OIL

I heard on BBC Worldservice last night - and saw repeated on LGF this morning - that Saudi security forces may have allowed three of the terrorists involved in last weekend’s massacre in Khobar to escape.

Oil prices rose to above $40/barrel in early trade here, the first market reaction to the security situation.

The terrorists on Saturday were reportedly dressed in Saudi Army fatigues. They ‘escaped’ from a well-sealed compound despite having been “surrounded” by security forces.

This prompted a tin-foil hat moment on my part. Excuse me while I indulge it.

Neither the weekend’s assault in Khobar nor the 1 May attack in Yanbu targeted any vital oil infrastructure. The oil price is increasing without any decrease in supply or reduction in Saudi Arabia’s production.

So long as high oil prices do not choke growth in oil-consuming countries, the Saudi state is receiving direct economic benefits from attacks within the country. Oil is Saudi Arabia’s only real resource - making up around 90-95% of total Saudi export earnings, 70%-80% of state revenues, and around 40% of the country's gross domestic product (GDP). When the oil price rises, so does Saudi GDP. And Saudi government coffers swell.

The Saudis are pressing for an increase in output at Thursday’s Opec meeting in Berlin. They are Opec’s main swing producer and will benefit the most from output increases, especially as most analysts doubt that an Opec output increase would bring down prices substantially.

I’m going to take off my tin-foil hat now before I suggest that the Saudi government is deliberately facilitating terrorist strikes in order to drive oil prices higher.

While, I would not be surprised if there was some inside involvement by Saudi security forces - in either the escape or planning of the attack - there is no reason to believe that anyone within the Saudi government would plan a terrorist attack to drive up oil prices.

That said, crude prices rose around 2% in the first eight hours of trading today because 22 people were slaughtered on the weekend. And I’m sure there are some bastards in the Saudi Oil Ministry who sitting down right now with dollar signs in their eyes and big shit-eating grins plastered across their faces.

So, I’m a little pissed off.

On happier matters, Singapore's Buddhists celebrate Buddha’s birthday tomorrow (Vesak Day) so I’ll be joining some friends (who, unlike me, are taking advantage of the official holiday) for drinks.

I may post something more sober when I return.