Oil has been at the center of most world conflicts since the beginning of the 20th century. In The Prize, Daniel Yergin recounts the World War II battle for North Africa. The German army was sweeping east to try to control the Suez Canal and associated oil shipments. Once the Suez Canal was under control, the plan was to continue to the oil fields of Iran. The Germans ended up losing the battle of North Africa because their tactics relied on speed, tanks, and oil. When the oil ran out (ironically in Libya), the German war machine could only retreat.

The attackers of Sept. 11, 2001, were probably not thinking about the history of oil. However, the geopolitical landscape -- dominated by oil -- was established long before that day and created an environment in which extremism could thrive. In the years since the attacks, the war in Iraq, the showdown with Iran, and the thawing of relations with Libya have again brought oil squarely into the center of global conflict.

Fertile ground
People spend their entire careers trying to dissect the seeds of terrorism and the people who engage in it. Without stealing someone's Ph.D. thesis, I think it's safe to say that masses of unemployed young men living in a restrictive society that relies upon oil revenue for social equity (or inequity) might be some fertile ground for extremism. Obviously, there is much more to global terrorism than oil, but I believe there is a link worth exploring.

The majority of the 9/11 attackers were from Saudi Arabia -- the world's largest oil producer and home to the world's largest oil reserves. In a society that should be rich from oil, why would such extreme behavior take root so firmly? In The World Is Flat, Thomas Friedman suggests that cheap oil would force Middle Eastern governments to develop other sectors of their economies, open their markets, and liberate their people. Unfortunately for Mr. Friedman's theory, there were 15 years of cheap oil leading up to Sept. 11. Saudi Arabia was a country with a shrinking government budget providing fewer services to a growing population of unemployed youth. Not the whole story to be sure, but low oil prices certainly may have contributed to the already fertile ground.

At the time of the attack
In the fall of 2001, oil prices were below $20 a barrel. Immediately following the attack, prices dropped to $16 a barrel as recession appeared imminent. Big Oil stocks like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP) held up fairly well right after the attacks, but oil did not find its way into the spotlight for two more years.

In the wake of the attacks, two factors caused oil to become a central part of the story. First, to avert recession, the Federal Reserve cut interest rates to historic lows, causing a consumption boom. Second, the political response to the attacks sent American troops to Iraq -- the country with the fourth-largest oil reserves in the world.

The economic response to the attacks created a huge pool of liquidity in the economy. Americans bought houses in record numbers. The houses were bigger, farther from city centers, and needed to be filled with furnishings. The building boom began to drive prices for basic materials higher. New owners needed new cars to drive longer distances to work and they increasingly chose larger SUVs. American consumption relied on inexpensive imports from China.

The result? By 2004, American oil consumption was increasing at an annual rate of 3.5%, up from a historical average near 1.5%. In China, oil consumption rocketed ahead by 14.7% in 2004, compared with a historical average closer to 6%. These massive demand increases arrived at the end of 17 years of low oil prices. During that time, oil companies used very tight criteria for investment projects, and there was no spare capacity to quickly adjust to the new demand. Prices soared from $20 a barrel in the fall of 2001 to nearly $70 a barrel today.

Beyond supply and demand, the political response to 9/11 has added a serious "fear premium" to oil prices. The war in Iraq -- which has more than 100 billion barrels of oil reserves -- has not fostered stability in the country. Attacks on the oil infrastructure have resulted in oil production remaining lower than pre-war levels, reducing the flow from a country that should be one of the world's leading producers.

Furthermore, there has been renewed agitation between the U.S. and Iran, which is fourth in world oil production and third in world oil reserves. The U.S. has been pushing for a United Nations resolution to stop Iran's nuclear program. Iran says it will keep the oil flowing, as long as it can do what it wants. Every time the two countries exchange words, oil prices head higher.

High oil prices, lack of spare capacity, and geopolitical turmoil have given power to otherwise minor oil players. Nigerian rebels send the price of oil up every time they blow up a pipeline. Hugo Chavez tries to impose his influence wherever he can find a willing audience and has extracted all he can from the foreign oil companies willing to remain. Evo Morales made big headlines by nationalizing Bolivia's gas fields. Terrorists threaten to cut Saudi oil production. Is this the wave of the future?

The good news
Perhaps the most positive political outcome in the aftermath of 9/11 has been the thawing of relations with Libya. Libya renounced weapons of mass destruction and admitted its role in the 1988 Lockerbie bombing, and the environment for developing Libya's oil fields improved dramatically. MarathonOil (NYSE:MRO) and Occidental Petroleum (NYSE:OXY) returned to the land where the Germans ran out of gas so many years ago.

High oil prices have also led to accelerated development of energy sources closer to home. Gulf of Mexico deepwater fields are being drilled with rigs from Transocean (NYSE:RIG), Global Santa Fe, and Noble. This activity recently led to Chevron uncovering one of the largest oil fields in U.S. history.

Production from Canada's oil sands is growing at a rapid clip. The development has already moved Canada into second place in world oil reserves, and it should be in the top five in world oil production within 10 years.

Finally, high oil prices have improved social services in Saudi Arabia. It seems that the Saudi government understands the need to diversify the economy and provide more opportunity. Hopefully, the fertile ground that bred the attackers of 9/11 will begin to dry up.

What now?
After 2001, there has been little to be excited about in the oil markets. Headlines have suggested that world oil production may be entering irreversible decline, that most of the world reserves are held by countries with links to terrorism, and that the era of cheap oil is over. While there may be some truth to these negative headlines, there is also reason to think we may have turned the corner. With Chevron's big find, the potential for stability in Libya, and rapidly growing production from Canada's oil sands, in a few years, we may just emerge with greater energy security.

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Fool contributor Robert Aronen owns shares of Transocean, but no other company mentioned. The Motley Fool has a disclosure policy.