On February 17, 2006, a rebel group called the Movement for the Emancipation of the Niger Delta (MEND) declared “total war” against oil companies operating in Nigeria’s main oil-producing region. Nigeria is Africa’s leading oil exporter and ranks fifth as an oil supplier to the United States. For oil companies, it is one of the most inhospitable domains on the planet in which to do business. In recent years the country, half of which is controlled by strict Islamic law, has become a cauldron of turmoil where sectarian violence, radicalism and corruption are rampant and on the rise.

That winter week, MEND launched a campaign of pipeline sabotage and kidnapping of oil workers that led to a 20 percent decline in Nigeria’s oil production. Five days later, Iraq, with the world’s second-largest reserve of conventional crude, nearly went offline when the Shi‘a Askaria shrine in Samarra was bombed, threatening to drag the country into a bloody civil war. Since Saddam Hussein’s invasion of Kuwait in August 1990, Iraq has been producing far less oil than its potential capacity. Years of sanctions and neglect have brought production to less than three million barrels a day (MBD). The Iraq war has since brought the country to a new oil production low. A sabotage campaign against the country’s oil installations has reduced Iraqi production to a disappointing average of two MBD. But the Samarra attack could have pushed the country over the edge, stopping crude exports altogether. This was the moment al-Qaeda was waiting for.

Since September 11, terrorist groups have identified oil terrorism as a way to break the economic backbone of the West. Until 2002, the oil market had sufficient elasticity to deal with occasional supply disruptions. Such disruptions could be offset by the spare production capacity owned by some OPEC producers, chiefly Saudi Arabia. This spare capacity has been the oil market’s main source of liquidity. But due to burgeoning demand in developing Asia, coupled with the voracious appetites of traditional consumers in the industrialized world, this liquidity mechanism has eroded from seven MBD in 2002, which constituted 10 percent of the market, to about two MBD today, less than 2.5 percent. As a result, the oil market today resembles a car without shock absorbers: The tiniest bump can send a passenger to the ceiling.

Without liquidity, the only mechanism left to bring the market to equilibrium is rapid and uncontrolled price increases. This reality plays into the hands of jihadists who seek to hurt the Western economy by going after what they call “the provision line and the feeding to the artery of the life of the crusader’s nation.” In an October 2004 videotape, Osama bin Laden explained:...