Oil prices jumped when terrorists launched a deadly attack on a major energy facility in Algeria recently. Some experts believe more attacks are likely, and the weapons and tactics used will probably become more sophisticated.
Terrorists with links to al-Qaida stormed a gas production complex in Algeria in January. They wrecked equipment and took hostages. Government forces re-took the facility, but not before 37 hostages were killed.
Experts say energy facilities are targets because they are staffed by foreign engineers who can sometimes be exchanged for large ransoms, or bring attention to a cause.
The threat is growing in the Middle East, according to energy expert Bernard Weinstein, of Maguire Energy Institute in Texas. He spoke via Skype.
“What is new is what appears to be a spurt of terrorist activity in the Maghreb of North Africa,” he said.
Weinsten says a “risk premium” already boosts the cost of oil by up to ten percent. Risk affects costs throughout the process of producing, transporting and selling oil and gas. For example, workers demand higher wages for serving in dangerous areas, and insurance costs more. Higher risks mean investors might not put assets into oil companies unless they are assured higher returns.
Violence, or the threat of violence, can suppress supplies, thereby raising the price.
Chris Faulkner, CEO of Breitling Oil, said the impact of future attacks could be devastating.
“The economic repercussions could be huge,” said Faulkner. “If the needle moved five or eight dollars a barrel on oil, or if they had a major disruption in supply, and it went up by $50, that is going to cause prices at the pump of gasoline here to go up. It is going to cause a panic in the economies and the markets, and they can cause significant damage.”
Gal Luft, an energy expert, said cyber attacks are a growing concern for energy companies.
“As cyber terrorists realize the vulnerability, they may improve their technical sophistication and eventually develop capabilities that could wreak havoc in global oil and gas markets,” said Luft.
So far, the most serious cyber attacks have been aimed at power grids rather than at oil or gas production. Luft said, however, that could change.
Meantime, oil prices that spiked right after the Algeria attack remain high.