GLOBAL ECONOMICS
Patrick Grady
The Price of Oil and Islamic Terrorism: Is There Any Relationship?
March 23, 2016
Unlike in the case of, say, the price of tea in China, there are good reasons to think that the price of oil might have some relationship to Islamic terrorism, at least in the world at large. For Canada, the situation is less obvious. This paper examines the evidence and offers some observations on the nature of the possible relationships and their implications for trends in Islamic terrorism, both international and in Canada. The paper presents the demographic factors that are contributing to a greater incidence of Islamic terrorism.
The oil price as measured by the price for West Texas Intermediate crude oil is shown on Chart 1. It was very low for many years after World War II because of the dominant supply of low-cost oil from Saudi Arabia, following development by the Arabian-American Oil Company (ARAMCO) and security agreements with the United States. The price did not start to go up significantly until the 1973 Yom Kippur War and the subsequent Arab oil embargo and establishment of OPEC. (It may also be significant that Saudi Arabia began the process of taking over ARAMCO at this time, acquiring full ownership by 1980). It then more than tripled over the 1973 to 1974 period. Crude doubled again following the disruption of oil supplies resulting from the Iran-Iraq War which started in 1980 (and involved another oil embargo) and pitted a country governed by Shiites against one governed by Sunnis, the main fissure in the Islamic World. The price dropped off towards earlier levels until demand again outran supply and drove it up to new highs ($140 per barrel in June 2008) prior to the 2008-09 financial crisis. The decline in international economic activity reduced oil demand and caused the oil price to drop sharply. But when the global economy turned around, it recovered to around $100 per barrel only to subsequently collapse to recent levels of above $40 as new sources of supply from unconventional sources came on stream and the Saudis maintained production to punish higher cost suppliers such as U.S. shale and Russia.
While it is difficult to predict future trends in oil prices, in the past there has always been a tendency for oil prices to rebound as the balance between oil supply and demand shifts. On the other hand, concern over climate change could result in major efforts to decarbonize the global economy through taxes or regulations. This would put downward pressure on revenues from oil production and could result in the stranding of a significant proportion of existing oil reserves.
Another important development is the growth of the world’s Muslim population (Chart 2). Not only has it grown in absolute terms from 433 million in 1950 to over 1.7 billion in 2010, but it has grown more rapidly than the overall global population increasing its population share from 17.1 per cent in 1950 to almost 25 per cent in 2010 (Kattani, 2010). From a longer term perspective, the growth of the Muslim population has been even more striking, rising from 222 million or 12.6 per cent of the global total in 1910 (Johnson and Grim, 2012). Also of significance is the fact that a more rapidly growing population is a younger population and it is younger males that are the main perpetrators of violence.
The size and younger age of the Muslim population can be a key factor behind the growth of Islamic terrorism. This, of course, assumes that a certain proportion of the Muslim population, particularly of the younger part, will be attracted to the jihadist ideology which has deep roots in Sunni Islam (Ahmad ibn Taymiyyah, Muhammad ibn Abd al-Wahhab and Sayyid Qutb) and is currently propagated by groups such as ISIS and al-Qaeda. It is also found in Shia Islam, but perhaps to a lesser extent (although there have certainly been a large number of terrorist incidents carried out by Shia groups). Ayatollah Khomeini was the most aggressive Supreme leader in Iran the most important Shia country and Hezbollah the most active Shia political and military organization in the Levant. The jihadist tendencies will probably be increased as demographic and other pressures continue to encourage Muslims to migrate to non-Muslim areas of the world, where they will encounter less than wholehearted acceptance from local populations, and exposure to values that are inconsistent with their faith. And to the extent that there are Islamic terrorist incidents, the local resistance will, naturally enough, grow exacerbating the feeling of alienation of many diaspora Muslims.
The price of oil is an important factor contributing to Islamic terrorism because it determines the value of the key resource possessed by Arabs at the heart of the Muslim world in Saudi Arabia and the Gulf States. The prosperity created by oil spawned a rebirth of Islamic triumphalism. It is worth noting that Islamic terrorism did not become the regular fare of the global media until after the price of oil went up. The oil money flowing into the Mideast has financed proselytization all around the world where Muslims have settled including such far flung areas as South America, Africa, Thailand and the Philippines as well as North America. The mosques that have been built with such money have frequently been reported to promote Wahhabism and Salafism, with the jihadi undertones of these ideologies. Funds from related sources have sometimes directly funded terrorism activities by Hamas and the Taliban (Burr and Collins, 2006). And, of course, let’s not forget Osama bin Laden, who inherited money from his father, the founder of the Saudi Binladin Group, and who also benefitted from generous gifts from rich Arab donors, most of which could directly or indirectly be attributed to oil money.
