Saudi “Black Gold:” Will Terrorism Deny The West Its Fix?

The al-Qaida terror attacks in Saudi Arabia have thus far spared the country’s oil infrastructure, being concentrated in the capital, Riyadh. A bombing in that city on May 12 killed thirty-five people; a second bombing followed on November 8; it killed eighteen people and wounded 122. In late November, Saudi security forces seized a car stuffed with more than a ton of high explosive, apparently meant for the residential compound for foreigners, Seder village. A police raid on November 25 in Riyadh killed two suspects and police recovered RPGs, machine guns, electronic equipment and propaganda. Police believe that an attack similar to that of November 8 was being planned.

Wider Aims

There may also well be a broader motive behind the al-Qaida Saudi bombings and the recent explosions in Turkey, as one of the institutions attacked in Istanbul, Britain’s HSBC bank, also owns 40 percent of the Saudi-British Bank. The current campaign seems to be targeting the estimated four million foreign workers in the country, a number that includes 30,000 British and 30,000 American workers. In addition, at least 10,000 non-uniform U.S. troops remain in the kingdom.

The Saudi government is putting a brave face on its current problems. On December 1 the chairman of the Saudi Arabian Investment Authority, Prince Abdullah ibn Faisal, told a London audience that his country was one of the most stable countries in the world despite the recent al-Qaida attacks. Saudi authorities have had some limited successes against al-Qaida. Saudi security used DNA sampling to identify the two November 8 bombers. Ali bin Hamid al Maabadi al Harbi and Nasser bin Abdullah bin Nasser al Sayyari were described as Saudi nationals, but neither was a known terrorist.

In addition, Saudi intelligence is taking a cue from the techniques of cult “deprogrammers” by interrogating al-Qaida suspects in the presence of clerics who bring a Koran and guide suspects in seeing the error of their ways. The technique is said to be more profitable in eliciting intelligence than traditional hardcore interrogation methods, and has impressed U.S. intelligence operatives sufficiently that Saudis were allowed to use their system on a number of fellow countrymen held in Guantanamo.

Cost

The question remains, however; if al-Qaida was to shift its campaign from Riyadh to Saudi Arabia’s oil industry, what would be the consequences? The country is wholly dependent upon oil export revenues, which account for 90-95 percent of Saudi export earnings and 70-80 percent of state revenues. With strong oil prices so far in 2003, Saudi Arabia is expected to earn around US$70 billion this year in export revenues, up from US$15 billion in 2002.

More than one-quarter of the world’s known recoverable reserves lie under the Saudi sand. The Kingdom produces nearly ten percent of the world’s daily consumption of about 76 million barrels of oil per day. As a US$1 change per barrel in oil pricing represents roughly US$40 billion in currency, potential damage to the world economy from a sudden loss of Saudi oil could quickly run into trillions of dollars. Global production capacity has only about six million barrels of spare production capability, of which Saudi Arabia accounts for approximately four million bpd. Therefore any interruption in current Saudi production of around seven million bpd could not be replaced. Saudi Arabia’s proven reserves are estimated at over 263 billion barrels, and possible reserves could be as high as one trillion recoverable barrels.

Moreover, U.S. hopes of quickly reviving Iraqi production as a cushion to oil shocks seem increasingly naive in the face of ever more sophisticated guerrilla attacks against that country’s oil infrastructure. While Iraqi production prior to the U.S. campaign was approximately 3 million bpd, it is now clear that prewar levels of production will not be restored within the time frame necessary to establish an Iraqi government. Historical evidence from Iran, Russia, and Kuwait indicates that it usually takes about three years of stability to increase and sustain significantly higher production levels.

The Saudi oil infrastructure is the largest in the world. The major Saudi export terminals are at Ras Tanura and Juaymah, while the Petroline pipeline carries oil from the Abqaiq and Ghawar fields to Yanbu port on the Red Sea. The ports are Saudi Arabia’s oil export Achilles heel; furthermore, while the kingdom has around eighty oil and gas fields, more than half of the country’s reserves are concentrated in only eight fields, while the huge processing complex at Abqaiq handles about two-thirds of the country’s oil output. This gigantism produces an economy of scale, but the concentration makes it highly susceptible to terrorist attack.

