Oil for Blood
The BBC tut-tuts over yet another proof of American helplessness. In an article entitled Oil attacks target Iraq recovery, author Matthew Davis writes "despite huge efforts to secure oil terminals and the 'economic lifelines' that carry oil through Iraq's deserts, they are proving almost impossible to protect."
Coalition forces, Iraqi police and soldiers backed by rapid response vehicles and air patrols are guarding hundreds of terminals, refineries and pumping stations. But night after night, out in the open countryside, the saboteurs manage to damage the pipelines. ... The latest strikes will have a 'big impact' in terms of Iraq's oil revenues, but perhaps not the $1bn cost of the most pessimistic forecasts, he said.
The "big impact" was later spelled out as amounting to $200M in lost revenues over the last seven months. Reuters put some numbers on the losses: "a trio of pipeline sabotage attacks that brought Iraq's 1.6-1.8 million barrels per day (bpd) of exports to a halt. Oil officials in the country said they hoped to resume limited supplies of around 700,000 bpd quickly, but repairs continued on Friday, sources said." Nearly as damaging to world oil supplies was industrial action in Europe.
Adding additional stress to an already taut global supply chain, 200 Norwegian oil workers went on strike over pay Friday, forcing oil companies there to begin shutting in nearly 400,000 bpd -- or 13 percent -- of output from the world's third-biggest exporter.
Global oil supplies, which America thanklessly protects, may be the new strategic target of terrorists. According to Bloomberg:
Iraqi militants this week attacked pipelines that supply the nation's Persian Gulf oil terminals, halting shipments from facilities that handle 90 percent of Iraq's exports and costing the country $50 million a day. Sabotage also has curtailed exports through a pipeline to the Turkish port of Ceyhan. Attacks on Iraq's oil industry are increasing as the U.S. prepares to hand over power to an interim government on June 30, hampering efforts to increase production and fund reconstruction. Any decline in Iraqi output, 2.6 percent of global supply last month, undermines the Organization of Petroleum Exporting Countries' ability to reduce near-record oil prices.
'There is no capacity in OPEC to make up for the absence of Iraq oil,' said Fadhil al-Chalabi, executive director of the London-based Centre for Global Energy Studies and a one-time undersecretary at Iraq's Oil Ministry. 'The sabotage now has been coordinated to hit the north and the south, cutting them off. It has the double effect of weakening the Iraqi government and tightening oil markets.'
Concern that terrorists will disrupt Middle East oil supplies has added as much as $10 a barrel to the price of crude, ministers from OPEC's estimated this month. Oil prices in New York closed at a record $42.33 a barrel on June 1, the first trading day after an attack on oil company offices in Saudi Arabia killed 22 people.
The dynamics here are complex. The damage to oil facilities will be partially offset by higher prices from the product which reaches the market. Terrorist activity has the same economic effect as a cartel-mandated reduction in production. It means that oil exporting countries can charge more for less. For so long as terrorist damage is restricted to fairly cheap sections of pipe through "Iraq's deserts" -- in the BBC's phrase -- or to expatriate Filipino cooks, Indian janitors or Australian chefs, the oil exporting countries can actually be net gainers from terrorist activity.
The Belmont Club pointed out in an earlier post that the STRATFOR consulting company estimates consumers are already paying an $8/barrel "terror premium". Part of that goes to -- you guessed it -- paying oil producing countries money to "assist" them in securing facilities. For example, "the Canadian oil company Nexen, which operates the ash-Shihr oil export terminal, agreed in January 2003 to provide assistance to the Yemeni government in improving security" after an attack on the French-flagged tanker Limburg in 2002. Over and above the private security utilized by oil companies, Americans provide taxpayer dollars and lives to provide strategic cover, such as maritime security and forward force projection, like that kind that the BBC delights in reviling.
In particular, America bears a disproportionate share in keeping "oil chokepoints" open. World oil flows, on which Europe, Japan and the Third World are heavily dependent, go through the Bab el-Mandab, Bosporus, Hormuz and Malacca Straits, not to mention the Suez canal. Reader MT links to the case of the Straits of Malacca described in the Economist's article Going for the Jugular.
Facing west from Singapore's shores, it is hard to make out the Strait of Malacca, thanks to all the boats and islands scattered across the water. An endless procession of tankers, container ships, tugs, fishing boats, ferries and cruise-liners sails between tiny islets, through a shipping lane that narrows to as little as one and a half nautical miles at one point. Some 50,000 vessels, carrying roughly a quarter of the world's maritime trade, pass through the strait every year. So do about half of all seaborne oil shipments, on which the economies of Japan, China and South Korea depend. If terrorists were determined to devastate the world economy, it would be hard to find a better target.
So, at any rate, reasoned many of the participants at the Shangri-La Dialogue, a regional security conference organised by the London-based International Institute for Strategic Studies in Singapore last week. Tony Tan, Singapore's deputy prime minister, pointed out that a ship sunk in the right spot, where the sea lane is only 25m deep, “would cripple world trade”. He also raised the possibility of hijacked ships being turned into “floating bombs” and crashed into critical infrastructure such as oil refineries or ports. Donald Rumsfeld, America's secretary of defence, stopped in at the conference to push the “regional maritime security initiative”, whereby America would help South-East Asian countries defend against such attacks.
At the moment, the strait is relatively poorly monitored, especially north of Port Klang, where the sea lanes widen. The cash-strapped Indonesian navy has perhaps 20 seaworthy patrol boats, to guard an archipelago of 17,000 islands. Singapore and Malaysia are richer and better equipped, but have no right to pursue ships into Indonesian waters. Singaporean sailors say that when they pass information to their Indonesian counterparts, it disappears into a black hole. Malaysia and Indonesia have already rejected the idea of American patrols in the strait or rapid-response units at the ready, both out of prickliness about sovereignty and for fear of inflaming anti-American feelings among their citizens. But they say they would accept American help in the form of advice, equipment and training.
In other words, Indonesia and Malaysia, peace be unto them, would accept American money; money for which America would get no thanks, to secure oil supplies through a Strait not a drop of which is used in America but by Japan, Korea and China. The War on Terror may prove to be "all about oil" but not in the way the Peace Lobby means it. International energy security, to which the Europeans contribute industrial action, is premised on the "commons" of American-provided maritime security. It is being turned into a money machine through which the most atrocious regimes on earth can extort ever increasing amounts of political influence and wealth through a glorified protection racket by proxy. Ask not for whom the bell tolls; it tolls for thee. Ask not for whom the cash register rings; it rings for he.