The small town of al—Khobar, Saudi Arabia became the focus of a seemingly amateur terrorist attack on an expatriate compound. Khobar is a small town that borders the headquarters of Saudi Aramco, a city called Dhahran. The small town of Khobar hosts luxury Western apartments and businesses that cater to the expatriates who work in Saudi Aramco as well as a large number of contractors who live outside the company—owned area in Dhahran.
 
Khobar is yet another soft target that the terrorists use to intimidate the expatriate community and indirectly disrupt the oil company's activities. The real impact is psychological. The barbarity of the attacks on expatriates is intended to scare away people necessary for the production of the oil which fuels the Kingdom's many appetites.

The Saudi professionals who work in the oil business are very well educated and trained. However skill gaps can and do develop, since the state—of—the art technologies in many areas of the business require cutting edge expertise. In addition, certain professional skill sets, such as auditing, legal services and accounting may not be available in the local job market.

There are also many contractors in Saudi Arabia who employ huge numbers of men from the surrounding South Asian countries and the Philippines.  These workers do everything from carpentry to cleaning streets to operating pizza parlors in Khobar. Some individuals who are contracted to work in the Dhahran oil company headquarters also live in the Khobar area.
 
Although Saudi Special Forces quickly subdued these terrorists and freed the captive expatriates, many people died. Non—Muslims were subjected to brutal killings and other displays of barbarous behavior. The message seems clear enough: run for your lives, Westerners! There are enough soft targets in and around Saudi Aramco to make life terrifying for the many thousands of expatriates living In—Kingdom.

The attack on the Khobar Petroleum Center was actually an attack on foreign companies doing business in Saudi Arabia. The Russian company Lukoil and Chinese company Sinopec are there to manage gas development contracts recently taken away from American oil companies, notably ExxonMobil. The expatriates who work in the area live in neighboring compounds designed specifically for expatriates, which feature exclusive restaurants, swimming pools, and upscale living quarters, usually subsidized by their parent companies.

This terrorist act was timed in quick response to the strong statements by Saudi Aramco authorities that Saudi Aramco oil facilities are safe, made only a few weeks ago. Having shown—up the official statement as empty, the terrorist forces have gained the appearance of a stronger horse.

The only good news in all of this is that Prince Abdullah has vowed to stamp out terrorists from the Arabian Peninsula. This is precisely what is needed in the war on terror, a strong Arab leader who is angry and who is not going to take it anymore. Let's see what he does though.
 
The major oil facilities of Saudi Aramco, around its headquarters in Dhahran, are very well—guarded by company security guards and government forces. But the daily lives of their employees are not everywhere as secure. Many expats in the oil company never leave the confines of the Dhahran community because food shopping, dining, medical services and recreation are all supplied in the camp area. But others have traveled to town regularly to shop in the souks or the shopping malls, dine out at one of the many restaurants, or just to take the kids to eat at one of the popular fast food joints like Burger King

These bombings and killings will make the hiring process very difficult and, perhaps encourage expatriate families to follow the official advice of the US Ambassador, to leave the area and go home. All of this is bad news for us at home because this raises the cost of operation and highlights the real possibility of a major disruption in the oil market.

The oil market inventories are now so tight that any small disruption can send oil futures prices soaring. For example, a pipeline shutdown in the Gulf of Mexico this last month sent oil futures to $41.85 per barrel. Consider a major catastrophe in a Saudi facility that could put 3—4 million barrels per day offline. The impact on the international oil market and US economy would be of horrendous magnitude and difficult to quantify. In terms of economic impact alone, this would be an event that would stop our economic recovery.
 
In the midst of all the attacks now directed at Saudi Arabia, consider that the only protection we have to our oil markets is our Strategic Petroleum Reserves, or SPR, held in the many salt domes in the Gulf Coast area. This reserve of crude oil is there for one reason only, to provide the US with a source of energy supply during a real crisis.

What can Chuck Schumer of New York and other liberal politicians be thinking about when they say we should use the SPR to lower gasoline prices? At the very minimum, these people are taking cheap political shots at the Administration, and advocating risky policies.  At worst, they are displaying a frightening ignorance of the compelling security issues that now face this country.

Dan Berard is our energy correspondent