Investor's Business Daily, April 27th, 2007
Jihad: While we're glad the Saudis managed to foil another attack on their oil facilities, it was the third time since 9/11 that al-Qaida has tried. It won't be the last.
Perhaps the most devastating attack Osama bin Laden could deliver on America wouldn't be in America. It would be in Saudi Arabia, on its oil supply. Saudi Arabia is the world's top oil exporter, and Osama has called for attacks on its refineries and pipelines expressly to cripple our economy.
Though details are sketchy, the Saudis say they broke up a terror plot to attack oil installations, arresting more than 170 suspects. Police seized weapons and millions in cash from seven armed cells.
Al-Qaida already tried to attack the giant Abqaiq refinery last year. It processes crude shipped to the U.S. and elsewhere. The terror group also attacked a refinery co-owned by a state-run Saudi company and ExxonMobil in 2004.
It's clear that oil is a primary al-Qaida target. The impact on our economy from a successful attack could be devastating, especially if terrorists knocked out the Abqaiq refinery, the most vulnerable choke point 14 the entire Saudi network.
Moderate to severe damage would slow output the first two months from an average 7 million barrels a day to a trickle of 1 million -- a loss equal to a third of our daily consumption, reckons Robert Baer, ex-CIA case officer who was stationed in the Mideast.
For seven months after the attack, daily production would remain as much as 4 million barrels below normal -- a reduction roughly equal to what all of the OPEC partners were able to take off the market during their 1973 embargo, Baer notes.
A loss of just a couple million barrels a day from a more moderate al-Qaida attack would still be catastrophic. Saudi Arabia has the world's only important surplus production capacity -- 2 million barrels a day. This keeps the market liquid -- and stable.
And since the Saudis influence the price of oil globally by deciding how much to produce, even countries that don't buy Saudi oil would be vulnerable if flows were disrupted. An attack would also come at a time when the world oil market is the tightest in decades.
In the event of such an attack, the U.S. Strategic Petroleum Reserve could support the domestic market for only about 70 days. And if the Saudis' contribution to the world's oil supply were cut off, crude futures could, quite realistically, skyrocket from around today's $60 a barrel to as much as $150 a barrel.
The Saudis like to boast about all the security they have around their oil facilities, but they're still vulnerable to attack. To cripple the entire Saudi oil network, all terrorists would have to do is get a big fire raging at the Abqaiq refinery, which is protected by -- would you believe -- chain-link fences.
Last year, al-Qaida proved they can penetrate the refinery's outer security ring. They'll be back, just like they came back to finish off the World Trade Center. Let's hope the Saudis are ready.
