Amid Middle East Chaos, Asia's Also Shaky

Off and on for years, and especially lately, concern about a catastrophic eruption between and among nations has focused on the Middle East. Indeed, as recently as Sunday the head of the air wing of Iran's Revolutionary Guard warned that U.S. military bases in the region would be targeted in the event of a war between his country and Israel.

That admonition obviously came hard on the heels of anti-American tragedies two weeks ago in Libya and Egypt, subsequent demonstrations across a host of countries, and a bloody and lingering conflict in Syria that has the world's nations taking sides. But, it may be wise to contemplate that there's a lot at stake amid potential hostilities in Asia, which seemingly could be based on a combination of the thirst for more energy among that area's big powers and internal political strife in both China and Japan.

Quarrels heating up to the East
Anyone with even occasional access to TV, radios, newspapers, the Internet, or the social media realizes that President Bashar al-Assad is fighting for his very existence in Syria. But, it's less well known that China's ruling Communist Party is being pressured, despite -- or perhaps because of -- October's once-in-10-years party congress, which will determine the country's next generation of leaders.

The pressure has involved anti-Japan rallies in the face of disputes between the two countries over ownership of islands in the East China Sea, including a group called the Senakus in Japan and the Diaoyus in China. At the same time, China has been involved in skirmishes with several other Southeast Asian countries over claims to areas in the probably-mineral-rich South China Sea. And if that weren't enough, the Chinese ambassador to Ottawa recently warned Canadians about politicizing the decision regarding whether to permit CNOOC (NYSE: CEO  ) to proceed with a $15.1 billion purchase of Nexen.

The land of the rising consternation
Meanwhile, Japan is also facing turmoil at the top and displays of anger among its citizen about China's muscle-flexing. The country's prime minister, Yoshihiko Noda, who has followed five others in that post in just the past half-dozen years, faces a general election and possible defeat by the end of the year. Noda spoke on "the rule of law" at the United Nations on Monday. At home, a number of companies, including Sony Corp. (NYSE: SNE  ) , closed down temporarily in the face of weekend protests over what is seen by many as China's regional hegemony. As such, it's no small matter that we now have countries with the world's second- and third-largest economies glaring at one another.

Japan is also going toe-to-toe with South Korea over a territorial dispute and squabbles lingering from World War II. According to The Wall Street Journal, Noda has said that Japan will not accede to Korean demands for additional compensation for the "comfort women" who were forced to service Japanese soldiers during that now-long-ago war.

Who has your back, Japan?
All this is being acted out against a backdrop of intensifying energy concerns in Asia. For instance, Japan, whose citizens pay several times our own prices for natural gas, which they must receive in liquefied form, signed a $13 billion agreement earlier this month with Russia's Gazprom to jointly construct a processing plant and terminal at Vladivostok to prepare LNG for shipment across the Sea of Japan. Those in the island nation are obviously concerned about volatility in the Middle East, from which they currently receive 90% of their oil and a quarter of their LNG.

And, for perhaps obvious reasons, previous plans for pipelines between Japan and sources in China and South Korea will be superseded. Let's hope that the Japanese have considered Russia's rough treatment of Ukraine, one of its largest gas customers, along with the sharp elbows it has used on major international oil companies in the past.

At the same time, China continues steadily to spread its energy wings in the Western Hemisphere. In addition to the pending purchase of Nexen, its giant Sinopec (NYSE: SNP  ) acquired a $2.2 billion stake in Oklahoma's Devon Energy (NYSE: DVN  ) earlier in the year. Sinopec will now manage several functions in the construction of a $2.5 billion coal gasification power plant in Texas. Oversight of the construction will be managed by Germany's Siemens (NYSE: SI  ) .

South Korea also is hardly oblivious to the opportunities inherent in the world's spreading search for oil in all sorts of remote and challenging venues. Several of that country's major shipbuilders are substantially ratcheting up the percentage of their business tied to floating platforms that facilitate the production, storage, and offloading hydrocarbons, primarily in the deepwater zones.

The Foolish bottom line
I trust that it's apparent that it's not only the Middle East that is now characterized by contentiousness and that the Chinese government, through the companies it controls, will continue to play an ever-larger role in the world's quest for oil and gas. I therefore strongly urge Fools to monitor closely the key Chinese energy and petrochemical companies. There's not a better way to do so than by adding CNOOC and Sinopec to My Watchlist.

Fool contributor David Lee Smith own absolutely no shares in any of the companies named in this article. The Motley Fool owns shares of Devon Energy. Motley Fool newsletter services have recommended buying shares of Devon Energy. 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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