Surgically implanted bombs, the most serious threats the U.S. has seen in years, and Al-Qaeda “chatter” similar to what was seen right before 9/11 are just some of the threats U.S lawmakers say prompted increased security, and the closure of embassies across the Middle East, recently.
The U.S. State Department also issued a global travel warning, saying that terrorist organizations are aggressively focusing on kidnapping, torturing, and bombing Americans traveling abroad. Moreover, this all has the ability to affect America’s shaky economy. But there are ways to prepare — just in case.
The increase in terrorist activity
In the past few weeks, the U.S. closed 22 U.S. embassies across the Middle East and North Africa, because of “credible threats” that terrorist organizations are planning a massive attack. So far, U.S. intelligence agencies haven’t stated where, or when, these attacks will take place, but they did say the threats appeared to originate in Yemen, indicating a high probability they’re Al-Qaeda-related.
Further, the ranking Democrat on the House Intelligence Committee, Rep. Dutch Ruppersberger of Maryland, told ABC that Al-Qaeda’s “operatives are in place” and that it’d be a “major attack.” And Rep. Peter King, R-N.Y., the lead on the House Homeland Security subcommittee on counterterrorism and intelligence, told ABC that “Al Qaeda is in many ways stronger than it was before 9/11, because it’s mutated and it spread and it can come at us from different directions.”
What to prepare for
Luckily, lawmakers are taking these threats seriously. But, considering that on Sept. 10, 2001, the Dow Jones Industrial Average (Dow Jones Indices:.DJI) closed at 9,605.51, and on Sept. 17, the day the Dow reopened, it closed at 8,920.70, a 7.13% decrease — and then it didn’t recover for a month — there are a few things investors should keep in mind.
A terrorist attack, particularly a massive one, could have an emotional impact on the market. The Dow dropped 7.13% on Sept. 17, but it finished the week down 14.3% — the largest single-week drop in U.S. history. This drop was probably exacerbated by the attack’s occurrence at the heart of the U.S. financial system, though leading reports indicate that location wasn’t solely responsible for this decline. In addition, while initial reports indicated that the Sept. 11 attacks slowed GDP, later Congressional Research service reports state that GDP slowed before Sept. 11, and was not a result of the terrorist attack. This finding indicates that the sudden decrease in the market was largely emotionally driven. Consequently, a short-term drop in the market is possible following a major attack.
A surge in oil prices is probable. One of the reasons the U.S. closed embassies in the Middle East and North Africa is that these areas are likely spots for terrorist attacks; particularly the Arabian Peninsula. That directly affects the Organization of Petroleum Exporting Countries, or OPEC.
In 2012, petroleum net imports accounted for 40% of the total petroleum used in the United States. Of that amount, 55% was imported from OPEC, which includes Middle Eastern countries such as Iraq, Libya, and Saudi Arabia. In fact, in 2012, 18% of U.S. imported petroleum came from Saudi Arabia.
Further, in July, OPEC crude output hit a four-month low because of the conflict in Libya and Iraq and had a direct effect on July’s gas prices. According to AAA, July gas prices rose $0.14 per gallon because of increased demand and unrest in the Middle East. Oil price increases are usually good for ETFs such as the United States Oil Fund LP (ETF) (NYSEMKT:USO), and PowerShares DB Oil Fund (ETF) (NYSEMKT:DBO), but a rise in oil prices can also be detrimental to the economy.
Recently, The World Bank Development Research Group Environment and Energy Team analyzed a wide body of research on oil prices’ impact on the economy. They concluded that an increase in oil price negatively affects global GDP but is especially damaging to emerging and developing countries, such as China, because of their reliance on oil-intensive manufacturing industries. Consequently, a rise in oil prices, following an attack, could negatively affect the United States’ slowly recovering economy — and the global economy.
As Secretary of State John Kerry said, “Deploying diplomats today is much cheaper than deploying troops tomorrow.” The Middle East is a hotbed for terrorist activity, and one way America fosters diplomacy is through its embassies. Consequently, they make ideal targets for terrorist attacks. However, a physical assault on an embassy isn’t the most effective way a terrorist group could attack the United States. And I think they know that.