Al-Zarqawi and the Price of Oil

ACCORDING TO THE BBC News Business Wire in Thursday, June 8, 2006, “Oil prices have dropped sharply to below $70 a barrel on news of the death of the militant leader Abu Musab al-Zarqawi in Iraq.  Two key oil prices, for July delivery of U.S. light sweet crude and UK Brent, fell to $69.54 and $68.35 respectively.” 

On Friday, June 9, Oil & Gas Journal’s “Market Watch” issued another report on the subject under the headline, “Al-Zarqawi’s Death Reduces Energy Prices.”  According to OGJ Senior Writer Sam Fletcher, “Energy prices declined June 8 for the third consecutive day, with the near-month crude futures contract still hovering above $70/bbl in New York, on reports al Qaeda leader Abu Musab al-Zarqawi died in a bombing attack by U.S. aircraft in Iraq.  Formation of a full government in Iraq and the death of al-Zarqawi, a key figure in terrorist activity, helped reassure energy markets.”

By Saturday, June 10 the price of oil had drifted back above $71 per barrel.  So for a few days, the death of al-Zarqawi brought about an affirmative market response.  That is, the death of one particular individual overpowered, for a time at least, the market forces behind growing world demand, political risk, hedge fund speculation and even the all-encompassing concept of Peak Oil.  In my view it was good to see this.  It was nice while it lasted, and it also portends a number of things about the future.

Some News Moves the Market

The world oil industry lifts and extracts a total of about 84 million barrels of petroleum per day.  Some news moves the oil market.  Other news moves the oil market a lot. 

Let’s say that the death of al-Zarqawi moderated the price of oil downward by about $3.00 per barrel over a period of about three days.  (OK, I know.  Not all oil sells for the posted price.  But let us just assume that the decline in price affected all grades of crude oil more or less equally.)  Thus the raw economic impact of al-Zarqawi’s death on world oil markets was $3.00 per barrel, times three days, times 84 million barrels per day.  Do the math and it comes to $756 million of savings to the world’s oil consumers. 

Also consider that the U.S. had placed a bounty of $25 million on the head of al-Zarqawi.  Not to be morbid, but his death brought a 30-to-1 return on investment.  That is not a bad day at the office, when you think about it. 

More Good Days at the Office?

So al-Zarqawi dies and oil prices fall.  Is the oil market irrational?  Or is the drop in prices a rational, albeit contrarian, bet on improved prospects for political stability in Iraq?  And by implication, is the drop in oil prices a signal of a belief amongst some traders of the impending return to the world marketplace of Iraqi oil, and in significant export amounts?  Will there be more good days at the office? 

I believe that the decline in oil price that we saw last week was a predictable and rational market reaction to the recent developments in Iraq, and may signal a medium-term trend of moderation in oil prices.  Al-Zarqawi was the operational commander of al Qaeda in Iraq, one of the key belligerents in the hostilities that have afflicted that nation.  His death is a key event in the course of affairs in Iraq, as well as in the much larger scheme of things.

Death as a Tactical Matter

Al-Zarqawi’s death is, in only a very basic sense, a tactical action that occurred due to a short-lived intelligence opportunity.  That is, after years of frustrating chase and a painstaking intelligence-gathering effort, U.S. and friendly Iraqi forces were able to pinpoint him to a specific location at a specific time.  Al-Zarqawi may have been betrayed by one of his associates. 

According to news reports, al-Zarqawi’s position was surrounded.  At some point there were bursts of machine gun fire originating from the house in which he was holed up.  The on-scene commander called for a precision air strike by U.S. forces.  Two 500-pound, guided bombs hit the intended target and al-Zarqawi’s era, as well as his reign of terror, came to an abrupt end. 

But al-Zarqawi’s death is also a matter of immediate and profound operational consequence to al Qaeda in Iraq.  This is an event with strategic implications.

Who Was al-Zarqawi?

Al-Zarqawi was, according to news accounts in the Washington Post and numerous other sources, a poorly educated, barely literate Jordanian man.  He was born and raised in a gritty industrial town in Jordan in 1966.  By the early 1980s, he embraced a militant form of Islam and made the first of several trips to Afghanistan to fight the Soviet invasion.  In the mid-1990s he returned to Jordan, was arrested and spent time in prison.  While in a Jordanian prison, he adopted a strain of Islam that brands its political enemies, as well as religious “unbelievers,” as infidels who deserve death.  He was reputedly an “enforcer” while in prison, and was linked to the deaths of numerous inmates.

In 1999, al-Zarqawi was released from prison and returned to Afghanistan where he formed an association with Osama bin Laden, who permitted al-Zarqawi to set up his own training camp.  In late 2001, he fled Afghanistan during U.S.-led ouster of the Taliban.  He was allowed to pass through Iran and into Iraq, apparently with the cooperation and permission of Iranian and Iraqi authorities, respectively.  Al-Zarqawi set up operations in northern Iraq, again apparently with the tacit approval of the government of Saddam Hussein.  In October 2002, a U.S. diplomat named Laurence Foley was murdered in Jordan, evidently by operatives of al-Zarqawi. 

