Oil Markets and Terrorism

Crude oil is the most actively traded commodity in the world today. Approximately 85 million barrels of oil are produced daily on the planet, each of which has a variable price tag depending on market factors at the time. Those factors are numerous: global supply and demand for crude oil and its products, weather conditions, legislative impacts, mechanical disruptions or accidents, political developments, the speculative element and, of course, the threat of terrorism. Speculation in crude oil is rampant because of its price volatility, creating at times a risk premium in the price of oil on top of the other factors.

The threat of terrorism and its potential catastrophic effect on oil prices holds a special place. This is because major oil producing centers are heavily influenced or threatened by Islamic radicalism. A war is currently being waged in Iraq, site of some of the largest oil reserves in the world, where the country is considerably underproducing versus potential. Civil unrest brews in Nigeria with rebels kidnapping oil workers or destroying offshore production facilities. A major exporter and terrorist financier, Iran, is embroiled in a faceoff with the U.S. and UN over its nuclear ambitions. And, then, there are a seemingly infinite set of other targets available to would-be terrorists around the world: refineries, ships, pipelines, terminals, etc. Since the oil supply/demand balance is so tight, there is no compensatory "pad" or buffer available to offset the disruptive possibilities of terrorist events. The speculative element in the oil markets takes note of all these ominous factors and reacts accordingly.

The Gambit reflects a chilling scenario whereby a mere handful of individuals set out to deliberately target oil-related assets in a scripted, orchestrated fashion for the sole purpose of spiking oil prices. Terrorism for profit. The objectives of the group are both profit-sharing and larger strategic benchmarks. The effort is led by a Saudi prince fixed on effecting a massive wealth transfer to the Kingdom. Part of the effort rests not only on physical destruction but on more subjective propaganda factors, i.e. fake news announcements via media manipulation.

Is the plot outlined in The Gambit realistic? Absolutely. It would not take much of an effort to disrupt the flow of oil around the world. A determined group of people, properly financed and having the right contacts, could quickly leverage their efforts. This is even more so if a government (as in Iran) were to clandestinely support the effort, as the story of The Gambit testifies. A small amount of explosives, properly placed, can do wonders virtually anywhere in the oil producing world.

Please note the targets identified in The Gambit. Those include Saudi offshore platforms, a Russian pipeline pumping station, a German refinery, an American supertanker pirated at the entrance to the Strait of Hormuz, and a major refined products distribution terminal in Houston. Any of these targets are imminently doable and, as The Gambit amply demonstrates, even the most rudimentary of attacks, when performed in succession with a proper propaganda overlay, easily snowballs price action in the oil markets.

A distinctive feature of The Gambit is that the terrorist agenda is embraced by both oil producers and traders. Why leave terrorist events to happenstance, particularly if performed by militant mobs with other motives? Why not arrange the events for a profit, having loaded up on a sizable oil trading position in advance? The Gambit ends with a hedge fund manager actually funding the next wave of attacks, having learned that the effort conducted earlier by a separate group easily succeeded.

The Preface of The Gambit inquires, ominously, as to what extent the conspiracy detailed in the book has already occurred? That is not a flippant question, designed as a come-on. It is very easy to visualize a Saudi prince funding such an effort for religious or political motives. Could the Saudi government actually sponsor secret militant groups for the sole purpose of keeping oil markets up? Easily. It is certainly not difficult to see Iran performing this function; are they supporting militias in Iraq for the sole purpose of destroying pipelines and oil related facilities there? Hezbollah could quickly be engaged to go after petroluem targets globally. And who is financing the rebel effort in Nigeria? How easily could disaffected Islamists in Europe be financed and engaged toward wreaking havoc on that continent's oil facilities? Ready to act at the proper signal?

It is not beyond the pale to see American financial interests similarly engaged. It is this extent to what is possible, with resultant devastating impacts on an oil-hungry world, that makes the vision outlined by The Gambit so terrifying.

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