Will Al Qaeda's Legion of Doom Destroy America's Economy?
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.
Image: CIA, via Wikimedia Commons.
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 Averageclosed 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 , and PowerShares DB Oil Fund , 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.
In 2009, under the direction of Al-Qaeda, Umar Farouk Abdulmutallab, the "underwear bomber," tried to blow up a flight headed to Detroit. Following the failed attack, the U.S. deployed L-3 Communications Holdings' body scanners that had a three-year initial estimated cost of $3 billion (since reduced).
Last September, the Izz ad-Din al-Qassam Cyber Fighters successfully targeted six banks, including Bank of America and JPMorgan Chase. This attack, along with others, spurred the U.S. to invest heavily in cybersecurity initiatives such as the Department of Defense Cyber Crime Center -- which partners with LockheedMartin and its subcontractor CACI international . In fact, analysts expect that while defense budgets are cut, cybersecurity-related spending will increase.
Pre-9/11, the Congressional Budget Office stated: "Under current policies, total surpluses would accumulate to an estimated $2 trillion over the next five years and $5.6 trillion over the coming decade. Such large surpluses would be sufficient by 2006 to pay off all debt held by the public that will be available for redemption." Then 9/11 happened.
America is a defense superpower, and Al-Qaeda doesn't stand a chance in a frontal attack. But through their past actions, they've cost the U.S. trillions. Fortunately, or not so fortunately depending on how you look at it, the U.S. has already invested heavily in counterterrorism measures, so a sharp increase in defense spending is unlikely. Still, an attack by Al-Qaeda on the U.S. is likely to spur defense spending -- even if we are in the middle of sequestration. Just look at what happened following North Korea's missile launch: Defense Secretary Chuck Hagel stated that the U.S. would be shifting "resources" to boost funding toLockheed Martin's Aegis missile defense system, and beefing up missile defense -- to the tune of $1 billion.
A grim wrap
The Department of State believes that now to the end of August is when the terrorists plan to attack. But the good news is that for now, this is all still hypothetical -- and hopefully it remains that way. But if a "major attack" does occur, the best thing you can do as a Foolish investor is to look at what's happened in the past, and not panic. The market may go nuts, oil prices could increase, and it could have an overall impact on the economy, but I don't think it'll be long-lived. And as Fools invest for the long run, the best thing you can do is stock up while the market's low.
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The article Will Al Qaeda's Legion of Doom Destroy America's Economy? originally appeared on Fool.com.Fool contributor Katie Spence has no position in any stocks mentioned. Follow her on Twitter: @TMFKSpence. The Motley Fool recommends Bank of America and owns shares of Bank of America, JPMorgan Chase, L-3 Communications Holdings, and Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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