What would such a disruption cost? The world has several interruptions to global oil supplies to use as a baseline for calculations. Noted economist Thomas Stauffer has made the most comprehensive estimates on the economic impact of oil flow disruptions. Stauffer figures that the OPEC-instituted oil embargo after the 1973 Arab-Israeli war cost the United States as much as US$600 billion in lost GDP and another US$450 billion in higher oil import costs. Stauffer puts the cost to the United States of the 1979 Iranian revolution and the subsequent Iran-Iraq war at an additional US$355 billion, as oil prices doubled after the two countries attacked each other’s oil facilities.

Weak Base

Even without the al-Qaida attacks, the Saudi economy is in a parlous state. Profligate spending by the royal family combined with an unemployment rate estimated at 15-20 percent are a severe drag on the country’s economy. Trade deficits combined with the 1990-1 Iraqi war have produced a total government debt approaching 100 percent of Saudi GDP. One of the highest birthrates in the world, estimated at 3.27 percent in 2003, has produced a young population in which 42.3 percent are fourteen or younger.

Furthermore, the state Wahabbi ideology is now a potential source of threat to the royal family. Stressing austerity and intolerance, this extremism marginalizes Saudi Arabia’s Shi’a population, estimated at 10 percent of the country’s total. The semiofficial discrimination breeds resentment, and the Shi’a are concentrated in the eastern provinces of the country, where most of the nation’s oil facilities are located. The Shi’a community is a fertile breeding ground for anti-royalist feelings. In addition, the Wahabbi emphasis on austerity alienates many of the Sunni youth from the hypocritical excesses of the royal family and their parasitic hangers-on. In short, lack of meaningful employment, discrimination, and hypocrisy have combined to expand the pool of potential terrorists; all of the aforementioned problems are incapable of quick fixes by the royal family.

The Future

All the world can do is wait and see if al-Qaida shifts its emphasis in attacks in Saudi Arabia from political soft targets like foreign workers’ compounds to economic soft targets like oil fields, pipelines and tankers. A sudden loss of 10 percent of the world’s daily oil needs would have a catastrophic effect on the global economy, as none of the other major oil producers, including Russia, Venezuela or Nigeria, could suddenly ramp up production to cover a 7 million bpd shortfall. There are already signs that al-Qaida is considering the country’s petrochemical complexes; a joint CIA-Saudi effort in the summer of 2002 broke up a plot targeting Ras Tanura, and Saudi security arrested five men. Even Ali al-Naimi, Saudi Aramco chairman and Minister of Petroleum and Natural Resources, has acknowledged the vulnerability of the oil infrastructure, admitting that, “terminals and power systems could be a problem.”

There are some cautious reasons for optimism, at least for economically prosperous Western states if terrorism does disrupt Saudi oil supplies. A recent study by National Defense University economist Don Losman showed that in 1998-2000, economic growth in Germany combined with falling inflation and unemployment despite a 211 percent increase in oil prices. The data would seem to indicate that, at least in the short term, some of the more affluent Western economies could weather the storms of an oil disruption from Saudi Arabia. The longer term consequences, however, remain to be seen.

President Bush has indicated the priority he sets on Saudi Arabia by nominating Texas oil lobbyist James Oberwetter to be the next U.S. ambassador to the kingdom. Washington is also discretely encouraging political reform; on November 29 King Fahd issued a decree effectively shifting influence from the Cabinet to the 120-strong consultative Shura. Semiofficial reports say that elections will be held within three years to fill one-third of the Shura seats. Whether these modest efforts combined with the tardy but growing efficiency of the Saudi security forces will decouple disaffected youth from making common cause with al-Qaida remains to be seen. Should al-Qaida change its tactics and target the Saudi oil infrastructure, then the West could indeed be in for a long, cold winter.