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Doomsday in an Oil Barrel

October 27th 2008

Energy / Environment - Oil Barrels

Just say this: There will be an attack on one of Saudi Arabia’s major oil terminals (e.g. Ras Tanura or Abqaiq) within the next six months.

As a consequence, more than six million barrels per day will be taken off the global market, leading the price of oil to rise overnight to more than $200/bbl – and stay there for as long as a year until the terminal is repaired. The President of the United States, the Prime Minister of Japan, and heads of government  in Europe will open sustained crisis consultations, coordinate the release and sharing of strategic petroleum reserves, and agree on other measures to try to manage the crisis.  Notwithstanding these efforts, the global economy – already over-burdened by the collapse of financial markets – will sink rapidly into the chaos of a deep and prolonged depression.  Japan, which imports 99% of its fuel, will be first to go, but the interdependence inherent in our globalized world will assure that all industrialized countries will suffer essentially the same fate.

Three months ago the foregoing scenario would have been hedged by a disclaimer such as “an attack has become more plausible” or “has taken on a higher probability.” Such caveats are no longer appropriate. Such an attack is coming. Ask yourself ‘If bin Laden was sufficiently conscious two years ago of the power of such an attack to inflict grievous, debilitating damage on the global economy to adopt it publicly as an Al Qaeda goal, and direct planning to achieve it – well before the financial meltdown, how much more compelling is the logic of doing so today when the ability of the industrial democracies to cope has been dramatically weakened. From his perspective the ability to deliver a coup de grace to infidels throughout the world is at hand. Again, such an attack is being planned now. The only certain means of preventing it lies in our penetrating the cell doing the planning.

Strategizing conferences are now being convened by such groups as the Set America Free Coalition and the Foundation for Defense of Democracy, premised on the hope that divine providence or other intervention forestalls the crisis, thus giving us time to wake up, get serious about preparing for it, and take action to render it manageable. These organizations are modern Paul Reveres, sounding the alarm, but also bringing the good news that we have the means in hand to prevent it -- if only we will finally begin to act.

The reasons for focusing urgently on this agenda are well known. The effects of our reliance on foreign oil are particularly acute regarding our national security.  This year we will spend more than $500 billion (equivalent to our defense budget) to purchase foreign oil, much of it from OPEC countries who do not wish us well.  If only 1 percent of that amount is passed on to terrorist groups, it could fund 1,000,000 attacks equivalent to those perpetrated on 911. Truly we are funding both sides in the war on radical Islam.

Further, we are beginning to see those dollars come back to haunt us in the form of Arab sovereign wealth funds buying controlling shares of major American corporations. At current prices it will not be long before OPEC could be in a position to buy controlling stakes in the entire Fortune 500 list of major corporations. Finally, the effect on our health and environment of continuing to run our entire transportation sector on petroleum products is not only unhealthy but contributes to climate change.

Similarly, the instruments for breaking the stranglehold of OPEC, restoring the price of gasoline to less than $3 per gallon and keeping it there, and reducing greenhouse gas emissions in the process are well known. Adopting or enacting the following four measures is all it takes: mandating that all cars sold in the United States be flex-fuel (i.e. capable of burning gasoline, methanol, or ethanol (or bio-diesel for diesel engines)); accelerating the introduction of these alternative fuels into the market; accelerating the introduction of plug-in hybrid-electric cars and trucks; and making these vehicles using carbon composite materials as Boeing is doing in the new 787 Dreamliner (reaping a 20 percent gain in fuel efficiency in the process).

During the past three years, such groups as Set American Free and the Foundation for Defense of Democracy have spent countless hours before Congress as well as publishing commentaries to elevate public understanding of the stakes and how to overcome this threat.  They have accomplished a great deal. A flex-fuel mandate—known as the Open Fuel Standard—has been proposed in both houses of Congress.  Goals have been set for alternative fuel production and incentives for producing plug-in hybrid-electrics have been enacted.

Now, however, we face perhaps the most severe challenge we will ever experience, this one brought on by the collapse of our own financial institutions and the decline in the price of oil. Now, as in the mid-eighties, just as bio-fuels began to gain traction in the market and among investors, cellulosic ethanol and bio-diesel projects will find it hard to secure critical funding to scale up production.

This is the ultimate test of our agility and commitment. The good news is that we have a few more arrows in our quiver to help argue our case. The national security threats have worsened. Radical Islamist have emerged in South America (on Brazil’s southern border with Paraguay) and in Trinidad-Tobago, the latter posing a threat to the more than 80% of the liquefied natural gas (LNG) which we import to fuel our power plants and petrochemical industry. In Venezuela, President Hugo Chavez has begun to offer discounts of up to 60% on oil purchases to Caribbean countries willing to adopt anti-US policies.

Still we are literally under the gun.  We must do better.  Our future and that of our children and grandchildren depends on it.

Robert McFarlane served as President Reagan’s National Security Advisor from 1983-85 and is a member of Set America Free.

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