THE PERFECT STORM 101Algeria is a major energy producer. It has a very powerful
Al Qaeda type Islamic extremist movement that has recently
declared allegiance to the Islamic State. They’re the same bad
guys but they’ve hitched their wagon to the leadership of the
Islamic State. They’re gaining strength and it may just be a
matter of time before they topple the Algerian government.
At that point, the Islamic State would stretch from Iran
almost to Morocco. It would begin to look more and more
like the real caliphate. When I say the real one, I mean that
the Islamic State has declared a caliphate, and that they think
what they have is a real caliphate.
If you go back in history and look at the caliphates that
have existed, the biggest ones went from Spain to Indonesia
and everything in between. There were smaller ones in North
Africa and the Middle East too.
What’s interesting is that when the Islamic State gets con-
trol of these oil fields, they don’t shut them down. They keep
pumping because they need the money. That’s something that
a lot of investors misunderstand. They see geopolitical turmoil
in the oil patch and they think it’s going to cut production and
send the price of oil higher. Actually, history shows the opposite
is true.
The Islamic State will produce oil like crazy because they
want the money, and they’re not bound by OPEC casts. That’s
going to make OPEC’s job a little more difficult. We saw this in
1986 during the Iran-Iraq war.
Iran and Iraq are two of the largest oil producers in the
world. When they got into a war — when Saddam Hussein
and Ayatollah Khomeini were still around — a lot of people
thought the price of oil was going to go to the moon because
of supply disruptions. The opposite happened.
Both countries pumped like crazy and the oil price went
down to $12 a barrel. And to think, so far, we’ve been talking
about distress at $60 per barrel.