IAGS logo Energy Security
Prepared by the
Institute for the Analysis of Global Security

January 24, 2005
Contact IAGS: info@iags.org
To subscribe, send a blank email to subscribe@iags.org
To unsubscribe, send a blank email to unsubscribe@iags.org

Energy Security Current Issue

Iran-Pakistan-India pipeline: the Baloch wildcard
A few days after Iranís Oil Minister Bijan Namdar Zanganeh arrived in New Delhi to discuss the future of the pipeline, terrorists in Pakistan blew up two gas pipelines sending a message to all parties involved that the "pipeline of peace" might be anything but peaceful.

Terrorism Goes to Sea
New evidence suggests that piracy is becoming a key tactic of terrorist groups. In light of al Qaeda's professed aim of targeting weak links in the global economy, this new nexus is a serious threat: most of the world's oil and gas is shipped through pirate-infested waters. In a recent Foreign Affairs article, IAGS' Gal Luft and Anne Korin analyze the situation and recommend policies to mitigate the risk.

Radical Islam and LNG in Trinidad and Tobago
Trinidad and Tobago alone account for 80% of all U.S. LNG imports. Security analyst Candyce Kelshall warns that Islamist terrorist groups are active on the island and might find LNG shipping an attractive target.

Chinese Quest for Crude Increases Focus on Africa
Leading oil sector analysts have warned of growing conflict between Western and Asian countries as they seek to outbid each other for key hydrocarbon assets in Africa. These forecasts have been largely based on the expectation that China will become the major player in nontraditional oil and gas producing regions on the continent. IAGS Associate Fellow Cyril Widdershoven discusses.

Terror's Big Prize
Since September 11, pipelines, tankers, refineries and oil terminals have been attacked frequently. Except for a sharp increase in maritime insurance premiums in these regions these attacks had marginal strategic consequences. But in at least two cases oil terrorism could have rattled the world.

Needed: Three 1-billion-barrel oil banks
The lesson from the recent oil price jump is that the oil market has too little wiggle room to deal with supply disruptions. It's time for consuming nations to think about providing their own liquidity mechanisms.

On the technology front

Fuel Cell power plant installed at NJ College
The fuel cell will provide 250 kilowatts of electric power as well as heat, to several buildings on the campus.

Biomass-to-Ethanol Progress
The enzyme costs of converting cellulosic biomass into sugars for fuel ethanol production have been reduced approximately twenty-fold with technology developed by the National Renewable Energy Laboratory (NREL) and Denmark based Novozymes, biotech-based leader in enzymes and microorganisms.

EU study: Methanol from biomass - competitive with gasoline
A study of a new patented Swedish technology concluded that the alchohol fuel methanol can be produced from biomass via black liquor gasification at a cost competitive with that of gasoline and diesel.

IAGS is a publicly supported, nonprofit organization under section 501(c)3 of the Internal Revenue Code. IAGS is not beholden to any industry or political group. We depend on you for support. If you think what we are doing is worthwhile, please Support IAGS. All contributions are tax deductible to the full extent allowed by law.

Property of The Institute for the Analysis of Global Security © 2004. All rights reserved.

Back Issues

Al Qaeda's economic war against the United States

Although battlefield victories are crucial, history shows that global wars have been decided on a different kind of front: the war between economic powers. World War II soldiers clashed on the beaches of Normandy and Guadalcanal, but only when the German and Japanese war industries ran out of cash and raw materials did the wheels of the Whehrmacht and the Imperial Army finally grind to a halt. The Cold War could have gone on for decades if not for the depletion of the Kremlin's coffers.

The war on radical Islam is no different. Osama bin Laden plans strategies based on his victory over the Soviets in Afghanistan during the 1980s. Feasibility aside, he believes the way to bring down a superpower is to weaken its economy through protracted guerilla warfare. We "bled Russia for ten years until it went bankrupt and was forced to withdraw in defeat," bin Laden boasted in his October 2004 videotape.

