OIL CRISIS: The oil tsunami
Youssef M. Ibrahim

October 21, 2005

DUBAI, United Arab Emirates -- The global oil market environment is becoming a target of opportunity for terrorists and world powers. The terrorists increasingly see disruptions of oil facilities as a valid strategy in their war against governments that they oppose. World powers like China, Japan, the United States and India are driven into increasing confrontation fighting for diminishing oil supplies.

These are sinister developments, ingredients for the next tsunami to hit the already turbulent world of oil where prices have gone so high that they are depressing world economies.

The trouble from insurgents blowing up oil facilities is no less dangerous than the pressures from China, India and Japan`s voracious appetite for more oil.

China is a major superpower showing that it will not hesitate to use pressure to secure oil. The Chinese are developing a strong foothold in Pakistan, where thousands of Chinese workers are building a new port in Baluchistan at Gwadar, right at the entrance to the Persian Gulf.

One of the main causes of friction between China and Japan now involves access to oil and gas deposits in the East China Sea. When the Security Council tried to impose sanctions on Sudan - one of China`s main oil suppliers - over the issue of Darfur, the Chinese said no.

In May when a massacre occurred in Uzbekistan with hundreds of people killed on the orders of President Islam Karimov, the United States and Europe asked for an international investigation. China, which had signed a $600 million gas deal with Uzbekistan, blocked it.

One needs to ring the alarm bell as this Asian pressure combines with terrorist attacks to form the elements of the perfect storm heading directly toward the Arabian Peninsula.

At the moment Iraq is the biggest model for jihadists seeking to spread chaos, fight the pro-American government there and eventually defeat the United States invasion - and the American project in the region by attacking oil facilities. But soon this tactic will travel to other oil-producing countries. There have already been attacks on oil installations in Chechnya, Pakistan, India, Russia, Azerbaijan and Nigeria.

Since the American invasion of Iraq, there have been more than 300 attacks on pipelines, refineries, and other facilities. Iraqi refineries have been looted to a point that the United States and Kuwait are supplying gasoline and heating oil to Iraq, which sits on top of one of the world`s largest oil reserves.

Iraqi oil production has fallen drastically, and with it so have Iraqi oil revenues. The Northern pipeline that carries Iraqi oil to Turkey, which is repeatedly blown up, has never really functioned since the war.

The decreasing oil supplies, the Chinese-Japanese demand juggernaut and insurgents targeting oil have added an `anxiety premium` to the price of oil - a fear tax if you will - which accounts for more than $10 a barrel, leading to the current prices of $65 per barrel. The winter might well see prices going higher.

Western intelligence agencies are particularly concerned that many of the jihadists fighting in Iraq are non-Iraqi Arabs from Arab oil-producing countries. They come from Saudi Arabia, Algeria, Sudan, Egypt, Kuwait and Qatar, among others. These jihadists will return to their countries supplied with a well-practiced model. Do the math.

The oil crisis we face today is not the supply-driven crisis we had in 1973, when the late King Faisal of Saudi Arabia led the oil boycott of the United States and the West to protest against their support of Israel in the October war of that year. This is a demand-driven crisis, which leaves the world more dependent on its most politically unstable area: the Greater Middle East, where 77 percent of the world`s oil reserves are located.

High prices will eventually push world economies to aggressively pursue a search for alternative sources of energy including solar, nuclear and oil sands, which are very expensive to create or extract, but everything is relative.

It still takes time to get from here to there.

We are in a bottleneck that will last for five to 10 years. OPEC is not the solution, as its members are already producing all the oil that they have. Nor are they spending money to increase production.

In fact, at this time, NO oil producer - from Russia to Saudi Arabia - is spending money on boosting its oil infrastructure to produce more oil. Instead, they are using huge new revenues to build up their economies and pay debts.

No one can blame them. They like the high prices and need the money.

As for the jihadist terrorists, they are already secure in the knowledge that blowing up an oil refinery or pipeline is much easier than ramming planes into the World Trade Center or blowing up subways in London and Madrid.

Their philosophy is guided by the likes of Osama Bin Laden, whose core belief is that war against what he calls `infidels` is a war against Western economies dependent on energy. So fasten your seat belts. We are in for a rough ride on oil prices.

Youssef M. Ibrahim is a former Middle East correspondent for The New York Times and energy editor for the Wall Street Journal