The ouzo effect

In my writing from my trip to Turkey, I marvel at rakı and its mysterious properies (see here and here):

Rakı is Turkey's national liquor, made from distilled fermented grapes and flavored with anise. (Greeks call it ouzo, and Iranians call it arak.) Rakı is drunk diluted. It is clear, but, because of magic, turns cloudy when water is added. Once, I was served rakı in a bar, and I added water, but it was already diluted, so the Turks I was with were able to tell that I'm sort of a poseur sometimes. Turks are very good sports when foreigners mess up their customs.

My friend, Zach, just called to tell me of the ouzo effect. In short, there is an oil in anise (which is used to flavor rakı) that is strongly hydrophobic and causes formation of microdrops. It is soluble in ethanol, and so raki is strong enough to keep the oil in solution, but if the ethanol concentration is lowered (by diluting with water) the drops form and make the rakı become milky.