3 Looming Global Dangers for Oil Prices


If you share my sentiments, you've had your fill of the media's incessant prattling about our lurking fiscal cliff. That's especially the case since the domination of the news by that subject serves to minimize the time available for attention to a number of worldwide locations -- especially in the Middle East and North Africa -- that have become significantly more unstable.

An intensification of that instability in any of those countries has the potential to spread quickly, much as the Arab Spring did from a tiny spark in Tunisia two years ago. Among the many undesirable fallouts would likely be a sharp jump in global crude oil prices. For that reason alone, it's important that Fools keep an eye on all these potential tinderboxes. We'll look briefly at three in this article, followed by equal numbers in two subsequent pieces.

1. Syria
You, of course, know about the nearly two-year-long bloody conflict in Syria, where groups of primarily Sunni -- and often Islamist -- rebel forces have been battling to overthrow the Alawite (Shia sect) regime of President Bashar Assad. The war has taken more than 40,000 lives and sent hundreds of thousands of refugees fleeing to Turkey and Jordan. With the regime potentially close to a final stand, there's worldwide concern that it might turn to its cache of deadly chemical weapons, a possibility against which President Obama warned Syria's leaders recently.

A danger within
This week, more than 100 countries recognized Syria's main opposition group as a legitimate representative of the Syrian people. The U.S., however, blacklisted a group called Jabhat al-Nusra, which it has labeled an extremist terrorist organization. The group may be descended from al-Qaeda in Iraq, and possibly is the recipient of direct funding from Saudi Arabia. The presence of the unit among the opposition complicates the possibility of support from the United States for the rebels. More importantly, it indicates that, should Assad be swept from power, his replacements may constitute an even greater danger for the region and much of the globe, a similar situation to what might just have occurred in Egypt.

While the government controls the air, the head of NATO has observed that Assad's forces may be close to collapse. At the same time, Russia, which, along with Iran, has been a staunch supporter of the government, has displayed evidence of reconsidering that stance of late. In any event, look for Syria to remain potentially poisonous for the energy-rich Middle East, perhaps for years to come.

2. Egypt
There are obviously as many emerging and unanswered questions about Egypt as Syria. You'll recall that President Mohammed Morsi -- he formerly of the Muslim Brotherhood -- returned to Egypt a few weeks ago, and, with praise from U.S. Secretary of State Hillary Clinton for his having helped broker a cease fire between Palestinian factions and Israel still ringing in his ears, unleashed a decree granting himself absolute power in the country. The result has been a series of sizable uprisings in Cairo and Alexandria by liberal (secular) factions opposed to the Brotherhood, Islamist rule, and, of course Morsi.

More energy than you thought
It's noteworthy that Egypt is the largest non-OPEC oil producer in Africa, with an oil output of slightly more than 700,000 barrels per day. Western companies working there include Apache , which acquired acreage from BP in 2010. Chevronconducts some activities in Egypt, and the two biggest offshore drillers, Transoceanand Diamond Offshore , have rigs working in Egyptian waters.

For now the opposition crowds have subsided, and Morsi has backed off somewhat on his decree. But the key question has become one of the fate of a draft referendum of a new constitution for the country. It's to be voted on during the next two Saturdays. The Brotherhood is pushing for its passage while liberals are attempting to exert force in opposition, claiming that the draft, according to The Wall Street Journal, "is based on ill-defined interpretations of Islamist law, is potentially hostile to women, media, and some minorities, and was rushed through by an Islamist-led panel."

With judges on the sidelines in protest over Morsi's decree, and thereby not playing their typical monitoring role in the referendum, a major concern, both for election activities and more generally, involves the leaning of the traditionally powerful Egyptian military. The Brotherhood is keeping a wary eye on the security forces, while the liberals are -- ironically -- seeking its support.

Given Egypt's status as the largest country in the Arab world, and its traditional center, events in the country during the coming weeks and months will be of supreme importance to the nation's oil-producing neighbors.

3. Iran
You've received a relatively steady flow of information about Iran, its transgressions, and the boycotts being used to suppress its economy. As such, let's look at just one major piece of information about the country that you may not have noted amid fiscal cliff concerns during the past few weeks.

The mad bomber?
It seems that officials from a country critical of Iran's atomic program -- I'm betting the name begins with an "I" or an "S" -- that Iran has been running computer simulations of nuclear weapons with considerably more punch than the bomb the U.S. dropped on Hiroshima to end World War II. While that bomb likely had a force of about 15 kilotons, reports about the Iranian program place its simulations at a level of slightly more than 50 kilotons.

It's unlikely that the elements being simulated are designed for peaceful purposes. As such, we can conclude that the country's economy being shredded has had little effect on convincing the mullahs and President Mahmoud Ahmadinejad to shed their nuclear objectives. Indeed, they may be more determined than ever to see them to maturity.

In the next piece in the series, we'll turn our attention to all-important Iraq, Turkey, and Saudi Arabia.

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The article 3 Looming Global Dangers for Oil Prices originally appeared on Fool.com.

David Lee Smith owns shares of BP and Transocean. The Motley Fool owns shares of Apache and Transocean. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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