudi Chief of General Staff Abdulrahman al-Bunyan reciprocated, at which time the decision to reopen the border crossing was made.

Iraq has sent trade delegationsto Saudi Arabia seeking investment, but perhaps the most interesting visit occurred in the past few days, when Muqtada as-Sadr made a very public visit to the Kingdom and had a meetingwith the Crown Prince. As-Sadr represents an interesting line of contact for the Saudis an ambitious and enigmatic Shi'a cleric-politician who portrays himself of late as an anti-corruption Iraqi nationalist. Both he and the Saudis potentially benefit from a closer relationship in the future. Regardless, the public nature of the meeting itself has served as a further message to Tehran that Saudi Arabia may finally have decided that the only way to limit Iranian influence in Iraq is to actively challenge it.

Rodger Shanahan

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Saudi Arabia's change of tack on Iraq - The Interpreter

Jason Dasey and PJ Roberts break down Thailand's resilient 1-1 draw with the UAE in World Cup Qualifying. Australia prevailed 3-2 against Saudi Arabia courtesy of Tom Rogic's second half stunner. Iraq won their one and only Asian Cup title under Brazilian Jorvan Vieira, third from right, in 2007.

On the 10th anniversary of Iraq's shock 2007 AFC Asian Cup triumph, then-coach Jorvan Vieira says tea drinking, and sleepless nights of checking on his players, were the keys to the football success of a war-torn nation.

Iraq stunned Saudi Arabia 1-0 in the final, having beaten South Korea on penalties in the semifinals, and Vietnam in the quarterfinals.

In the group stage, they upset Australia 3-1 and drew with co-hosts Thailand and Oman.

"The secret was not to sleep. Even early in the morning, I would be looking around the floors to make sure everything was okay," Brazilian-born Vieira told the-afc.com. "I would go in the players' room and drink tea with them to give them confidence. This is my way, but with this way I have won many titles."

Iraq had been given little chance of going far in the tournament after heavy defeats to the Koreans and Uzbekistan in pre-tournament friendlies.

The ongoing war in Iraq had made a proper preparation for his squad almost impossible.

"I knew we could do something at the Asian Cup, and, by luck, I chose the right group of players," Vieira said. "But every day, some players lost relatives. It was tough to prepare the team in these circumstances, but it was a great experience and gave me a chance to grow too."

In the final in Jakarta, a 73rd-minute header from striker Younis Mahmoud from Hawar Mulia Mohammed's corner was the difference between the teams in front of 60,000 fans.

It was Iraq's first final while Saudi Arabia were three-time winners of the tournament, having beaten defending champions Japan 3-2 in the semifinals.

Vieira had been in charge of Iraq for only two months before the tournament, and was something of an unknown quantity.

"My memory is that last minutes when victory nearly escaped our hands when [Saudi striker] Malek [Mouath] headed and the ball went over the bar," he said.

"I was shouting at everybody and wanted to go on the field, but when the ball went over, I knew we were champions."

In recent years, Vieira served as head coach of Kuwait (2013-14), before becoming manager of Egyptian side Smouha Sporting Club in 2016.

The former defender, now 63, played for Vasco da Gama, Botafogo and Portuguesa in his native Brazil in the 1970s.

Follow @ESPNFC on Twitter to keep up with the latest football updates.

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Former Iraq boss Vieira marks 10th anniversary of Asian Cup ... - ESPN FC

SOUTHWEST ASIA, Aug. 1, 2017 U.S. and coalition military forces continued to attack the Islamic State of Iraq and Syria yesterday, conducting 29 strikes consisting of 35 engagements, Combined Joint Task Force Operation Inherent Resolve officials reported today.

Officials reported details of yesterday's strikes, noting that assessments of results are based on initial reports.

Strikes in Syria

In Syria, coalition military forces conducted 20 strikes consisting of 23 engagements against ISIS targets:

-- Near Dayr Az Zawr, three strikes destroyed 13 ISIS oil stills, an oil storage barrel and an ISIS chemical weapons factory.

-- Near Raqqa, 16 strikes engaged 11 ISIS tactical units and destroyed 14 fighting positions, a tactical vehicle, a mortar system and a vehicle-borne-bomb facility.

