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Prepared by the
Institute for the Analysis of Global Security

May 24, 2004
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Terror's Next Target
Attacks on the West's oil and gas infrastructure -- from production facilities to pipelines and tankers -- are likely to be the next "mega" target of terrorists, and could wreak havoc with the world's economy, according to an in-depth IAGS analysis of the susceptibility of the energy industry featured in the latest Journal of International Security Affairs (Winter 2004).

China and US should set up a strategic dialogue on energy issues
Interview with Dr. Gal Luft of the Institute for the Analysis of Global Security, originally published by 21st Century Business Herald in Chinese.

A crude threat
The terrorist campaign against Iraq's pipelines demonstrates that pipeline attacks are no longer a tactic but part of a sustained, orchestrated effort that can deliver a significant strategic gain. They can also cause significant damage to the global oil market.
Next in line to emulate the insurgents in Iraq could well be Islamist terrorist groups operating in Central Asia, among them Chechen separatists and the Islamic Party of Liberation, a group that seeks to carry out a holy war against the West and is a suspect in the recent wave of deadly attacks in Uzbekistan.

Highlights from the Department of Energy’s International Energy Outlook 2004-2025

North Sea oil is declining
Since the 1970s North Sea oil has not only been a major source of wealth for both the British and Norwegian economies but also a way for Europe to cut its dependence on Middle East oil. Now many of the major fields in the North Sea are in decline and the North Sea is about to lose its prominent role as one of the world's leading oil domains.

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.

Libya: changing its spots?
Libyan crude oil is particularly attractive due to its very low sulphur content, which requires much less refining than higher sulphur oil. It is extremely high quality crude, whose characteristics are not easily found elsewhere. Despite its unique treasure, Libya's production capacity is relatively small, standing on 1.5 mbd of crude, or 2% of world supplies.
Since the 1988 Lockerbie bombing Libya had been under U.S. and UN sanctions which hindered its ability to generate enough investment to develop its oil sector. Libya's decision to embark on a rapprochement with the U.S came at unsurprisingly perfect timing, just as concessions for major U.S. oil companies were about to expire.

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.

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Back Issues

Chilly response to U.S. plan to deploy forces in the Strait of Malacca

Testimony in a congressional hearing by the top U.S. military officer in the Asia Pacific region, Admiral Thomas Fargo, saying that American counter terrorism forces might be deployed in the Malacca Strait has sparked a wave of angry responses from Indonesia and Malaysia, the countries separated by the strait. Since under international law security of the strait is their joint responsibility, both countries see the U.S. proposal as an infringement of their sovereignty. Furthermore, both countries claim they were not consulted about the plan.

In response the U.S. government clarified that Fargo's words were not a policy statement but one of many components of a Regional Maritime Security Initiative (RMSI) soon to be discussed with Asian nations. The initiative opts to combat the transnational threats of maritime piracy and terrorism in the Malacca and Singapore straits by introducing mechanisms for information sharing and cooperation on law enforcement operations. Another objective of the RMSI is to monitor, identify and intercept suspected vessels and activities in national and international waters. To do so a large naval force is needed and the U.S., as the world's cop, is one of the few countries with the capability to contribute to operational success there.

Whether something is profoundly wrong in the dialogue between the U.S. and the two Asian powers is an important question in itself, but the real issue is what is the best mechanism for securing the world's most important shipping corridor. One quarter of world trade and half of the world's oil and two thirds of liquefied natural gas (LNG) move through the Strait of Malacca each day. Freighters loaded with Japanese nuclear waste en route to reprocessing facilities in Europe and raw materials critical to China's booming economy pass through this chokepoint as well. But the strait is also one of the world's most vulnerable and threatened shipping areas, and terrorism experts have long feared for the safety of shipping traversing it.

In recent years al-Qaeda-linked groups have proved they see ships as potential targets. The USS Cole was attacked in 2000 and an explosive-laden boat hit the French tanker Limburg off the coast of Yemen in October 2002. Following the attack on the Limburg al-Qaeda issued a statement saying: "by hitting the oil tanker in Yemen the Mujahadeen hit the secret line-the provision line-and the feeding to the artery of the life of the Crusader nation."

The Strait of Malacca

Another regional terror group, the southern Philippines-based Abu Sayyaf, has a history of mounting attacks in the sea. Abu Sayyaf claims to have been behind the explosion on a large ferry in February 2003, killing at least 100 people. Last month, the U.S. State Department's deputy coordinator for counter-terrorism William Pope told a security conference in Manila that the U.S. believed terrorist groups had plans for attacks on maritime targets, with the Malacca Straits a prime target. "With terrorists now focused on soft targets, as demonstrated through attacks in Bali, Jakarta and Madrid, we have every reason to believe they will also be attracted to one of the softest targets of all, commercial shipping," he said.