In August 2003, a group associated with al-Zarqawi, called “Monotheism and Jihad,” staged suicide attacks on United Nations headquarters in Baghdad, murdering in the process the U.N. envoy Sérgio Vieira de Melo.  The explosive charges used in the attack were a powerful, military-grade of plastique ordnance.  Many commentators and historians of the Iraq War point to this event as the start of long-term Iraqi insurgency.

Al-Zarqawi became a master propagandist, using the Internet to promote himself and to send his messages directly to (literally) hundreds of millions of people.  In April 2004, he was supposed to have personally beheaded U.S. civilian Nicholas Berg.  The grisly scene was posted for all to see on one of the al Qaeda leader’s Web sites.  A month later, in May 2004, a car bomb set off by followers of al-Zarqawi killed the president of the former Iraqi Governing Council.  In September of that year, he also beheaded a U.S. civilian named Eugene Armstrong, again posting a recording of the murder on Internet.

In October 2004, al-Zarqawi vowed his allegiance to bin Laden, and changed the name of his group to “al-Qaeda in Iraq.”  By February 2005, al-Zarqawi’s operatives were able to stage a suicide bombing against Iraqi security recruits in Hillah, killing 125 and setting a sordid record as the single deadliest attack of insurgency to that date.

The months thereafter and since have been marked by strings of bombings and assassinations sponsored by al-Zarqawi.  In March 2006, a set of well-placed, military-grade plastique charges destroyed the Shiite Mosque of the Golden Dome in Samarra.  This attack, which almost led to outright civil war in Iraq, was traceable to al-Zarqawi.  

Al-Zarqawi’s attacks have killed a cumulative total in excess of 6,000 Iraqis, most of whom were noncombatants.  Other al-Zarqawi-sponsored attacks killed many hundreds of Iraqi military and police personnel, and a large number of U.S. troops that is too painful for me even to relate.  In addition to the deaths from the operations that he sponsored, well in excess of 20,000 individuals have been wounded in attacks conducted under al-Zarqawi’s name.

Al-Zarqawi directed much of his venom towards the U.S., Britain, allied coalition troops and Iraqi so-called “collaborators,” stating in one colorful announcement that “the flesh of collaborators tastes particularly sweet.”  (Was he Muslim or Aztec?)  But he also spewed hateful rhetoric towards Shiite Muslims, and did much to foment sectarian civil war within Iraq. 

According to an article by Mary Anne Weaver in the Atlantic magazine, there are strong suggestions that al-Zarqawi has received financial and logistical support from the mullahs of Iran.  There is good evidence that he was able, on a routine basis, to transit Iranian territory and resupply his forces via Iranian routes.  If this connection is ever proven and broadly publicized, as Ms. Weaver suggests it will be, then there is a situation in which the fundamentalist Shiite leaders in Iran were directly sponsoring the murder of their co-religionists in Iraq.  This in turn could possibly undermine the credibility of the Iranian mullahs with their own people; another story for another time.

Thus did al-Zarqawi have a uniquely sordid life’s tale all his own.  Like many a thug throughout history, he rose from humble beginnings to a singular level of military fame and martial incompetence.  By that I mean that, unlike the pilots of the aircraft that killed him, whose bombs were accurate to within a few feet, al-Zarqawi sponsored acts of raw violence that served mostly to kill and maim innocent people without discrimination. 

Al-Zarqawi chose to lead the self-styled romantic life of a combatant leader, using brutal methods of terrorism to fight an asymmetric war against the U.S. and its coalition allies.  In the course of his abbreviated life, al=Zarqawi created for himself a war zone in whatever land he dwelt.  He was dogmatic, a true believer, a fanatic, a “world-improver” who desired to remake the planet in his own image.  Al-Zarqawi was, in so many respects, emblematic of Hannah Arendt’s depiction of the “banality of evil.”

A Death With Operational Consequences

As the history of his life and activities bears out, al-Zarqawi was the operational commander of al Qaeda in Iraq.  The operational level of war is that at which campaigns and major operations are planned, conducted and sustained.  The goal of operational matters is to achieve strategic objectives and goals.  Hence the loss of a key operational commander such as al-Zarqawi is a body blow to the strategic ends of al Qaeda in Iraq.

By way of comparison, it would be as if the Americans and British had killed German Field Marshal Erwin Rommel during the North African Campaign in World War II.  Or it would be as if the Germans had killed Soviet Marshal Georgi Zhukov at some point during the war with Russia.

Yes, there are certainly still large concentrations or cells of al Qaeda in Iraq troops, and other fighting forces allied with al Qaeda in Iraq.  These are dangerous people, with much capability to cause harm through their actions.  But killing the operational commander wrecks, at least for a time, the central nervous system of their operational military organization.  The operational direction is gone.  A center of gravity is destroyed.

