Oil Piracy, OPEC, Saudi Arabia, You and Me

With the hijacking of the Saudi oil tanker Sirius Star and its 2 million barrels of oil, the foreign minister of Saudi Arabia Prince Saud al-Faisal was moved to comment, "Piracy, like terrorism, is a disease which is against everybody and everybody must address it together." Spoken in the best Saudi parlance to which the most generous translation one could ascribe is, "Uncle Sam (with 20 plus ships operating in the Persian Gulf to east Africa including three super-carriers, the USS Abraham Lincoln, USS Ronald Reagan and USS Theodore Roosevelt), let me hold your jacket while you go ahead and tackle this mess for us, and when you've done what you've had to do, don't forget to thank us for helping you forgo a cleaning bill for your jacket."

The hijacking of a Saudi 318,000 ton VLCC (Very Large Crude Carrier) came after a series of chastising pronouncements from OPEC evidencing indignation at the recently swift setback in the price of oil.

- In October OPEC members agreed to reduce supplies by 1.5 million barrels per day from November 1, or about 5 percent of their then daily production.

- On November 8th OPEC President Chakib Khelil announced that OPEC would reduce output of oil further if moves the previous month to slash production did not effectively bolster plummeting oil prices. That "prices should range between $70 and $90 per barrel."

- OPEC concurrently issued a statement reading "In the extremely volatile situation closer monitoring and more frequent intervention are required. OPEC will continue to carefully follow oil market developments ... and stands ready to take the necessary decisions to support oil market stability."

- On November 10th CNBC reported that Saudi Arabia's state oil company Aramco had advised at least five customers that they would receive 5 percent less than their "contracted allocation" (some contract).

- In the meanwhile as the speculators were routed and the economy was collapsing. the price of oil continued to sink, breaking $60 a barrel, (and now $50 a barrel) more than $87 below its summer high of $147/bbl.

- And then, on November 16th, as if by fortuitous fortune if you are long the oil market or if you are an OPEC producer and searching for a good reason to frighten the market one more time and to give a positive spin to oil prices, well hosannas! -- for the first time ever an unguarded Saudi Aramco oil tanker displacing 318,000 tons (the size of a small island) and sailing in splendid isolation 450 nautical miles off the Kenyan coast, is picked off by a band of pirates operating a motorized dinghy.

Coincidence?? You judge. And the fact that it didn't break the fall in oil prices is no fault of the pirates.

In fairness, Saudi Arabia did announce on Friday that it will join the NATO naval mission together with ships from India, Russia, Malaysia, by "contributing naval assets to help pursuing piracy."

Public relations ploy or serious commitment remains to be seen. Word and deed are too often at variance here to be taken at face value. One need only go back to Saudi Minister of Petroleum and Natural Resources Ali al-Naimi's proclamation in 2004. At that time he declared himself still in favor of the cartel's then $22-to-$28 price range, adding "the market desires a price of $35 a barrel because it is frightened of {the price rising to $50," and that the Saudis too were "frightened of that price." That was then and in the four years thereafter in oil's inexorable march to $147, the Saudis did little to stem the world's economic pain but continued to exacerbate oil price's excesses by steering OPEC to cut its production quotas again and again.

Were the Saudi announcement to be a serious commitment, it would be a welcome change in policies that have been blatantly self-serving. It would be a welcome recognition of its obligations as the custodian of the world's largest oil reserve, thereby vesting it with weighty responsibilities of prudent stewardship.

Comments

[arvay]

The really significant story underneath the piracy is the fact that the leading Islamist militia in Somalia has warned the pirates to release the Saudi ship, which is the property of Muslims, or face armed combat. The pirates are reportedly fleeing.

While the Islamist decree may only apply to Muslim property, it indicates yet another idiotic response by us to their rise in Somalia. Briefly, because they contain some elements of al Quaeda, the US and Ethiopia intervened with force and created yet another impotent government that's being successfully attacked by the Islamists and will never be accepted by the population. For openers, the Ethiopians and Somalis hate each other -- what genius decided to use them here?

The Islamists' willingness to step on the pirates indicates, I think, that there are elements among the Islamists that we could work with, who might be willing to make sure the already crumbling al Quaeda organization doesn't invite more trouble.

The Islamists are the only group that's neutered Somali warlords (some of who WE back) and restored order. Somalis are Muslims. They apparently will obey the islamists.

So what do we think we're accomplishing by backing the doomed-to-fail, Ethiopian-backed pseudo-government?

[KillTheMessenger]

Fair analysis but the US always lacked an appreciation for "your enemy's enemy is not automatically your friend" kinds of realities. We constantly oversimplify things and try to disarm the bomb by cutting the red wire, no matter how complicated the trigger mechanism. As a result most explosive international situations blow up in our face.

[arvay]

I'm just hoping that Obama's team has some appreciation for the subtleties.

[cylindar]

Interesting thought!

[SolarPowerGuy]

Saudi Arabia wants oil to cost $70/barrel? Good, so do I. Let's impose a $15/barrel tax, right now. We can use a small portion of the revenue to fund Detroit's $25 billion bailout.

