Iran May Ignite a Global Explosion: Part 2

In the first of two articles on rapidly declining -- but progressively more truculent -- Iran, we looked at the spreading boycott of the country's oil by nations across the globe, at its rapidly disintegrating economy, and the increasing civil unrest of elements of its citizenry. All of this has created a perfect storm for the country that, among other things, has resulted in its saber-rattling threats to block the Strait of Hormuz, the narrow passage separating the Persian Gulf from the Gulf of Oman, through which a fifth of the world's oil passes daily.

Sunni-Shiite squabbles
But there are other significant items you need to know concerning the country and the likelihood of its antics leading the world into major military fisticuffs. Key among these is its increasingly contentious relationship with many of its neighbors, along with the steadily more belligerent contest emerging between Shiite and Sunni Muslims across the Arab-Persian world.

It's not at all difficult to become concerned about the direction of the Middle East and points beyond when you mix a gander at the relative locations of countries in the area with the internecine and intensifying  Sunni-Shiite squabbling. I noted to Fools nearly five years ago -- and several times since -- that it was hardly difficult to become concerned about an eventual departure of U.S. forces from Iraq -- the historically unstable, largely Shiite, nation that sits squarely in the middle of equally unstable (and also primarily Shiite) Iran on its eastern flank, and the largely Sunni oil producing kingpin, Saudi Arabia, to its west.

Iraqi battles in no time flat
Sure enough, it took only hours after the last of the U.S. troops had extinguished their lights in Iraq and headed home for Iraq to descend into new tumult.  As you are probably aware, Shiite Prime Minister Nouri al-Maliki immediately seized the opportunity to begin autocratically flexing his muscles in the direction of the country's Sunnis and the Kurdish minority that inhabits the country's northern sector.

Iraq is not only the site of chest-thumping between the two primary Muslim factions, but it also is "host" to an array of major oil companies -- ExxonMobil (NYSE: XOM  ) , BP (NYSE: BP  ) , Italy's Eni (NYSE: E  ) , and Schlumberger (NYSE: SLB  ) , to name but a few -- that are steadily boosting the output of the country's huge oil fields that had been virtually neglected since the beginning of Saddam Hussein's regime more than three decades ago.

Bouncing Iran's buddy?
Now, with a full-scale movement under way by Sunnis and Kurds (and even some Shiite) to remove Maliki from the helm of Iraq's government, we can only speculate about Iran's role in the future of its war-torn neighbor.  After all, Maliki resided in Iran for nearly two decades during Hussein's rule and is well-connected there. Beyond that, there emerges the question of the future of the energy companies in Iraq following an increased Iranian role there. From my perspective, it's difficult to envision those current roles continuing in the face of a heightened Iranian presence in Iraq.

Front and center, Turkey
Then there's the absurdly underpublicized increase in Sunni Turkey's role in the region, in which Ankara has typically preferred to play a relatively subdued part. Lately, however, the country apparently has seen it as its responsibility to protect its Sunni brethren in Iraq and elsewhere, and to keep Iran perpetually in its viewfinder. Indeed, with the area's circumstances heating up rapidly, Iraq summoned Turkey's ambassador earlier this month, such that it might express its dissatisfaction with what it viewed as meddling in its affairs by the former center of the Ottoman Empire.

However, those close to the situation attribute the increasing tensions between Iraq and Turkey primarily to a hostile atmosphere that has quickly grown up between Ankara and Iran following the reduction in what I've previously termed as U.S. "adult leadership" from Iraq. As you might suspect, this growing animus is largely being tied to an expanding Sunni-Shiite rift. The night before his departure for Iraq, Ahmet Davutoglu, Turkey's foreign minister, lamented the possibility of a "Cold War" between Shiites and Sunnis spreading across the Middle East.

Even if they can be prevented from spreading dangerously, the current contretemps should be expected to linger. As a Carnegie Endowment scholar said recently, "Tension is now rising between Turkey and Iran and it will be increasingly difficult to manage as it's being aggravated by sectarian tensions. These problems are likely to be long-term; I don't see an easy solution."

