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Terrorists are now targeting Saudi Arabia's oil infrastructure. How bad could things get?

NOT SO long ago, a certain well-known international figure penned a heart-felt speech he called his “Letter to the American People”. In it, he said: “You steal our wealth and oil at paltry prices because of your international influence and military threats. This theft is indeed the biggest theft ever witnessed by mankind in the history of the world.” The author was Osama bin Laden.

The impact of those chilling words is still being felt in today's chaotic energy markets. Oil prices have recently been above $40 a barrel. Politicians in oil-consuming economies are up in arms. Saudi Arabia, the head of the Organisation of Petroleum Exporting Countries (OPEC), has promised relief. It is trying to persuade reluctant cartel members to increase production when they meet on June 3rd in Beirut.

The Arab League's summit

Jane's Intelligence Review publishes “Attack highlights threat to Saudi infrastructure”, by Nawaf Obaid (subsciption required for full article). See also OPEC, Aramco and the International Energy Agency.

Typically, a decision by OPEC to increase quotas cools prices. This time may be different. A soaring world economy has sucked global inventories dry. Nearly every OPEC producer, save Saudi Arabia, is already producing about as much oil as it can. That means that any new OPEC promise of oil will have to come chiefly from the Saudis themselves—and that is not good news.

The main reason for worry is the so-called “terror premium”. Oil traders report that fears of terrorist attacks that might disrupt Middle-Eastern oil exports may account for as much as $8 of the current per-barrel price. That may be because what was once unthinkable now seems possible, perhaps even inevitable: a major terrorist attack, or series of attacks, on oil facilities within Saudi Arabia.

But how well-founded are these fears? For the terror premium to be justified, one needs to consider three questions: Is Saudi Arabia really so important? Would it in fact be easy to pull off a serious attack inside the desert kingdom? And even if such an attack were to take place, would the oil markets suffer so badly?

First, is Saudi Arabia so important? Until the recent rise in prices, most headlines had trumpeted the growing importance of other oil producers. The revival of Russia , overtaking even Saudi output, was supposed to undermine OPEC. Oil from Alaska would give America “energy independence”. The quest for oil in the Caspian Sea was called the “Great Game”. Striking oil in the waters off Brazil and west Africa was even likened to hunting elephants.

Full Article:
www.economist.com/business/displayStory.cfm?story_id=2705562

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