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Security Concerns Increase Oil Prices

According to most energy analysts rising global demand coupled with attacks on petroleum facilities and oil-delivery interruptions have helped drive crude oil prices to nearly $100 a barrel this year.

Many analysts say that securing oil assets has never been easy and that the problem is not new to the industry. For decades, oil producers have had to deal with guerilla and civil wars, sabotage and theft in many energy-rich areas around the world, including Colombia, Angola and the Middle East. While companies have been successful in keeping oil flowing and facilities secure, many energy experts say threats to the oil industry have increased in recent years. In 2004, for example, al-Qaida leader Osama bin Laden appealed to Muslim extremists to attack petroleum facilities wherever they can.

Gal Luft, Executive Director of the Washington-based Institute for the Analysis of Global Security, says ten years ago, those risks never really existed. "We never had terrorists blowing themselves up in oil facilities.There were attacks on pipelines, but it is not such an epidemic as it is today. Since 9/11, everything has tightened quite significantly. Most of the attacks happen at the generating point in Africa, the Caspian, and the Middle East because that's where terrorists are known to operate and that's where they can get the most bang for their buck."

Violence and Sabotage

Luft says all countries in the Middle East are concerned about violence, but industry analysts are closely watching Saudi Arabia and Iraq.

Saudi Arabia has one of the most elaborate energy security systems in the world -- including state-of-the-art surveillance equipment, some 40-thousand armed guards, anti-aircraft weapons, and air and naval forces protecting its oil facilities.

Many energy risk experts note that in Iraq -- the nation with the world's second largest proven oil reserves, after Saudi Arabia -- security is chaotic. Analyst Amy Jaffe of Rice University in Houston, Texas says that attacks in Iraq include the assassination of oil security officials, disruption of pipelines that feed Persian Gulf terminals and looting of oil facilities. "There is valuable equipment that is involved in producing oil. That can be everything from the copper inside wires that bring electricity to operate the oil pumps to the computerization that's used for the production of oil. In Iraq, the simple guarding of wires, generators and the computer system -- all of those things -- is a major challenge," says Jaffe.

In other places, like Nigeria, Russia and several oil-rich nations in Central Asia, pipelines often are targeted. "It just takes a knife to jam open a hole on an oil pipeline and drain out oil into a truck. It's like carrying money in the back of your car," notes Jaffe. "You can take out that oil or fuel and you can resell it on the black market. That happened so frequently in the former Soviet Union that some of the companies had trouble maintaining full pressure on their line because there are so many holes in them."

Gal Luft says these are all pinpricks, but they add up, it's well over one million barrels a day that could have been in the market, but are not. "If we had another million barrels of oil today on the oil market, the price of oil would likely go down significantly. There is an inherent premium within the price of a barrel [of oil] that factors in all kinds of potential threats. The market has factored in something to the tune of $10-to-15 a barrel," says Luft.

The sabotage of oil facilities is often politically motivated. Energy analyst Amy Jaffe says these kinds of incidents are frequent in places like Nigeria. "You have a local community leader in the Niger Delta who is unhappy with the headway he is getting negotiating with the government for resources. So he blows something up and then sends a telex to The Wall Street Journal or The International Herald Tribune [newspapers] taking credit. And when the price of oil goes up a dollar on the basis of his explosion, he is in a more powerful position."

Not Just Troubled Regions

In recent years, even politically stable Western countries have been compelled to step up energy security measures.

Greg Stringham is Vice President of the Canadian Association of Petroleum Producers, which represents 95 percent of Canada's $100 billion annual oil and gas industry. He says safeguarding Canada's energy assets from terrorist attacks has taken center stage for oil producers. "The Canadian and U.S. governments work together to ensure that all international tips or incidents of even mentions of the word 'Canada', 'oil' and 'terrorism' are caught and are passed on so that people can be aware of what's coming internationally" adds Stringham. Occasionally, Canada does come up as one of the main exporting countries to the United States in some of the al-Qaida correspondence. We watch those very closely."

Stringham says other kinds of information are being shared between oil companies and authorities: "For example, if explosives that are being used in our industry for seismic activities get stolen and 50 or 60 miles away someone receives a bomb threat -- if those types of things are communicated, then people can take them and judge them as being serious as they may be. Where if those aren't communicated, you could see them as two separate incidents."

Some experts compare the current international oil market to a car without shock absorbers. Each time it hits a bump in the road, passengers feel it. Most analysts say this bumpy road could last as long as attacks on oil facilities persist and nations are dependent on oil for energy.

This story was first broadcast on the English news program,VOA News Now. For other Focus reports click here.