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Oil Kamikaze

In the past two months no fewer than a dozen people in Iraq and Saudi Arabia demonstrated in three separate incidents their willingness to die for the cause of hurting the U.S economy in what appears to be a new phase in the war on terror.

Unlike scores of martyrdom seeking suicide terrorists who have killed themselves throughout the world in recent years these ten had a goal which extended beyond plain murder. Their target was the global energy market, or more specifically oil -- in the words of al Qaeda "the feeding to the artery of the life of the Crusader nation".

The first of the attacks took place on April 24 when suicide terrorists aboard three boats attempted a coordinated attack on oil terminals in and around the southern Iraqi city of Basra. Had the attack succeeded, destroying Iraqi oil's last remaining outlet to the Persian Gulf, almost two million barrels per day of Iraqi crude would have disappeared from an oil market that, as it is, has almost no wiggle room.

A week after the Basra attack seven expat oil workers were murdered by their al-Qaeda affiliated colleagues in the Saudi city of Yanbu. Three weeks later, Saudi terrorists attacked two oil industry compounds at Khobar killing 22 people and taking dozens hostage.

By preventing Iraqi oil from going back online the perpetrators hope to increase the cost of the occupation to the American taxpayer and hence weaken American resolve. By terrorizing foreign oil workers in Saudi Arabia they undermine the Kingdom's capability to develop its oil industry. Success in both missions would destabilize the oil market and drive prices as high as possible to the detriment of the U.S.

All of those involved in these attacks surely assumed that there would be no return from their mission. Yet, realizing the sensitivity of the U.S. economy to fluctuations in energy prices, they were willing to forfeit their lives just to bring chaos to the world's trading floors.

Nothing conveys the terrorists' calculus better than a statement following the Khobar attack by al Qaeda's top leader in Saudi Arabia Abdulaziz al-Muqrin who was killed last week by Saudi security forces: "The operation [..] took the oil price to its highest levels of over $42, while Saudi Arabia is committed to America's prosperity by providing oil at the cheapest prices."

Oil terrorism is now emerging as one of the biggest threats to global economy. Pipelines, tankers and oil terminals are soft targets which can be easily sabotaged by those willing to sacrifice their lives in order to deny the U.S., the world's largest oil consumer, cheap oil. The fear premium of roughly $8 per barrel which brought the price of oil to its current peak is a true achievement for al Qaeda and its affiliates.

It is becoming increasingly evident that the America's growing dependence on imported oil allows terrorists in the Middle East to hurt the U.S. economy without ever leaving their home base. Terrorists no longer need to trick the FBI nor the U.S. immigration services in order to enter America and wreak havoc in our cities. By striking oil targets in their backyard, in the region where they enjoy the strongest support, they can hurt us just as well. Beyond the immediate additional cost to the U.S. economy of about $36 billion per year due to higher oil prices, the rise in oil prices dampens U.S. economic recovery and has almost offset President Bush's tax cut. Most economic recessions that hit the U.S. since the WWII were caused by oil crises. If oil terrorism continues, the $42 per barrel mark could soon be a fond memory.

According to the DOE, total petroleum demand is projected to grow at an average annual rate of 1.6 percent per year, from 19.6 mbd in 2002 to 28.3 mbd in 2025.

With diminishing spare production capacity the oil market is losing its shock absorbers and is more vulnerable than ever to supply disruptions. As terrorists become increasingly aware of our Achilles heel their motivation to exploit it will strengthen. To insulate itself from such disruptions the U.S. should increase its strategic petroleum reserve beyond its current 600 million barrels capacity and encourage other countries to do the same. More important, since most of the oil used in the U.S. is for transportation, the U.S. should reduce its overall demand for oil by increasing fuel efficiency and powering vehicles with made in America next generation fuels that are not based on oil. Without such action we may continue to protect our airports and planes only to find one day that oil kamikaze deny us the fuel to fly them.

Gal Luft is executive director of the Institute for the Analysis of Global Security (IAGS)

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