The Stone City

Words Made to Last

Tuesday, August 09, 2005


Bloomberg News reports:
Crude oil futures rose to a record above $64 a barrel in New York after Valero Energy Corp., the third-largest U.S. refiner, said a fire at its McKee plant in Texas will cut gasoline production for five days....
Saudi security forces for more than two years have been battling suspected sympathizers of Osama bin Laden's al-Qaeda network, who have targeted westerners in a bid to undermine the ruling Saud family and threaten the oil industry.
An attack would not need to be on Saudi oil infrastructure to push oil prices higher, New Wave's Mennis said.
"It doesn't really need to stop the oil coming,'' he said. "It just needs to scare off the westerners.''
[I can't immediately see how a refinery failure would raise the price of crude (i.e., unrefined) oil. Any volunteers?]
But a momentous effect, unmentioned in this report, is that Saudi Arabia has benefited hugely from the recent rises in the price of oil. Their revenues increase proportionately, without any intra-OPEC wrangling or revenue-reducing output cuts. Thus they must view the terrorist attacks with a mix of dread and elation.
In addition, since the price rises in proportion to the perception of hazard, the Saudis have a powerful incentive to exaggerate the danger they face. They must stop short of scaring away the expats who keep the pumps running, but there appears to be ample middle ground. It would hardly be the first time that a totalitarian country has misled the outside world about its internal conditions.