Iran's Energy Squeeze

The world's energy markets, which seem far more precariously balanced than is generally recognized, appeared to edge closer to an outright conflict this week. Somewhat not surprisingly, Iran, the second most active of the OPEC producers, has lurched into noncompliance with a United Nations edict that it cease the enrichment of uranium.

The nation's defiance probably won't lead to any sort of short-term output reduction, but when matched against a tight global supply-and-demand balance, the effects are unlikely to be positive. Along with potential production disruptions in two other OPEC nations -- Venezuela and Nigeria -- the tendency of Iranian President Mahmoud Ahmadinejad to thumb his nose at the world community in general and the United States in particular has given pause to crude traders and energy planners alike.

OPEC supplies about 40% of the world's total crude consumption of 84 million barrels a day crude consumption, and each member nation seems to carry its own special brand of political intrigue. Even so, Iran clearly is in a class by itself. Under Ahmadinejad, the nation has moved determinedly in the direction of nuclear power and weaponry. The former may actually be dictated by the nation's own increasingly voracious consumption of crude. Despite its substantial reserves and its 3.7 million barrels per day of production, Iran has had its export levels slide in recent years, and that slide appears destined to continue. Some observers now claim that Iran needs its nuclear activities to help it fill its own energy requirements.

In Venezuela, President Hugo Chavez, another loose cannon, is in the process of nationalizing a number of his nation's industries, energy among them. Included is oil production along the Oronoco River, which ExxonMobil (NYSE: XOM  ) , Chevron (NYSE: CVX  ) , and ConocoPhillips (NYSE: COP  ) have largely overseen. It's now difficult to envision how Chavez's moves cannot endanger Venezuela's 2.5 million barrels per day of crude production.

Nigeria, meanwhile, produces approximately 2.3 million barrels per day, primarily from the Niger Delta and nearby waters. But in that West African nation, intensifying tribal skirmishes are threatening production. Further, heavy-handedness surrounding the scheduled April national elections could substantially escalate Nigeria's level of violence.

Crude prices have moved higher in recent days; they increased by nearly $0.90 on Thursday. And while it's entirely possible that they could head lower -- particularly in the face of an Iranian capitulation to the world community -- I nevertheless will continue my relentless urging that Fools not permit themselves to become underweighted in energy.

At this stage, I continue to believe that a prudent approach to energy investment involves the large international players, particularly on the exploration side. In fact, the three companies I mentioned above, especially ExxonMobil, appear to present appropriate opportunities. On the service side, I continue to like Schlumberger (NYSE: SLB  ) for its global scope and seismic representation, along with the longer-term opportunities that deepwater drillers Transocean (NYSE: RIG  ) and Diamond Offshore (NYSE: DO  ) represent.

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What are investors like you saying about energy stocks? Take a peek at Motley Fool CAPS, where more than 23,000 participants are rating stocks in every sector of the market. Want to join the discussion? Go ahead -- it's completely free.

Fool contributor David Lee Smith does own shares of Schlumberger but not any of the other companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.

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