The October video, released just before the U.S. election, offers a glimpse into the jihadist strategy. "We are continuing in the same policy to make America bleed profusely to the point of bankruptcy," said bin Laden. His logic is simple: To bring the U.S. to suffer a fate similar to that of the Soviet Union, the terrorists need to drain America's resources and bring it to the point it can no longer afford to preserve its military and economic dominance. As the U.S. loses standing in the Middle East, the jihadists can gain ground and remove from power regimes they view as corrupt and illegitimate while defeating other infidels who inhabit the land of Islam.

Three methods comprise Al Qaeda's economic war against the U.S. The first is the destruction of high-cost qualitative targets by low-cost qualitative means. The 2001 attack on the World Trade Center is a perfect example of how terrorists can get more bang for their cheap buck. Bin Laden cited estimates that Al Qaeda spent $500,000 to carry out the attacks of September 11, which caused America to lose more than $500 billion. "Every dollar of Al Qaeda defeated a million [U.S.] dollars," bin Laden concluded.

Bin Laden's second form of economic warfare involves forcing the U.S. to sink unsustainable amounts of funding into its defense agencies. The more the U.S. invests in defense, the more its domestic investment suffers neglect. Not much is needed, bin Laden reasons, to provoke America into expensive military interventions: "All that we have to do is to send two mujahedeen to the furthest point east to raise a piece of cloth on which is written Al Qaeda, in order to make generals race there to cause America to suffer human, economic and political losses without their achieving anything." Bin Laden exaggerates -- but there's no denying the fact that between 2001 and 2004 U.S. military spending grew by more than one fourth since 9/11. America now spends an extra $100 billion per year on its military. Add to this the creation of a $30 billion-per-year Department of Homeland Security, and the billions directed to the State Department and other agencies aiding allies in the War on Terror and we discover a price tag of at least $150 billion annually to defend the U.S. against terrorism.

Oil, which jihadists call "the provision line and the feeding to the artery of the life of the crusader's nation," is the third component of bin Laden's strategy. Oil facilities and oil workers have been attacked around the world. In Iraq more than 190 attacks targeted oil pipelines. Rising oil prices partly reflect the "fear premium" added by oil terrorism. For the U.S., an importer of more than 10 million barrels a day, the spike in oil prices means a loss of over $50 billion in one year. The cause and effect are not lost on terrorists. "We call our brothers in the battlefields to direct some of their great efforts towards the oil wells and pipelines," reads a jihadist website. "The killing of 10 American soldiers is nothing compared to the impact of the rise in oil prices on America and the disruption that it causes in the international economy."

Attacks on oil serve jihadists in another, subtler way. Higher oil prices mean a historic transfer of wealth from oil-consuming countries -- primarily the U.S. -- to the Muslim world, where three quarters of global oil reserves are concentrated. This year, oil-producing Gulf nations increased their oil revenues by 45 percent. The windfall benefits jihadists as petrodollars trickle their way through charities and government handouts to madrassas and mosques.

Skyrocketing defense funding have already created the highest deficit since World War II and a national debt edging on its statutory limit. But despite Al Qaeda's pricks, our economy is still robust and the attempts to cripple it seem like a fantasy. The billions of petrodollars flowing from the U.S. are eventually recycled as oil-producing countries buy American goods, services, and treasury bonds. This fortunate situation could change, though, if relations between the U.S. and the Muslim world continue to deteriorate. The Saudis worry that we might freeze their assets in the wake of another terrorist attack. Anti-American sentiment could inspire Muslim countries to shun the U.S. dollar, perhaps by shifting transactions to the Euro. OPEC is already considering switching to the Euro as its currency of choice for oil sales. Other Muslim countries contemplate using the gold dinar, a new gold-backed currency to be used in transactions among 57 Muslim states. Each of these moves would fulfill jihadists wishes.

Because of oil's role in the War on Terror, the U.S. stands to benefit enormously from reducing its dependence on petroleum. A coalition of Washington think tanks has shown that the U.S. can cut oil imports by half within two decades by deploying available technologies. This $12 billion "Set America Free" proposal enumerates ways to increase fuel efficiency and use domestically produced fuels that are not petroleum-based.

If we stay on the present course, America will bleed more dollars each year as its enemies gather strength. A smart combination of military and energy policies is our best hope for breaking the economic backbone of Al Qaeda -- before the jihadists do so to us.

Gal Luft is Executive Director of the Institute for the Analysis of Global Security.