THE GUERRILLA OIL CARTEL

The control over the price of oil is in now in the hands of global guerrillas -- the open source, system disrupting, transnational crime fueled, sons of global fragmentation covered by this author. These actors can now, at will, curtail the supply of oil through low tech attacks on facilities in Iraq, Nigeria, central Asia, and India. The amount of oil effectively under their control exceeds five million barrels a day, more than Saudi Arabia's two million barrels a day of swing production.

Means and Motives

It's important to note that this capacity to disrupt production is substantially different than any terrorist threat we have faced in the past. With terrorism, the potential of damage has always been from single large attack on a major facility or node (extremely difficult to accomplish and relatively easy to recover from). Today's threat is based on sustainable disruption -- ongoing, easy, low-tech attacks that are nearly impossible to defend against (everything from pipeline destruction to employee kidnapping). The goals of these attackers can be divided into three complimentary categories:

• Delegitimization of the target state. Attacks meant to "hollow out" the state, through an inability to deliver critical services or a denial of income/investment, to create zones of local control.
• Coercion of the core Western states. Either to damage the US or a target state through economic means.
• Criminal profit. By increasing the prices of oil and its refined products, the profits generated by criminal enterprise (bunkering of oil, smuggling, etc.) are radically improved.

What this means

This situation is merely the first stage in the larger epochal war between non-state groups and nation-states. It is by no means the worst of what we will need to deal with. Other, more profound developments, will occur as this trend progresses (for clues, read older briefs from this weblog seen in the left margin). In the meantime, given that the demand for oil continues to increase (due to the growth of China and India primarily) combined with the inability to bring new supplies to market, the price of oil will continue to climb. $100+ a barrel oil is not unforeseeable. This will likely result in the following:

• An expansion of the guerrilla oil cartel to new locations. The success of guerrillas to control production in Iraq and Nigeria will spawn similar developments in other locations. High on that list is Russia, the world's largest oil producer, and the Caspian Sea producers.
• Market corrections. High oil prices will eventually result in a global recession that would reduce demand. However, this reduction in demand may not be enough to reduce prices and may only reduce their ability to increase. Alternative energy sources and conservation will over the longer term gain considerable traction. Those companies/localities that are planning for high oil prices by radically increasing the efficiency of their products/infrastructures will reap windfalls in the future.
• Collusion between global guerrillas and other market participants. So far, there isn't any signs of coordination between groups. This will change. As we have seen in other situations, network connections will develop and open source coordination and collaboration will occur. Additionally, global guerrillas may find useful and powerful allies among states (Iran?) that desire to curtail production, corporations (CNOOC?) that wish to wrest control of oil production from competitors, and market participants (hedge funds? or individuals?) that desire to profit from rapid price changes. If this surprises you, remember that in Adam Smith's world, it doesn't matter how you make a buck, it's only important that you make it.

Comments

[Geoff]

Good call!

Russian pipelines hit today

http://www.msnbc...

[enigma_foundry]

"Market corrections. ...demand may not be enough to reduce prices and may only reduce their ability to increase....

Alternative energy sources and conservation will over the longer term gain considerable traction. Those companies that are now betting on high oil prices to radically increase the efficiency of their products will reap windfalls in the future."

This was a point I had made earlier about wind power, and the accelerating use and necessity of developing it.

And some smart companies are investing in this now.

But the interesting thing for me, as an architect and urban planner, is that the sustainable networks that will replace the traditional economy will almost always be exponentially more resistant to present GG methods than the traditional economy.

For example, the big box shopping mall presents a rather inviting target. A street with many smaller scale shops does not present the same target.

A centralized trading floor of a stock exchange presents a target. If those same traders are distributed geographically by an electronic trading system, which itself can have a distributed architecture, "there is no there, there" to bomb.

If wind power/solar power is generated in the state that it is used in (or even on or as part of the building where the energy is consumed) there is no network to disrupt.

If we invest in energy efficient buildings, our need for foreign energy supplies will decrease.

There are many, many more examples of sustainability increasing our resistance to GG methods.

The reason for this pattern is that sustainability is deeply rooted in the necessity of effiecently transfering the energy (in the form of food, energy, or information) of the biosphere directly to human use, so this pattern is not at all surprising.

Another interesting aspect of this is that authetic market structures (pricing of pollution, for example) could be used to accelerate the efficient development of these alternate networks.

However, the present US administration, by massively subsidizing the fossil fuel industry, is thwarting and dampening the development of the needed sustainable imperatives from which sustainable initatives would arise.

[Peter]

Off topic but relevant: the documentary Why We Fight opened this weekend. http://www.imdb.com/title/tt0436971/

[Adam]

And in Iraq the guerillas have been knocking the infrastructure to pieces.

http://msnbc.msn.com/id/10965520/site/newsweek/

Both Iran and Saudi benefit from this activity. Irans made an estimated $40bn extra, Saudi at least $120bn, probably more. Saudi benefits roughly $3bn a year for every $1 the barrel price goes up. Thats real money that they can use for real things (like tanks, guns, aircraft, helicopters, nuclear power stations, US politicians, Silkworm anti-shipping missiles...).