To make things worse terrorists seem to have growing interest in working with pirates. Pirates have been active in the strait for years, but in recent years the problem has intensified. Pirate attacks rose 20 globally in 2003. Roughly half of the attacks occurred in South-east Asia, mostly in Indonesian waters. In its latest report, the International Maritime Bureau (IMB,) a piracy watchdog, confirms that the strait is the most dangerous part of the world. While all the attacks so far are believed to have been simply the work of criminals, the bureau has warned several times that terrorists could also attack slow-moving ships, specifically tankers, using them like the September 11 hijackers used planes.

Two suspect groups are Jemaah Islamiah, the group responsible for the October 2002 Bali attack that killed 202 people, and the Indonesian Islamic separatist group Free Aceh Movement. Both Islamic groups have demonstrated their capability and intention to carry out terror attacks. Both are known to be linked to breakaway units of the Indonesian navy and both have links to al-Qaeda.

One indication of the collusion between terrorists and pirates was the hijacking of an Indonesian chemical tanker named Dewi Madrim off Indonesia in March 2003. The ten armed men that seized the ship took control over it apparently for the purpose of learning to steer it. After operating the ship for an hour through the strait, which narrows to 30 miles in some places, and left with equipment and technical documents. This might be the Maritime equivalent to the Florida flight school where the September 11 terrorists took their flying lessons.

Some of the most unsettling scenarios regarding the links between pirates and terrorists is of a hijacking of a crude or LNG tanker and ramming it into a vessel or stationary target. Such attack could close the strait for several weeks creating major upheaval in world markets. If such a ship also happens to carry a nuclear weapon or radioactive "dirty bomb" the result could be devastating. Even attacks on a lower scale such as blowing up and sinking a very large crude carrier could send tremors in the energy market. Following the attack on the Limburg, maritime insurance costs for ships cruising around Yemen tripled. Soaring insurance premiums could add additional dollars to the already record high oil prices. As it is estimates show that up to $10 billion is lost to the insurance industry through piracy. If terrorists manage to bring up the risk premium - and they have already have to an extent - analysts estimate up to $8 of the current cost of a barrel of oil is due to fear of terrorist disruption of the petroleum market - the impact of their action on the prices of manufactured goods and commodities could be severe.

It is not clear whether the local powers can address a threats of such magnitude by themselves. Despite claims by Indonesian naval officers that their navy is able to provide sufficient response to the security problems in the region many naval experts think otherwise. The Indonesian Navy is aging and suffers from lack of warships and resources to patrol its vast coastline and the periphery of some 17,000 islands. Of its 117 naval ships, comprising 14 warships, 57 patrol boats and 44 support vessels such as tankers and carriers only 30 percent are seaworthy.

With such insufficient maritime power it is clear that Indonesia simply cannot secure the 600-mile strait alone, but its fear of any perceived challenge to its sovereignty as well as its concern of American "imperialism" apparently overrides military logic. Both Indonesia and Malaysia express strong opposition to the idea of U.S. military presence in the region. Furthermore, there is concern that such presence would in itself become a lightening rod for radical Muslims inviting more attacks both at sea or against the government.

Officials in Indonesia and Malaysia who prefer to keep foreign powers from entering their sphere of influence tend to belittle the terrorist threat suggesting the IMB reports are inaccurate and that the strait is protected from terrorist activity. "We are still capable of securing the area," told Indonesian Navy chief Admiral Bernard Kent Sondakh to the Jakarta Post, adding that the Navy was ready to contain any U.S. intrusion into Indonesia's territory. In neighboring Malaysia, Deputy Prime Minister Najib Razak said: "For the present, we do not propose to invite the U.S. to join the security operations we have mounted there."

Malaysia and Indonesia are both predominantly Muslim states and therefore play key role in the war on terrorism. However, both have been reluctant to give strong public support to the U.S., and both strongly opposed the war in Iraq. No doubt that inviting U.S. forces could cause instability at home. But considering the huge costs of failure in securing the Strait of Malacca and the possibility of a crippling blow to global economy if a 9/11-equivalent happens in Asia, such considerations should be put aside. Securing the world's most vulnerable shipping lanes requires multilateral coordination and the U.S. should play an important role in this effort. After all, no country in the world has the economic and military power of the U.S. no matter how bin-Ladin and his disciples feel about the issue.

But by no means should the U.S. be the only foreign player there. Countries like China, Japan and South Korea are important beneficiaries of a secure strait and their contribution to maritime security leaves much to be desired. Engaged in a global war on terror the U.S. military is already over stretched and there is a limit to how much force it can contribute to secure the economic interests of its Asian allies.

Joint exercises are one of the most effective ways to enhance security cooperation. One such exercise involving 18 nations is planned to take place in the Singapore Strait and South Natuna waters. But many others should follow if one wants to bolster the region's security on a sustained basis. Just like the war on terror on the ground a multifaceted strategy is required for the security of the high seas. This should be done not only by the littoral countries but also by those who derive economic benefits from an uninterrupted trade system. The RMSI is long overdue and scuttling it because of considerations such as pride or fear of domestic unrest would grant the terrorists another victory.

More information:
Threats to Oil Transport