Oil Prices Rebound on Terror Warning

Jim Brown
Printer Friendly Version

Crude oil prices rebounded from a intraday drop after the Singapore Navy warned of threats against oil tankers in Malacca Strait.

Late Thursday the Singapore Navy warned it had received "indications" a terrorist group might be planning an attack on oil tankers in the Strait of Malacca, which is one of the world's busiest shipping lanes.

The strait is 60 0miles long but only 1.7 miles wide at its narrowest point. This would make it ideal for terrorists planning an attack. The strait handles about one-third of seaborne oil shipments. The strait links the Indian Ocean to the South China Sea and the Pacific Ocean. It is the shortest sea route between the Persian Gulf oil suppliers and the Asian markets.

Officials warned that other large ships carrying dangerous cargo might also be at risk. The Singapore Navy Information Center advised ships to take action to increase security and to be aware of small boats that might be used to launch an attack.

The navies of Malaysia, Singapore and Indonesia stepped up monitoring of the strait and said, "we are prepared to handle this threat." The information about the potential attack came from an credible foreign governmental source earlier this week and the three countries evaluated the intel and decided it was accurate enough to warrant additional patrols. The intel claimed the terrorists were targeting specific tankers routinely using the strait. A Thailand naval attach? claimed the original warning came from Japan, which had informed the International Maritime Bureau that ships might be attacked.

The strait has been infested with scores of pirates with hijackings and robberies numbering up into the hundreds but a joint effort by the three countries reduced the number of incidents to less than 50.

On Thursday the Indonesian police charged 14 suspected Islamist militants with planning terrorist attacks after they were captured on Sumatra Island on Feb-22nd. The alleged targets were not disclosed. On Wednesday Indonesia detained 13 suspects from an Islamic militant training camp in the province of Aceh at the northern end of the strait.

With the apparent ease for hijackers to capture and commander large tankers there has been concern recently that one would be captured and turned into a floating bomb that could shut down a shipping lane or destroy a port. Analysts claim that fear is overdone since crude oil is not that flammable and any deviation by a tanker from its assigned route would immediately draw attention.

I am surprised this has not already happened. While a tanker may not readily explode it still represents a major hazard if controlled by the wrong people. Major bridges could be rammed, shipping lanes blocked and the potential ecological damage would be huge. Let's say for instance that terrorists somehow boarded a tanker headed for the Houston ship channel. With a channel that is only a couple hundred yards wide at some points it would be very easy to block the channel, sink the tanker and set it on fire. It could take months to remove it and clean up the mess and oil imports into the U.S. would be severely crippled. A large tanker under terrorist control could ram the Louisiana Offshore Oil Port facilities and put that facility or at least a portion of it out of business for some time.

I believe it is only a matter of time before someone figures out how to use our dependence on foreign oil to our disadvantage.

Jim Brown

This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.

Subscribe to Energy Play Newsletter