-- Near Shadaddi, a strike engaged an ISIS tactical unit and destroyed a command-and-control node and an ISIS-held building.

Strikes in Iraq

In Iraq, coalition military forces conducted nine strikes consisting of 12 engagements against ISIS targets:

-- Near Huwayjah, three strikes destroyed two ISIS financial headquarters, three vehicle-borne-bomb factories and an explosives cache.

-- Near Mosul, a strike suppressed a mortar team.

-- Near Qaim, a strike engaged an ISIS tactical unit and destroyed two staging areas.

-- Near Rawah, three strikes engaged an ISIS tactical unit and destroyed a vehicle-borne-bomb storage facility, a vehicle and a weapons storage facility.

-- Near Tal Afar, a strike engaged an ISIS tactical unit and destroyed four fighting positions and two supply caches.

Previous Strikes

Additionally, five strikes were conducted in Syria and Iraq on July 29-30 that closed within the last 24 hours.

-- On July 29, near Raqqa, Syria, 10 strikes engaged five ISIS tactical units; destroyed three command-and-control nodes, a storage facility and a fighting position; and damaged nine fighting positions.

-- On July 30, near Huwayjah, Iraq, a strike destroyed a vehicle-borne-bomb factory.

-- On July 30, near Shadaddi, Syria, two strikes engaged two ISIS tactical units and destroyed six vehicle-borne bombs, four ISIS-held buildings and a command-and-control node.

Part of Operation Inherent Resolve

These strikes were conducted as part of Operation Inherent Resolve, the operation to destroy ISIS in Iraq and Syria. The destruction of ISIS targets in Iraq and Syria also further limits the group's ability to project terror and conduct external operations throughout the region and the rest of the world, task force officials said.

The list above contains all strikes conducted by fighter, attack, bomber, rotary-wing or remotely piloted aircraft; rocket-propelled artillery; and some ground-based tactical artillery when fired on planned targets, officials noted.

Ground-based artillery fired in counterfire or in fire support to maneuver roles is not classified as a strike, they added. A strike, as defined by the coalition, refers to one or more kinetic engagements that occur in roughly the same geographic location to produce a single or cumulative effect.

For example, task force officials explained, a single aircraft delivering a single weapon against a lone ISIS vehicle is one strike, but so is multiple aircraft delivering dozens of weapons against a group of ISIS-held buildings and weapon systems in a compound, having the cumulative effect of making that facility harder or impossible to use. Strike assessments are based on initial reports and may be refined, officials said.

The task force does not report the number or type of aircraft employed in a strike, the number of munitions dropped in each strike, or the number of individual munition impact points against a target.

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Strikes Continue Against ISIS in Syria, Iraq - Department of Defense

While Iraqs war against terror is far from over, the conclusion of the Mosul offensive should mark the high point in the cost of war, and its gradual de-escalation has positive implications for the economy that will be explored here.

But first a quick look at the dynamics of Iraqs economy. The economy is driven by the state, which derives over 90% of its revenues from oil exports, while its spending dominates all aspects of the economy. It employs over 50% of the work force and is the largest player in the non-oil economy with its orders/contracts driving multiple industries.

The double whammy of the Daesh invasion of the third of the country and the collapse of oil prices in 2014 had a devastating effect on the economy as government finances were crushed by soaring expenses and plummeting revenues.

The diversion of resources to a war footing with escalating military spending, escalating spending on IDPs[i] at over 10% of the population while maintaining basic services forced the government into dramatic cutbacks that had knock-on effects on the economy. Exasperating the economic contraction was the fact the economy started a slow-down in early 2014 due to the uncertainties and violence ahead of the elections in April 2014.

The governments response to the crisis can be seen over three distinct phases almost mirroring the military progress to date: Mid 2014-late 2015 was dominated by shock treatment in response to the severity of the crisis; late 2015-late 2016 saw the emergence of economic strategies to address the crisis, and early 2017 onwards builds on the economic strategies and plans for post-conflict reconstruction and rebuilding.

The table below shows the three phases over the four-year period.

Moreover, the responses were felt over three different categories of government spending: salaries and pensions, oil & non-oil investment spending and military capital spending (military and security salaries included in overall salaries).

