Back in January, I was concerned about circumstances in Iran and the Middle East in general. Included was the likelihood of an increased, Shiite-driven, Iran-Iraq linkage that seemed to pose a real threat to the region, perhaps to distant nations, and certainly to global crude prices.
The good news is that in the brief period since I expressed those thoughts, some aspects of the situation in the Middle East have improved significantly. The bad news is that others have not.
What's up, Doc?
On the positive side, this week Iraq has quietly been hosting a summit of the Arab League in Baghdad. Clearly the country has been using the event to make nice to its Arab neighbors, an encouraging note for those of us with concerns about where a closer relationship with Iran might lead.
Those concerns have naturally been intensified by the presence in the war-torn country of Royal Dutch Shell (NYSE: RDS-B ) , France's Total SA. (NYSE: TOT ) , BP (NYSE: BP ) , and Halliburton (NYSE: HAL ) , which are among the world's major oil and oil-field service companies. Those companies' workers are diligently (and generally successfully) endeavoring to return some spunk to the production rates of the huge but long-neglected fields of Iraq.
Their efforts would be severely threatened by an Iranian movement for a piece of Iraq's energy action. Yet that outcome had almost seemed inevitable to those watching the figurative distance narrowing between the two countries, both of which are populated by Shiite Muslim majorities. That, of course, is distinctly opposed to Saudi Arabia, a primarily Sunni oil kingpin. Only Chevron (NYSE: CVX ) , among the big Western companies, is toiling beside Saudi Aramco in the kingdom.
Closer to the kingdom
It's precisely the Saudis that Iraq appears to be most concertedly cozying up to. Iraq is probably seeking help to establish its identity in the face of potential designs on the country by both Iraq and Turkey, the two competing kingpins in the region. As a result, Iraq has several significant initiatives under way with its largely Sunni neighbor.
For instance, Baghdad and Riyadh recently inked a pact whereby Iraq would return several prisoners, including suspected al-Qaida operatives, whom the government of Prime Minister Nouri al-Maliki had suspected of being involved in a spate of suicide bombings targeting his Shiite majority. In addition, the countries have reached a related agreement through which Saudi Arabia has designated its first envoy to Iraq since the early days of the Hussein regime.
Certainly more important from a commercial perspective is consideration being given by Iraq and the Saudis regarding a previously discarded pipeline project that would connect the oil fields of southern Iraq to Yanbu, a Saudi port on the Red Sea. The project, which was halted more than two decades ago at the outset of the first Gulf War, would afford the Iraqis an outlet for their crude, should Iran follow through on its threats to interrupt traffic in the Strait of Hormuz.
A newly jovial neighbor
Along with its newfound amicability with Saudi Arabia, Iraq appears to be patching up old wounds with both Kuwait and Egypt. In both instances, the events that triggered consternation between Iraq and the other two Arab countries date back to the 1980s and 1990s.
None of this is to imply that all is peaches and cream in the Middle East. Syria's battles continue to rage, allowing not a glimpse of light at the end of the tunnel. Furthermore, the nature of Egypt's leadership remains solely in the eye of the beholder. And Iran's economy has been torn asunder by U.S.-led sanctions as the mullahs, President Mahmoud Ahmadinejad, and other powers that be press ahead obstinately in the development of nuclear weaponry.
The Foolish bottom line
Fearing stronger crackdowns or perhaps outright war, as The Wall Street Journal detailed Tuesday, Iran is feverishly buying wheat from wherever possible -- including the U.S. -- to provide at least the staples of its citizenry's diet in the event of a conflagration. And those efforts just might be well-founded: It's difficult to read or hear a speech by Israel's Benjamin Netanyahu without arriving at the assumption that the die has likely been cast in that direction.
As investors, however, it remains prudent to continue to view energy as an appropriate core of portfolio composition. On that basis, I'd urge Fools to click on the links below to add these important international producers to their watchlists.