In some net oil exporting countries lower oil prices can reduce government revenues making it more difficult to finance anti-terrorist security and military operations. This is likely to be a problem for the Middle Eastern countries like Saudi Arabia (which is the largest importer of military hardware in the world)and the Gulf States that are also participating in the coalition against ISIS. On the other hand, ISIS will also have less money as it, too, is dependent on revenues and contributions resulting from the sale of oil (also, recently commenced Coalition air strikes on ISIS oil trade have made it more difficult to raise money).
The incidence of terrorism is catalogued in the Global Terrorism Database (GTB). This is an open source database made available by the National Consortium for the Study of Terrorism and Responses to Terrorism (START). It contains information taken from open media sources on more than 140,000 individual terrorist attacks covering the period from 1970 to 2014. This makes it the most comprehensive unclassified database on terrorist incidents in the world. It is widely used by scholars for analysis of terrorism.
The number of incidents of terrorism has increased sharply over the 1970-to-1974 period covered by the GTD (Chart 3). Not all of the incidents reported could be classified as Islamic terrorism, but a very large and growing share certainly could, judging from the number of incidents of terrorism occurring in the Muslim countries of the Middle East and North Africa, a tally, which does not even count the incidents of Islamic terrorism occurring in the rest of the world (Chart 4). It is worth noting that this is the same period over which the price of oil has risen and the Muslim population has grown substantially. Concerning the relationship between terrorist incidents and the price of oil, it can be noted that there is a correlation of 47 per cent (as measured by adjusted R squared) between worldwide incidence of terrorism and the price of oil over the 1970 to 2014 period and 53.6 per cent for the total incidents of terrorism in the Middle East and North Africa. These correlations are highly significant with F statistics of 40.0 and 51.8 respectively.
The incidence of terrorism rose quite steadily from 1971 to 1992. An argument could be made that this reflected the lagged effect of higher oil prices and growing demographic pressures. The more striking uptick in terrorism starting in 2004, also occurs in a period characterized by surging oil prices and continued demographic pressures. It would, of course, be naïve to attribute the increase in terrorism primarily to economic and demographic factors, given that it occurred during the same period that the Afghanistan and Iraq Wars were raging and the Arab Spring of 2011 was overturning established government throughout much of the Middle East and North Africa. The blowback from these developments was obviously a driving force behind terrorism, but the oil price and demographic pressures also appears to have had a role. It will be interesting to see if the decline in the price of oil which took place in 2015 and into 2016, will have a dampening effect on terrorism as funding becomes less readily available. Note that the fiscal breakeven oil price required in 2015, according to the IMF, which are prices that are estimated to be required to balance budgets, was $63.81 for Saudi Arabia and $87.16 for Iran, which was substantially above the actual price in 2015 and the current $30 price. It is suggestive that the 2009 drop in the price of oil corresponded to a flattening in the growth of the incidence of terrorism. Will this happen again?
It is possible that in the short run there will be a decline in larger-scale coordinated attacks, such as those on the World Trade Center in 2001 and the London transportation system in 2005, and, more recently, those on Charlie Hebdo and the Paris stadium and club, and the Brussel’s Bombings, which were linked to al-Qaeda or ISIS. These require significant funding, which may be more difficult to obtain if oil revenues remain low. On the other hand, lone wolf attacks only require ideologically motivated individuals and are largely self-financing and can still be mounted on the cheap. Nevertheless, they can still hurt a lot of people, as shown by the Fort Hood shootings carried out by Major Nidal Hassan, the 2013 Boston Marathon bombing by the Tsarnaev brothers, and the 2015 San Bernardino killings by the married couple Syed Rizwan Farook and Tashfeen Malik.
