Don't Ignore Syria's Serious Situation

The evacuation of the majority of rig hands in the Gulf of Mexico in deference to Hurricane Isaac's wrath will almost certainly push crude prices higher in the short term. Looking farther down the road, however, and with limited news coverage in the U.S. -- where most eyes are focused on a quadrennial election buildup -- the Middle East has become progressively more beset by dangerous relationships that also appear capable of raising the ante on global oil.

The latter only serves to enhance my conviction that well-structured Foolish investment portfolios should include at least a modicum of energy representation. Beyond that, with many of the oil field services providers able to sidestep North American natural gas price softness and report solid June-quarter earnings, I continue to favor the likes of Schlumberger (NYSE: SLB  ) , Baker Hughes (NYSE: BHI  ) , and National Oilwell Varco (NYSE: NOV  ) , in part for their global flexibility.

Who's involved in the Syrian hostilities?
Let's look at some of the key matchups in the Middle East that appear capable of spreading chaos across that oil-producing region and perhaps beyond it. An obvious place to begin is in Syria. As you know, the country is now defined by a conflict that has already resulted in about 18,000 deaths, between a largely Sunni Muslim rebel contingent and the ruling regime of Bashar al-Assad, a member of the Alawite sect of Shiite Islam.

If that were to describe the entirety of the conflict, however, it would be far less onerous for the region than is actually the case. But there are other interested parties and geographic relationships that render events in Syria far more portentous. For instance, despite being relatively small, Syria shares borders with Israel, Lebanon, Jordan, Iraq, and Turkey, and is little more than a relatively brief camel ride from Iran, Saudi Arabia, and Egypt.

Every bit as important is the pro-Assad lineup that includes Iran, Russia, and China. Conversely, the rebels appear to be receiving aid from the Saudis, Turkey, Qatar, and apparently the U.S.

A roster of the players
Therein lies the rub. The past weekend's massacre of more than 200 Sunnis by government forces in a suburb of Damascus clearly indicates that the internal conflagration continues to rage. But, it's the international matchups that easily could turn events in the country into a global outbreak, with an obvious effect on energy prices and, consequently, the world's struggling economies. For instance:

  • We haven't heard much about Turkey in world affairs for some time. That's likely to change, in part as a reaction to events in Syria. The two countries, former allies, are now figuratively snarling at one another, and tens of thousands of Turkish troops apparently are massed along their common border. Keep in mind that Turkey is a member of NATO, and so any hostilities between the two nations could ultimately involve much of the developed world.
  • Iran is the Syrian regime's primary benefactor in the world today. Tehran is sending members of its Revolutionary Guard Corps soldiers to Syria, along with cash and munitions. As recently as last week, Iran's Defense Minister warned that if the Assad regime is unable to quell the uprising within its borders, Iran would adhere to a mutual defense pact between the two countries and deploy military assistance to Syria.
  • None of this bodes well for Israel. On the one hand, there are those who believe that time is growing short for an action by the Jewish state against Iran, an event that obviously would be intended to knock out the latter's nascent nuclear network. But now, Israel has also been warned by Syria's ambassador to Jordan that, in the event that it is attacked (perhaps by NATO forces) Syria could wipe out all of Israel's nuclear facilities with 20 missiles.
  • Saudi Arabia's Sunni royal family has been concerned about unrest in nearby -- and majority Shiite -- Bahrain for well over a year. The family's contention is that demonstrations in the tiny island kingdom were induced by largely Shiite Iran. As such, it's appropriate to view the chaos in Syria as another aspect of a dangerous proxy war between the Saudis and Iran.  
  • While Syria isn't a major oil producer, with slightly more than 350,000 barrels of daily output, the West -- led by the U.S. -- has attempted to impose sanctions on the country's energy and banking activities. Those efforts are being thwarted by schemes hatched between Syria and Russia, which, along with China, is also providing muscle for the Middle Eastern country in the United Nations.
  • It's tough to see how all these alliances can avoid affecting Iraq, where a number of western oil companies, including ExxonMobil (NYSE: XOM  ) and Royal Dutch Shell (NYSE: RDS-B  ) , have been laboring to revitalize neglected oil fields. Iraq sits between Iran -- which exerts considerable influence on the war-torn country and its still shaky government -- and Saudi Arabia and, as noted, shares a border with Syria. Beyond that, however, it has also been announced that economically expanding Turkey plans to construct oil pipelines that will connect it with Iraq.

The Foolish bottom line
There clearly are many more pieces to this complex puzzle. I think by now you realize, however, that there is the potential for igniting a global explosion from the Syrian uprising. As such, I'd strongly suggest that Fools monitor this chaotic situation carefully and add at least Schlumberger, Baker Hughes, and National Oilwell Varco to My Watchlist.

Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. The Motley Fool owns shares of National-Oilwell Varco and ExxonMobil. Motley Fool newsletter services have recommended buying shares of National-Oilwell Varco. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On September 02, 2012, at 5:50 AM, amvet wrote:

    The US, Saudi, Turkish, and Qatari war to change the government in Syria will probably suceed. A pity.

    The current government is certainly more democratic and humane than the dictatorships in Saudi Arabia or Bahrain who are in bed with the USA

    Our occupation of Iraq destroyed the large Christian population and we seem hell bent to do the same in Syria.

    We remain in the " war until bankrupt" mode.

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