The next issue is whether and how quickly al Qaeda in Iraq can find a replacement for al-Zarqawi.  According to news reports, there is a hierarchy of others who may step into a position of control, but these others are also divided along religious, political and personal lines.  Also, if the Number Two or Three or Four guy in al Qaeda in Iraq was all that good, why was that guy not the operational commander instead of al-Zarqawi?  In all likelihood, his death means that U.S. and allied forces, and those of the Iraqi government, will be facing a less capable opponent.

Perspectives and Comparisons

Dear readers of Whiskey & Gunpowder , I am sure that you all have your personal opinions on the merits, or not, of the war in Iraq.  I cannot recall that I have ever shared my own opinion with you on that subject, and I will not do so here or now.  But I am compelled to say that I believe we have just witnessed a remarkable turn of events in that unfortunate nation. 

Iraq is larger than California, with many locations that are safe for the likes of al-Zarqawi.  Iraq is a land bitterly divided along the lines of religion, ethnicity and political loyalty.  Just the act of obtaining intelligence information sufficient to locate and isolate al-Zarqawi was a remarkable military achievement.  Thus any tip as to his presence was, by definition, transient and fading intelligence even if it did come from someone on the inside of Zarqawi’s organization. 

It was the rapid transmission of information from the field, to the command centers, to the targeting cells, and then to the jets in the air that made it possible to take down al-Zarqawi.  At the end of the day it was American technology, in the form of two precision-guided 500-pound bombs, that finally brought al-Zarqawi to his end.  It was, as I noted above, a remarkable tactical effort.  But it is also so much more than that because it has immediate operational and strategic consequences.

One comparison that comes to mind was the American success in shooting down the aircraft bearing Japanese Admiral Isoroku Yamamoto in Bougainville, South Pacific, in April 1943.  I have discussed Yamamoto in other articles in Whiskey & Gunpowder .  Yamamoto was one of the great strategic thinkers and operational architects of the Japanese efforts in the Pacific Theatre.  The Americans had good intelligence that Yamamoto’s plane would be in a certain place at a certain time.  U.S. aircraft intercepted the Japanese transport plane, shot it down and killed Yamamoto.  It was a loss from which Japan was unable to ever recover.  (I should note however, that based upon the historical record Yamamoto was far more professionally accomplished, honorable and civilized than was the late al-Zarqawi.  I want to be fair to the memory of Yamamoto.)

Turning Points of History

How does one know when one is at a turning point in history?  Unfortunately, there are no road markers or billboards.  As people say of the stock market, “No one rings a bell at the top.”

The War in the Pacific was not over for the Americans after the defeat of Japanese naval forces in the Battle of Midway.  Nor was the Great Patriotic War over for the Soviets when they destroyed a German army at Stalingrad.  There was still hard fighting ahead, and much friction and fog of war.  From a military standpoint, it was always going to require that the commanders capitalize on the victory and press home every advantage.  This is no less true in Iraq.

Wherever we are on the timeline of history, we can only move forward.  And with the death of al-Zarqawi, it is quite possible that the correlation of forces has now profoundly changed.  From a geopolitical perspective, it is critical to the successful outcome of this war that we see the evolution of an Iraq that can defend itself, an Iraq that can sustain itself, an Iraq that can secure itself, and an Iraq from which the U.S. can eventually disengage. 

Al-Zarqawi’s death is a giant step in that direction.  A secure Iraq will be a place for future investment, and among that investment will be the redevelopment of Iraq’s oil resources.  This oil may go to the West.  This oil may go to India or China.  But oil will come out of Iraq, one way or the other, sooner or later.  So when al-Zarqawi died and the price of oil dropped for a time, it was a market signal that there is some hope for the future of development in that land.

Until we meet again…
Byron W. King
June 12, 2006

P.S.: Collateral Damage

Here is one last set of thoughts, dear readers.  I want to comment on the news accounts of the death of al-Zarqawi that state that his so-called “spiritual adviser” was with him and also killed in the attack.  And by some accounts, two bodyguards and a woman and child were killed in the attack.  By other news accounts, there was no child present but perhaps there were two women in the home that was bombed.

Whoever was there in the ill-fated house, it was al-Zarqawi who killed them.  He knew that he was the subject of a comprehensive manhunt, with a $25 million bounty on his head.  He knew that his pursuers were competent, and that any moment could be his last.  Yet al-Zarqawi chose to make a call on a certain locale, in the company of others including the women and/or child.  When surrounded, someone in al-Zarqawi’s entourage chose to fire on his pursuers in true Bonnie & Clyde fashion, rather than to surrender.  And then the bombs fell.

Thus to the very end, al-Zarqawi was a killer.  Others died?  If so, it was the culmination of a chain of events set in motion entirely by the late and unlamented al Qaeda leader.  The death of any innocent is a sad thing, but it was al-Zarqawi’s doing.  I am reminded of the words of Herman Melville who wrote the tale of Captain Ahab and his ship the Pequod, which “like Satan, would not sink to Hell till she had dragged a living part of Heaven along with her.”