Now lets put it this way - if someone gave you access to a huge flow of money, what would you do to keep it running? More to the point, how many people would you kill to keep it?

As for the idea of sustainability affecting global guerillas... for dinner tonight I bought some tarragon from Columbia, some potatoes from Germany, and some beef from New Zealand. Just how will a wind turbine in Cumbria get those to me?

I think that its going to be the transportation issue that ultimately stuffs the West, not keeping the lights on. We can survive without lights and PCs, we can't without affordable food - and cheap food has been a basic for the last 30 years.

[Adam]

Peter,

Thanks for this. I didn't know it was coming. Just reading the IMDB tag makes it seem interesting in a "Power of Nightmares" kind of way.

http://www.informationclearinghouse.info/video1037.htm

[Bruce Sterling]

You've gotta love those Georgians for figuring that Russians
blow up their own Russian pipelines. Maybe even the STATES
are "non-state actors" now.

I got a little more skin in the black-globalization game
now that I'm sitting here next to a heater in Belgrade.
It's supposed to be 15-below Centigrade tomorrow,
and the locals run on Russian gas.

[John Robb]

LOL. So true. It also puts the notion of a "CEO Presidency" into focus (particularly when half the profits of the increased prices for natural gas that the Ukranians will be paying are going to a shell company owned by Kremlin insiders -- a kind of Enron-style senior exec pay package).

Probably don't have to worry much since the gas you get Belgrade is likely bought at the European market price. Georgia, in contrast, is paying 50% of the market price (but not for long).

[friendly grammar nazi]

QUOTE FROM ARTICLE:

If this surprises you, remember that in Adam Smith's world, it doesn't matter how you make a buck, it's only important how you make it.

MAYBE YOU MEANT

If this . . . it doesn't matter how you make a buck, it's only important that you make it.

JUST TRYING TO BE HELPFUL.

[TM Lutas]

Since you can create diesel fuel at $32/bbl equivalent from coal using Fischer-Tropsch methods first developed in WW I, can we get past the hyperbole here? Indirect competition puts a long-term cap over oil prices because coal exists in abundance and we only value clean air so much. Past a certain price, we will switch to new sources of supply. We're already past that price and people are scrambling to bring new sources on-line. Those sources of energy will likely be in politically more stable areas of the world.

The GG cartel, if it exists at all as an actual coordinated entity, will not last long. It has to ride a very small band of prices in order to both create pain and not exceed the threshold that would trigger massive investment in coal (including F-T), nuclear, and other alternative energy sources.

[dan]

TM:

The oil price has been above $32 per barrel for over 2 years now, so we should be seeing tens, if not hundreds, of these plants springing up in the next year or two; oh, sorry, I forgot that not one such project has seen the light of day yet. Eventually some bright spark will get it together to do this, but only when organisations like the IEA, CERA et al admit that we're not going to see oil prices come down below $40 per barrel, and that the age of cheap energy is passing. At the current trading range of $55-65 per barrel few such investments will be made, and those that are being made will satisfy marginal demand growth alone.

Adam:

Genuflect in thanks and praise before the architects of the CAP, we'll survive on artisanal cheeses, Bordeaux and high quality olive oil instead.

[Cardenio]

When people realize that ' biodeisel ' means you can make people into fuel what do you think is going to happen ?

[John Robb]

Bruce Sterling weighs in on Georgia:

http://wiredblogs.tripod.com/sterling/index.blog?entry_id=1395421

These comments by Saakashvili are especially narrow and
dumb because a few months ago, he and his Rose-Red
cavaliers WERE non-state actors. They broke the government
of Georgia like a cheap fortune cookie. Boy, the Al Qaeda
recruits in the ravines of Chechnya must be having a
big chuckle over their laptops right now.

[julie]

Adam:

Historically the Saudis have wanted to keep oil prices balanced at a point where they didn't significantly hurt the world economy. This might be changing.

The Iranians even under the shah didn't necessarily think this way.

In addition to the oil supply that can be hindered by guerillas, states such as Venezuela and Iran can chose to cut supplies.

[Valdis]

" ...sustainable networks that will replace the traditional economy will almost always be exponentially more resistant to present GG methods than the traditional economy."

Good observation... this is not just a theory, we have the math to prove it.

http://www.orgnet.com/SocialLifeOfRouters.pdf

[enigma_foundry]

"As for the idea of sustainability affecting global guerillas... for dinner tonight I bought some tarragon from Columbia, some potatoes from Germany, and some beef from New Zealand. Just how will a wind turbine in Cumbria get those to me?"