Canada has been very fortunate in not having had very many terrorism incidents (only 69 from 1970 to 2014 reported in the GTB). And most of these incidents had nothing to do with Islam. The only mega incident was the Air India bombing carried out by Sikh extremists in June 1985, which resulted in 329 deaths. The two incidents of explicitly Islamic terrorism, both occurring in October 2014, were lone wolf attacks. The first was the assault on the War Memorial and Parliament Hill by a single gunman and the second was the convert who drove his car into two soldiers in Saint-Jean-sur-Richelieu killing one. The largest planned attack, which was reportedly inspired, but not directed, by al-Qaeda, was that of the Toronto 18 who plotted to blow up buildings and behead the Prime Minister. It was disrupted in 2006 before it could be carried out (and be included in the GTB statistics) and the participants successfully prosecuted. Another, which was also disrupted, was the 2013 scheme to bomb VIA Rail by two men who were also successfully prosecuted.
The small scale and frequency of Islamic terrorism incidents and their lone-wolf character has been in sharp contrast to global trends and even to the experience in the United States. Thus it would be hard to argue that the price of oil and international economic trends are likely to have much influence on the frequency or severity of terrorism incidents in Canada, although it is clear that the negative impact of lower oil prices in a net-oil-exporting country like Canada, is different from the positive impact that lower prices would have on a net-oil-importing country. However, the demographic pressures emanating from the Islamic world, in conjunction with Canada’s policy of relatively open immigration and generous refugee regime, attracted over 760 thousand immigrants from Muslim countries from 2002-14 (Chart 5 shows the source countries). This amounts to almost 24 per cent of the total immigrants admitted and is much higher, proportionally, than in the United States. Consequently, the Muslim population of Canada grew to 1,053,945 in 2011 or 3.2 per cent of the overall population (Statistics Canada, 2014). This is up from 579,640 or 2 per cent of the population in 2001. It is also much higher than the 0.9 per cent of the population in the United States in 2010 (Pew, 2016). And this differential will only grow. The Pew Forum estimated even before the recent influx of Syrian refugees to Canada and the increase in the overall immigration target to 300,000 that the Canadian Muslim population will reach 6.6 per cent of the total by 2030 whereas in the United States it will only reach 1.7 per cent In contrast to the situation in the United States where Muslim immigration is being hotly debated in the 2016 Presidential election, it is not an area of much concern in Canada.
A certain small proportion of Muslim immigrants to Canada will no doubt fall under the sway of jihadist ideology and be inspired to undertake terrorist attacks. The high unemployment of around 12 per cent currently experienced by new immigrants (landed 5 or less years earlier), which runs even higher for groups such as refugees, who may have lower levels of education, and for younger immigrants, could increase the marginalization and alienation of young Muslims, making it more likely that they would undertake lone wolf or other attacks. So far, Canada has been very lucky and one hopes the country’s luck will continue. But it would be very foolish to assume that Canada will be forever immune to the economic and demographic forces driving international terrorism. Canada will become much more like European countries such as France and Belgium that have recently been hit with mass casualty Islamic terrorist attacks.
Islamic terrorism has been motivated by the jihadist ideology rooted in the religion. This form of terrorism has been reinforced to the point of its becoming a major global force, thanks to the demographic surge of the Muslim population in the Middle East and its spread to all corners of the world, and by the resources made available from soaring oil revenues. A dwindling of oil revenues may provide some respite from the worldwide surge in Islamic terrorism. But the underlying demographic and ideological forces will continue unabated, as recently demonstrated so tragically in Brussels, making Islamic terrorism something that will be long with us, even if for the present, Canada has been largely spared.
Burr, J. Millard and Robert O. Collins (2006) Alms for Jihad (Cambridge: Cambridge University Press).
Johnson, Todd M. and Brian J. Grim (eds.) (2012) World Religious Database (Leiden/Boston).
Kettani, Houssain (2010) "World Muslim Population: 1950 to 2020," International Journal of Environmental Science and Development, Vol.1, No. 2.
Mohamed, Besheer (2016) "A new estimate of the U.S. Muslim population," Pew Research Center , Fact Tank, January 6.
National Consortium for the Study of Terrorism and Responses to Terrorism (START). (2013). Global Terrorism Database.
Pew Research Center (2011) "The Future of the Global Muslim Population," January 27.
I wish to thank Martin Collacott and David Harris for the comments and suggestions that they generously provided on an earlier draft of this paper.
