3 More Looming Global Dangers for Oil Prices


In the first article in this series on underreported and potentially dangerous nations with the potential to pose a threat to the world's geopolitical and energy balances, we looked at Syria, Egypt, and Iran. In this piece, we'll consider Iraq, Turkey, and Saudi Arabia, all of which are beset by Middle Eastern instability to one degree or another.

1. Iraq. We in the U.S. are amazingly uninformed about the degree to which Iraq has become a dangerously boiling cauldron since the departure of our troops a year ago. To my thinking, the instability of the country's society is tied to an age-old hatred between Shia and Sunni Muslims, the country's geographic location, and its status as a repository of vast amounts of oil.

Iraq's peacetime government was intended to be a coalition of its majority Shia leaders, its large minority Sunnis, and the Kurds in the northernmost part of the country. However, almost instantaneously after UJ.S. forces left, Prime Minister Nuri al-Maliki, a Shiite, called for the arrest of the country's vice president, Tariq al-Hashimi, a Sunni, on apparently trumped -p charges. Hashimi immediately fled to Turkey, where he has remained, even while being tried in absentia and sentenced to death last summer.

Beyond that, Maliki has been a thoroughgoing autocrat in heading a government that has been notably ineffective. It's significant that he lived in largely Shiite Iran during much of Saddam Hussein's reign. Presumably as a result, Iran has become progressively more influential with its war-torn neighbor. At the same time, Shia-Sunni hatred has resulted in a steady wave of bombings across much of the country.

Will Big Oil scurry from Iraq?
Many of Iraq's long-neglected oil wells are being revived successfully by the likes ofExxonMobil , BP , Royal Dutch Shell , and Eni . As a result, in the face of a widespread boycott of Iran's oil, Iraq has become OPEC's second-most prolific member. However, because the companies working there were held to minimally profitable (for them) deals with the Iraqi government, Exxon is looking to leave Iraq for a more profitable deal with the Kurds in the North. It probably wouldn't be wildly unrealistic to assume that other companies will follow suit.

As a result of its increased output, and with Iran's backing, Iraq has begun to contest Saudi Arabia's implied leadership of the cartel. I've long felt that Iraq's location between largely Shiite Iran and primarily Sunni Saudi Arabia would result in Iraq's becoming part of a two-against-one instability in the area.

You need to be aware of two other largely unreported facts about precariously unstable Iraq: First, our troops didn't completely leave the country forever last December. While it's been essentially passed by in the media, this fall -- not long before the November election -- a group of U.S. special operations forces was quietly deployed to the country to assist with counterterrorism and intelligence. Second, despite the relationship between the U.S. and Iraq, the Maliki government currently appears to be in the process of acquiring weaponry from Putin's Russia.

2. Turkey. It wasn't long ago that Turkey and Syria got along famously. However, two years of war in Syria have dramatically changed that. Indeed, more than 100,000 Syrian refugees have headed north into Turkey. In addition, the two countries have exchanged artillery fire, and Turkey has tied down its own airspace, recently forcing the landing of a Syrian airliner bound for Damascus from Moscow.

Long-understated -- but powerful -- Turkey has therefore been flexing its muscles recently. Its "no problems with neighbors" policy appears to have been put on hold.

Help on the way
Turkey is also a member of NATO. As a result, in a significant geopolitical move, U.S. Defense Secretary Leon Panetta announced on Friday that the U.S. will join Germany and the Netherlands in deploying missiles and troops to Turkey in an effort to protect the country from Syrian attacks. In our case, that deployment will involve, at least initially, two batteries of Patriot missiles and 400 troops.

3. Saudi Arabia. The Saudi kingdom -- where only Chevron is working upstream among the members of Big Oil -- clearly remains the leader of OPEC, even with an Iraq-Iran challenge at last week's meeting of the cartel in Vienna that resulted in the postponement of the selection of a new leader for the group. Nevertheless, Saudi Arabia is hardly the font of tranquility that many in the United States believe it to be.

Saudi Claus
The royal family was so daunted by the Arab Spring nearly two years ago that King Abdullah doled out fully $130 billion in public welfare largesse to keep his largely Sunni subjects -- including many who practice Wahhabism, an ultra-conservative form of Islam -- at least moderately mollified. The king and his family have been extremely concerned about demonstrations in Bahrain, which is largely Shia but is ruled by a Sunni monarchy.

Saudi Arabia and Bahrain are separated only by an 18-mile causeway, which enters the Saudi kingdom in the East, where most of the country's Shia minority reside. Tiny Bahrain is the base of the U.S. Navy's Fifth Fleet.

Surprisingly, this year demonstrations that are verboten in the nation and tended to flare up only in the East have spread across the country to Riyadh and Jeddah. Just last month, Riyadh was rocked by demonstrations that shockingly included women and children calling for the release of the nation's political prisoners and an end to human-rights violations. The kingdom remains the world's only country where women are prevented from driving.

While I'm inclined to look askance at predictions that the royal family and its counterpart in Bahrain are ripe for toppling, I nevertheless believe the situation in both countries is sufficiently precarious to merit careful scrutiny.

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

David Lee Smith owns shares of BP. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron. 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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