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Nearly halfway to $100 a barrel oil

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Some of my colleagues and I share grim jokes about $100 a barrel oil. It is not that great a joke when one considers if everything went wrong at the same time.

Spot crude prices exceeded $40 a barrel on Friday with most countries producing at capacity. The governor on both the production and price of oil has been Saudi Arabia as it is the only country with sufficient lifting volumes and the willingness to vary that volume to stabilize prices.

I have often questioned friends as to what we would do in the face of a collapse of the House of Saud -- personally I think that it would make Iraq look like a walk in the part. Recent attacks on western staff along the Persian littoral in Saudi and Iraqi sites have raised fears of something worse.

The Saudi attacks at Yanbu were made worse by the fact that three of the Yanbu attackers worked inside its industrial zone. Western firms are clamoring for heightened security precautions with varying degrees of success. Western security and vetting procedures for oil sector hirings run afoul of Saudi tribal norms that take insult when a firm ignores the personal recommendation of a relative. Additional 'guns, gates, and guards' will do no good if the armed guard at the gate is one of theirs.

And not all oil and oil field firms are equal in need. Aramco operations in the Eastern Province have been targets predating the 1990 Kuwait invasion. Aramco's private security force, in concert with Saudi military, monitors oil and gas pipelines from its wellheads to its refineries and the port of Yanbu. Their facilities are above others in their security and fortifications. Others are not as fortunate, and if jihadists can attack Yanbu there is the chance of destabilizing much of the oil sent on to the US. Attacking enough soft targets to force expat staff to leave is a head start on reducing its operating efficiency.

If the Saudis are to stabilize the price of oil and oil futures they must take some remarkably quick measures to secure the critical path of getting oil from wellhead to tanker beyond the Straits of Hormuz.

At Oil Installations in Mideast, Fears Are Running High
By SUSAN SACHS
New York Times
May 8, 2004

Gordon Housworth



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