[sticksnstones]

Let's check the figures: One Tanker....They'll give it back.
One Tanker full of House of Saud crude...They will give it back.
One very small boat with a few pirates aboard. They will soon be
millionaires.
Will any of the ransom go into the pockets of terrorist groups? No one can say with any certainty. Who's oil is it? House of Saud, you know, the family that thinks nothing of spending $10,000 per night, per person, when they're kickin' in Dubai. The market value of the oil on board is 100 million dallars. Sounds like a lot of money, but consider that it represents just 2.8% of what our guys have thrown at Wall Street so far, with another 350 billion above which the vultures are circling as I type this.

There is an ill-advised and cost-prohibitive notion that the US is the World's Cop. I gotta tell ya, it ain't our oil, it ain't our ship, and this stuff isn't worth the life of a single member of our armed services. The ransom the House of Saud will pay is pocket change. Let them pay it. Then they can hire private security firms to protect their property. They can be found in the yellow pages.

[Rule Of Law]

Then they can hire private security firms to protect their property. They can be found in the yellow pages.

Actually, they can be found in Iraq.

[23000Days]

Collectively, the world ended most aircraft hijacking by commando attacks on the hijackers. The price of hijacking became too great. We should do the same with pirates. Surely we can get a navy seal team on board the tanker, and show the pirates the dont know what they're messing with.

[SCG]

" The Pirates of Pennzoil " Yarrr!

[SolarPowerGuy]

Chuckle.

[mjt218]

Was it really just a motorized dinghy? I have a suspicious feeling that you're not giving these pirates enough credit.

It's also a pretty easy boarding negotiation Pirate's perspective if you have a small cannon of some sort on your boat pointed at a large vat of liquid petroleum (plus the Pirate's have a good record of not intentionally harming the sailors).

[sposton]

Put the military industrial complex and auto makers to work building wind mill generators and solar cells on a WWII scale. Build a new electrical backbone infrastructure. Start building high speed trains instead of airplanes. Stop wasting money on useless weapon systems and wasting money in Iraq, Afghanistan, and elsewhere.

[KillTheMessenger]

If we built things on WW II scale, you would hardly notice the difference. The energy consumption of the US has tripled since then

http://www.eia.doe.gov/emeu/aer/pdf/pages/sec1_12.pdf

Which means we need to build on several times the scale of the war.

[sposton]

During WWII we built thousands of ships, airplanes, tanks, etc. We mobilized the industry for a national objective. That is what I mean. Let's start cranking out wind mills whatever else is needed on a massive scale.

[KillTheMessenger]

I see, still looking for a way to claim THEIR oil under THEIR soil.

:-)

[Shortyfuse]

Damn straight. Someone suggested that it was insurance fraud.

[BobHiggins]

The fact that we waged aggressive war against the people of Iraq in order to deal with problems coming directly from Saudi Arabia shines now as painful irony.

The Saudi government and much of OPEC are completely treacherous. We're playing on the wrong field.

We need to make war by first conserving energy, then moving as rapidly as possible to other sources.

Let the "House of Saud," OPEC, and the "House of Bush" drink the last few billion barrels of their "black gold."

[KillTheMessenger]

Treacherous? What, exactly, does KSA owe us? In reality,absolutely nothing.

That we are wasting like there is no tomorrow is our own fault.

[donelson]

Why don't they just run convoys, like in WW-II ?

I thought we were paying $6 per gallon (including Pentagon in Gulf) to KEEP the shipping lanes open.

Where's Bush?

[Michale32086]

Can we ease up on the exaggerations?? No one was paying $6 a gallon for gas... The fact that gas is now around $1.50 a gallon could easily be explained by the US military presence..

Michale.....

[LeftRight]

Or, more likely, the US military presence could explain the $4.00/gallon gasoline, which is NOT an exaggeration. Also, it's not that much of an exaggeration, as there were locations paying more than that for short time frames.

[gsuescum]

One of the biggest contributors to the price run-up was armed conflict in the middle east. Yes - I know China and India are growing too but if so why was oil production reduced?

Just as the current price can be explained by reduced consumption in the US (an almost unheard of trent - in the Pacific Northwest, gas usage has fallen to its lowest level since 1966).

It can also partially be explained by the incoming administration and the expectations associated with a new foreign and energy policy.

Michale..... please stop trying to defend this adminstration.

[KillTheMessenger]

"Why don't they just run convoys, like in WW-II ?"

Because there are no German U-boats. I thought that was obvious?

:-)

[navalvet]

Convoys are a military solution which would work against pirates as well as against u-boats. They don't have to destroy the pirates, only discourage them. Wiping out the pirates while they hold hostages would result in the loss of innocent civilians so it is probably out of the question.

There is a cost benefit consideration: would the disruption in traffic to form convoys be worth the reduction in risk? Until the Aramco tanker was hijacked, piracy was regarded as a nuisance, adding little to the overall costs. The pirates may get tens of millions of dollars in ransom, which will allow them to reinvest in their boats and weapons, a threat which is probably prompting more coordinated action.

A political solution to the anarchy of Somalia would be a much better solution.