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You're almost certainly up to speed on what's being called the Arab Spring, a cascade of civil unrest across North Africa and the Middle East. Indeed, you're probably tired of newscasts dealing with the subject, and with the constant drumbeat during the past week about every conceivable detail of the comeuppance of al-Qaida mastermind Osama bin Laden.
It doesn't require an unusually powerful imagination, however, to assume that we haven't yet witnessed total chaos in the Middle East. In fact, it's even conceivable that a military confrontation could erupt there later this year, with Iran and Saudi Arabia as the primary combatants, once U.S. troops have departed from Iraq.
Energy's narrow escape
The mainstream media have essentially avoided coverage of the real story here. Thus far, the world of energy has escaped relatively unscathed as unrest and protests have ricocheted from Tunisia to Egypt and on to the likes of Yemen and Syria, none of which is meaningful from an oil and gas perspective. Only Libya, which has lost much of its 1.6 million barrels of daily prewar production and effectively sent the likes of Total (NYSE: TOT ) , Repsol (OTC BB: REPYY.PK), and ConocoPhillips (NYSE: COP ) packing, has had even a remote impact on the world's supply and demand picture.
But let's suppose that -- to use a word that was batted around liberally in January and February, when the Arab Spring was beginning -- the area's "contagion" were to spread to Saudi Arabia, Iran, and Iraq. A strange notion? You might think so if you discount recent articles on the subject in The Wall Street Journal or in publications by Stratfor, the respected Austin, Texas-based global intelligence consulting firm.
In fact, even yours truly, while clearly not foreseeing the specific events in the Middle East this year, wrote a Motley Fool piece on the subject nearly four years ago. Titled "Iraq: Stuck in the Middle with You," it simply considered the potential implications of the country's strategic geographic position between Iran and Saudi Arabia, who really don't like one another, and the negative effects of any threat to the combined crude production of the three countries (which together account for about a third of OPEC's total).
Is it really time for us to check out?
But let's fast-forward to the final day of this year, the current deadline for the removal of U.S. troops from Iraq. Lest you assume that the powers that be in Iraq would prefer in their heart of hearts to keep even a smaller contingent of our military in their country beyond that date, you're in for a surprise. Despite the recent uprisings that have hit Bahrain and Yemen and shaken OPEC kingpin Saudi Arabia, effectively destabilizing the region in the process, Iraq appears resolute in its desire to wave goodbye to American forces by late December.
It's therefore been the U.S. that's been quietly pushing -- unsuccessfully -- for an extension of a troop presence in the country. As George Friedman, the founder of Stratfor, sees it:
The American concern, of course, has to do with Iran. The United States has been unable to block Iranian influence in Iraq's post-Baathist government. Indeed, the degree to which the Iraqi government is a coherent entity is questionable, and its military and security forces have limited logistical and planning ability and are not capable of territorial defense. The issue is not the intent of Prime Minister Nouri al-Maliki, who himself is enigmatic. The problem is that the coalition that governs Iraq is fragmented and still not yet finalized, dominated by Iranian proxies such as Muqtada al-Sadr.
Once American troops leave Iraq -- and if you think about it, the end of December is effectively right around the corner -- Iraq will become vulnerable, especially to Iran. Take that relationship one more step and Iran and the Saudis almost certainly would be at each other's throats, as they have been in a less obvious way for decades. Much of their tension is, of course, the product of Saudi Arabia being primarily a Sunni Muslim kingdom, populated by ethnic Arabs, while Persian Iran is inhabited largely by their Shiite rivals.
This vacuum sucks
Now, however, with a vacuum about to be created in an Iraq absent U.S. troops, along with instability in Yemen and Bahrain, many observers are concerned that a full-scale military conflict could erupt in the Persian Gulf (or the Arabian Gulf, depending on your perspective). By whatever name, the body of water is a key transportation hub for fully a fifth of the world's oil.
For now, and absent such a military outbreak, a host of major energy companies from across the planet are busy plugging away to boost Iraq's oil output and reserves. For instance, a consortium led by BP (NYSE: BP ) and a subsidiary of PetroChina (NYSE: PTR ) has already met with success in ramping up output from the giant Rumaila field, near Basra, a largely Shiite city in the country's south. In the same neck of the woods (or desert) ExxonMobil (NYSE: XOM ) and Royal Dutch Shell (NYSE: RDS-B ) have teamed up to inject life into the big West Qurna field.
A state of affairs that Fools should watch
Even so, less of what occurs in the region appears to be influenced by the United States. After the eight years our forces have spent in Iraq, our "hosts" are clearly tiring of our presence, and lengthy relationships with Saudi Arabia (good) and Iran (bad) may be worth nothing, especially if you're willing to toss in a couple of extra greenbacks. At the same time, a serious outbreak of hostilities in the region would clearly have catastrophic consequences for global crude prices.
It seems to me that, if ever a situation warranted attention from investors (and non-investors as well), it's the tenuous state of affairs enveloping the Persian Gulf. With scenarios like this in mind, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free. In this report, Fool analysts cover three outstanding oil companies. To get instant access to the names of the three oil stocks, click here -- it's free.