Wednesday, October 20
Cash from chaos
Christopher Dickey and Tom Masland, Newsweek, October 25, 2004

Price explosion: Sabotage and terrorist attacks are turning up the heat on the world’s jittery oil markets

A massive tower of smoke roiled skyward above the green landscape of the Niger Delta on the west coast of Africa. Oil was burning near a ruptured pipeline, and the huge Anglo-Dutch multinational Shell Petroleum Development Co. of Nigeria reported sabotage caused the break. Were rebels behind it? Terrorists? Or just thieves trying to steal oil and scrap metal? The only clue was a hacksaw at the scene, apparently dropped in a moment of panic when the line erupted like a gusher.

International oil markets shuddered. YOUTHS TORCH OIL PIPELINE, PRICE HITS $54.45 PER BARREL, screamed the headline of Nigeria's leading paper the next day, exaggerating the connection, certainly, but not by much. The global oil supply is so tight, the market psychology so close to the brink of crisis that even small disruptions can send prices soaring to new records.

Wasn't it just last year that we heard the invasion of Iraq would help make oil cheaper, safer, more secure? President George W. Bush came to office alarmed about increasing U.S. dependence on autocratic and corrupt regimes that rule atop the world's biggest oilfields: among them the mullahs of Iran, the royal family of Saudi Arabia, the democratic yet venally corrupt government in Nigeria.

And then there was Saddam Hussein. By invading Iraq, American forces would remove one dictator and the threat he posed to the interests and security of the United States. They would also stabilize one of the world's biggest oil producers, and begin spreading democracy.

More oil would flow to market, and more freedom would flow to the region. Yet we've seen the opposite. The world's autocratic and corrupt oil producers are richer than they have been in years. OPEC members alone expect an estimated $300 billion in total revenues this year, much of it in windfall profits.

Analysts point to many reasons for the huge spike in prices, more than 60 percent over the past year. In every troubled corner of the oil-producing world the list of shocks has grown, from terrorist attacks in Saudi Arabia to hurricanes in the Gulf of Mexico; the Yukos commotion in Russia; unpredictable demagoguery in Venezuela.

Shipping lanes in Asia are plagued by pirates and threatened by terrorists. There's growing unrest along the African coast. All this is happening while demand from China surged 30 percent last year, beyond almost anyone's expectations. A cold winter is coming on, upping demand for heating oil, and Americans keep driving like there's no tomorrow.

Yet it's the untamed insurgency in Iraq that has had the most pernicious impact on energy supplies and price speculation. The country should be a major oil producer.

Under Saddam Hussein, despite sanctions, it was able to pump almost 3 million barrels a day. Now, because of widespread sabotage, it has to work very hard to export 2 million. In a tribute to the bravery of its workers, it reached 2.5 million barrels on Sept. 27. But illusions that Iraq could finance its own occupation evanesced like a mirage last year.

Officials estimate pipeline sabotage alone is costing the country (Iraq) $7 million a day. [...more]

... The Saudis' own projected windfall is estimated upwards of $50 billion over the next year.What the Saudi government does with that money is critical, says Rachel Bronson of the Council on Foreign Relations: "The answers will tell us how serious they are about reform." Crown Prince Abdullah, the de facto ruler, has said a large part of the money will go into paying down the country's huge debts.

More billions are supposed to go into vocational training for young Saudis, who've been easy recruits for the likes of Osama bin Laden. And there will also be foreign investments. But even Saudi officials close to the top leadership worry the flood of money will bring back the regime's old complacency. "The big risk is overconfidence," says an adviser to one of the senior princes.

In fact, the biggest risk is that the violence we've already seen in Saudi Arabia intensifies, that the Iraq war starts to spill across the border, or there's a dramatic blow to the regime that nobody could anticipate.

If a villager with a hacksaw in Nigeria can move prices for a few minutes, an assassin in Arabia could change them for years to come.

-With Rod Nordland in Amman, Frank Brown in Moscow and Maziar Bahari in Tehran

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