Slamming the Saudis
How about Iran and Saudi Arabia, where Chevron (NYSE: CVX  ) is the only big western oil company working actively upstream? With Iran obviously in the business of dispensing warnings of late -- including one to the U.S. regarding entering its navy's ships into the Strait of Hormuz, an admonition the U.S. Navy promptly tested by cruising the carrier Abraham Lincoln without incident through the narrow body of water -- the Saudis have been on the receiving end as well.

Amid the specter of the expanding embargo of Iranian oil, Saudi Arabia's oil minister, Ali al-Naimi, pledged to increase the kingdom's crude production by 2.7 million barrels a day, assuming a market proved to exist for the oil. The following day, Iran warned the Saudis against compensating, by even a drop, for reduced Iranian production. I trust you'll agree that, even under our current administration, it's a stretch to envision an Iranian attack on Saudi Arabia without an immediate take-no-prisoners response from the U.S.

Sneaky Syria's been caught
And then there's Syria, which conjures up another significant element not a part of Iran's other territorial shenanigans: Mother Russia. Unlike either Iran or Iraq, Syria is about 75% Sunni. However, it is governed primarily by a Shiite sect, the Alawites. Since the Arab Spring spread to the country -- and even prior to that -- President Bashar al-Assad's regime has been backed by Tehran, which has repeatedly expressed contempt for Turkey's decision to provide support and a safe haven for Syria's Sunni rebels. This, of course, has only rubbed salt into the wounds that resulted from the breach between Turkey and Iran.

But Iran has aided Syria by concocting a scheme for the clandestine shipment of the latter's oil exports, ideally without arousing the knowledge of the U.S. and other western powers. Under the Tehran-developed subterfuge, Syria's crude is quietly shipped to Iran, where it has access to the international market, with the revenue ultimately finding its way back to Damascus.

Bashing Bashar
However, there's more than the Sunni-Shiite dynamic affecting events in Syria. It turns out that our friends the cantankerous Ruskies (who are already angered at our newly-arrived ambassador) are also involved in supporting Assad. This month, for instance, Cyprus halted a St. Petersburg-based ship that had been in the process of toting arms to Tartus, a Syrian port. The Russians, along with their Iranian compatriots, have been involved in a decided effort to back Assad and to  help him deflect an arms embargo.

At the same time, Turkey is operating on the other side, denying overflight rights for the carriage of weapons from Iran to Syria. Alternatively, Iran has sought to transport weapons from Kaliningrad in eastern Russia to Syria, only to have those efforts thwarted by Lithuania.

There are far more moving parts to this adventure, including the very real potential for an Israeli attack on Iran, which I'll explain in a future article. But by now, you get the picture: Primarily because of Iran's indiscretions, internal difficulties, and Shiite concentration, the Middle East is far more chaotic and dangerous than is recognized in the U.S., where we're far better informed about Mitt Romney's tax payments.

Foolish bottom line
My primary prescription under the circumstances must include unswerving attention to the ultra-important energy industry. I'd recommend beginning by adding Chevron -- the best located geographically of the major companies -- along with Schlumberger -- my favorite company in the industry -- to your individual version of My Watchlist by simply clicking the links below.

If you're looking for more ideas, 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.  

Motley Fool newsletter services have recommended buying shares of Schlumberger and 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. Fool contributor David Lee Smith doesn't own a single share of any of the companies named above. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 30, 2012, at 5:00 PM, mdk0611 wrote:

    With regard to Chevron, doesn't it have liability issues in South America (Brazil, Ecuador) that should also be taken into accout?

  • Report this Comment On January 30, 2012, at 10:38 PM, Fonz56 wrote:

    Once again Mr. Smith points out several items of importance. Namely the rife between the Shite and Sunni. But,,No one in his right mind would/could forget the relationship between Israel and Iran. Its so bad even a stay hitchhiker could start a war. The smart thing to do is wait and see and the United States should not be the chief power on the block. Press is good for oil prices and some stocks. Makes good reading for investors and big companies. But who benefits by all this adverse print. Business who want to profit from wars!

  • Report this Comment On January 31, 2012, at 9:10 PM, Shawnerz wrote:

    Wow! Amazing article! Two thumbs up from me. David Lee Ro-I mean Smith ( ;-) ) you really brought out the intracasies of, and the dynamics in, the region. All I can say is, "Wow!"

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