The government maintained overall spending on salaries and pensions, yet the composition shifted significantly towards military and security spending starting in 2014 with the re-allocation of human resources towards the war effort and later on by the incorporation of the Popular Mobilization Units (PMU) into the state.

The effect, while necessary, had a negative consequence on consumer spending, as the process was far from smooth and involved significant delays in the payment of salaries and pensions and the imposition of a levy on salaries, initially 3% increasing to 4.8%, as a contribution for the war effort and IDPs. Moreover, the government introduced new and increased existing consumption taxes on a large number of consumables while it also increased utility prices further denting consumer purchasing power.

Non-oil investments bore the brunt of the cuts as the government sharply curtailed all capital spending and investments, as the table above shows, with 2016 non-oil spending at 12% of peak spending in 2013. The process involved non-payment of finished and ongoing contracts/projects with the government accumulating significant arrears in the process (estimated in 2016 at USD 4 billion or 2.4% of GDP) and cancelling planned spending/investments.

The effects were disastrous for the private sector businesses at the receiving end of the cuts whose finances deteriorated which in turn affected the quality of bank loans as these businesses dominated bank lending. An unintended consequence of the declining quality of loans was the inability of a number of illiquid banks to honor consumer withdrawal of deposits further hurting consumer purchasing power.

Although oil investment spending declined meaningfully in 2015 and 2016, oil production/exports experienced significant growth of 20%/30% and 21%/12% respectively in 2015 and 2016 which came at the cost of accumulating significant arrears to International Oil Companies (IOCs). While these arrears are being paid, constraints on government finances will affect future production growth.

Looking forward, a combination of revival in non-oil investment spending in 2017[ii] and the benefits following the peak of the war effort should be a positive economic driver for the non-oil economy in the immediate term. The effects of the conclusion of the Mosul campaign are a mixture of cuts in military expenses and a pick-up in reconstruction activities with their associated multiplier effects. While, each on its own might be small yet the whole of the parts will be greater than the sum of the parts as they will re-enforce each other.

The immediate effect of the peak in military activities will be the sharp cuts in spending on weapons and ammunition, estimated annually at USD 2.5 billion[iii] or 1.5% of GDP, but likely to be higher given the intensity of the Mosul campaign. A similar peak would be in the number of IDPs and the costs of aid provisions for them. Concurrent with the peak in military spending should be a multi-month reduction in the number of the Popular Mobilization Units (PMUs) as its members would seek a return to civilian life (annual bill estimated at USD 2.5 billion[iv] or 1.5% of GDP).

These cuts in expenses will be accompanied by the efforts to stabilize the liberated areas starting with clearing the wreckage of war, re-installing basic services, repairing and rebuilding of homes, businesses re-opening and all efforts at return to normality, which crucially is coupled with an accelerated and unprecedented foreign aid led by the UN.

The immediate-term benefits should be felt over the next few months as the economy is gradually liquefied, while in the medium-long term the country will benefit from the expansionary effects of the reversal of the forces that crushed it over the last three years. The economic revival would gradually build momentum until the major post-conflict reconstruction process starts.

Disclaimer: Ahmed Tabaqchalis comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

[i] Internally displaced Persons (IDPs). Data on IDPs from UNHCR, the UN Refugee Agency.

[ii] While it was planned for 2017 as a whole, it will likely unfold over the second half of 2017. Such capital spending will take time to move from the planning stage to the implementation stage given the chronic structural and institutional challenges that Iraq suffers from while at the same time all resources were focused on the battle to liberate Mosul.

[iii] The figure of USD 2.5bn was provided during a presentation by Iraqi government advisors in a recent conference. Data from the Stockholm International Peace Research Institute (SIPRI) for 2016 shows total military equipment spending at USD 6.2 bn but notes that data is highly uncertain.

[iv] As above the figure of USD 2.5 billion was provided during a presentation by Iraqi government advisors in a recent conference.

Note: All economic data is from the IMF through the Iraq country report and WEO and REO databases.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The AFC Iraq Fund is invested in Iraq.

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Ahmed Tabaqchali - CIO Of Asia Frontier Capital Iraq Fund - Some Of The Economic Consequences Post Mosul - Seeking Alpha