Well, you've just proved my point--one of the points that sustainable planning has made is that food should come from areas close to which it is consumed.

People should remember that during the Second World War, many European cities grew substantial crops within the city limits, as is done in many parts of the Third World today. Food today has substantial fossil fuel inputs because of the artificially cheap transport. If transport were much more dear. local foods would predominate in our diets.

[gmoke]

I've been saying solar is civil defense for over a year now. My bedroom has solar powered LED reading lights and my bedside radio is a solar/dynamo modified to charge AA batteries. Local networks are necessary and thank God that we resuscitated the network of farmers markets starting in the mid 1970s. As a matter of fact, we were well on our way to another model when Reagan was elected and everything shut down. Oh well.

Does anybody remember what happened to those reports about Al Qaeda selling the airlines short on 9/11 and thereby funding their operations? The last I heard was that the authorities had confirmed that there was suspicious stock trading and that they had a good idea of who was involved but the names would not be revealed because of "national security." It seems an obvious tactic to finance future operations by betting on the results of present operations.

[Usher Lieberman]

Inciteful. I expect the global guerrillas already participate in legal (albeit with insider trading knowledge) commodities and futures markets, ensuring as Tom Friedman and others have noted, that every energy purchase made funds our enemies. Friedman was referring to state beneficiaries of $60/barrell oil, but I think the reference already extends to our stateless enemies.

[John Robb]

Gmoke and Usher, I think you are talking about this:

http://globalguerrillas.typepad.com/globalguerrillas/2004/04/global_guerrill.html

[John Robb]

Given this discussion, I think you are all going to love my new article in Fast Company called, "Power to the People." It will hit the stands on 2/21.

[Movie Guy]

John,

An interesting post.

As you should know, there is nothing new in what you are describing. This pattern has existed for over 60 years, with noticeable effect during various periods.

The difference today has more to do with the narrowing of the gap between field production and near term demand requirements. The actual presence and number of attacks globally have not changed significantly, including various spikes.

Have one of your people conduct a thorough analysis; the historical evidence speaks for itself.

There is no question that we will once again experience a major spike in such guerilla activities, but it is not unexpected by the majors and key Western nation states.

I would suggest that you develop a brief that outlines the chronology of official China visits to oil producing nation states. Thus far, my information indicates that we can expect near term guerilla disruptions and new/renewed nation state resistance to Western clients at many geographic locations that closely track China visits. The frequency of China representatives' visits to nation states possessing crude oil and other raw commodities is unprecedented in recent history...by any other nation states.

Offshore platforms have helped ease the guerilla activity problem. But as those fields play out on an increasing basis, new land fields in remote and 'poor' third world locations stimulate local resistance directly and indirectly. And we are headed back inland.

I disagree with one assertion that you made. There are indications that linkage between guerilla disruption events can be projected, even across various continents.

Again, perform extensive research and track all official and corporate China visits. Draw your own conclusions.

Movie Guy

[jomama]

Massive decentralization coming.

It would be a bad idea to be one of the last to participate.

[Jeremiah]

Someone said: " ...sustainable networks that will replace the traditional economy..."

Maybe I'm missing something, but isn't the "traditional" economy already based on sustainable networks? Isn't that what inherently defines an "economy" in the first place?

Oh, and Movie Guy? Clooney's on line three, babe. Draw your own conclusions.

-j

[Adam]

dan,

"we'll survive on artisanal cheeses, Bordeaux and high quality olive oil instead."

Until we keel over from massive, cholesterol induced, heart attacks :-)

[Duncan Kinder]

"

"' ...sustainable networks that will replace the traditional economy will almost always be exponentially more resistant to present GG methods than the traditional economy.'

Good observation... this is not just a theory, we have the math to prove it.

http://www.orgnet.com/SocialLifeOfRouters.pdf"

It would be interesting to analyze the traditonal Chinese novel, Water Margin" as a case study in the formation and operation of a covert social network.

Water Margin is a series of tales which begins with Bandit Hero A. He meets Bandit Hero B. They have an adventure and then split up. We follow Bandit Hero B, who then meets up with Bandit Hero C; and they have another adventure and then split up. We then follow Bandit Hero C, and so forth.

Eventually, Bandit Hero J meets back up with Bandit Hero A, who then meets back up with Bandit Hero F, and the network grows more intertwined and complex.

Ultimatley, all the bandit heros wind up together in the Liangshang Marshes, which are sort of the Sherwood Forest of Medieval China.

[Valdis]

"It would be interesting to analyze the traditional Chinese novel, 'Water Margin' as a case study in the formation and operation of a covert social network."

Not hard to do... many people have mapped the social networks found in Shakespeare and other literary works... this one sounds interesting... does the topology of the network have anything to do with the outcome of the novel?

Network mapping may be a good tool for writers of complex novels... map the various networks of characters before firing up the word processor. You can even color the links by what chapter they will be revealed in...