Iraq Has Reemerged Among Energy's Perils

It was earlier this week that I described to Fools the myriad of difficulties in which Iran is embroiled, along with how the country's problems could, in the not-too-distant future, affect crude prices worldwide. However, in the earlier article I purposefully neglected to describe perhaps the biggest time bomb in Iran's midst: its dangerous relationship with its new protégé, Iraq.

As you know, the last of the U.S. regular military forces exited Iraq in December. That brave lot had barely doused their last light in the country when Iraqi Prime Minister Nouri al-Maliki, a Shiite Muslim, attempted to arrest Triq al-Hashimi, a Sunni. However, Hashimi made tracks for an exile in Turkey, where he remains, probably even more resolutely, since an Iraqi court not long ago sentenced him in absentia to hanging or beheading, depending upon which version you believe.

We're b-a-a-a-ck
Beyond that, with the focus of U.S. scribes unswervingly directed elsewhere, you probably didn't realize that dramatically increased terroristic activity and other deadly events have resulted in the deployment of a unit of U.S. Army special operations soldiers back into war-torn Iraq. According to Stratfor, the respected international relations consulting firm based in Austin, Texas, the deployment is intended to assist Iraqis in the areas of counterterrorism and intelligence.

Nevertheless, the largest cadre of Westerners in Iraq remains those who are plying their trade within the mostly Western oil companies. Those companies have signed on with Iraq's government -- under what my Foolish colleague Aimee Duffy would accurately tell you are less than stellar terms -- to revitalize long-neglected oil fields. In the prolific southern part of the country, a consortium that includes BP (NYSE: BP  ) , an affiliate of PetroChina (NYSE: PTR  ) , and such oil-field services helpers as Weatherford (NYSE: WFT  ) are successfully plugging away at improving the production from the giant Rumaila field.

Another contingent led by ExxonMobil (NYSE: XOM  ) and Royal Dutch Shell (NYSE: RDS-B  ) is endeavoring to restore the West Qurna-1 field, not far from Rumaila. In addition to their concerns with hitting targets for increased production, however, I'm willing to bet that managements of those companies are ruminating about the wisdom of remaining in the midst of increasingly dangerous environs.

The bloodshed continues
The almost clandestine return of U.S. troops to the country obviously was precipitated by an increase in violent attacks. Most appear to have been the work of al-Qaeda in Iraq. For instance, coordinated incidents on July 23, August 16, and September 9 each targeted up to 20 cities and resulted in more than 300 deaths among them. The September 9 event was directed at Shiite strongholds in the south, including the city of Basra, near the epicenter of the Western companies' remedial work.

Beyond Iraqi-on-Iraqi violence, however, a perhaps even more portentous circumstance can be found in the increasing fealty to the Iranian regime by Maliki and his minions. As Frederick and Kimberly Kagan noted in a recent National Review article: "Those who have argued that Arab Iraqis will naturally resist Iranian pressure even without meaningful American assistance may prove right in the long term, but Iraqi political elites today are supporting Tehran's regional objectives in the most important issues of the moment."

There they go again
That support takes several forms, including those "political elites" turning a blind eye to Iranian over-flights as the latter country provides weaponry and troops to the Syrian regime of Bashar al-Assad. And in addition to the recent overlapping of Syria's civil war into Turkey, the once internal conflict became more important for United States' interests as recently as Wednesday, when it was announced that another group of U.S. troops has been sent into Jordan.

Their mission: to help that country deal with the flood of refugees -- thought to number eventually as many as 250,000 -- who are pouring in from Syria. Ominously, Jordan essentially consists of a hunk carved out of the northwest portion of Saudi Arabia. And from our perspective, we now somewhat quietly have troops in Afghanistan, Iraq, and Jordan.

As influence from mostly Shiite Iran continues to expand in majority Shiite Iraq, the Kagans also note that "(Iraq) is a critical line of communication between Tehran and its once-solid proxy in Damascus. It is again becoming a safe haven for one of the most lethal and determined al-Qaeda franchises in the world." In the process, it's also knowingly providing Iran with a means of dodging Western sanctions.

The Foolish conclusion
From the perspective of Iraq's position in the world's oil scene, the country is enjoying the fruits of the oil companies' efforts. While its production of slightly more than 2.6 million barrels per day is far below an initial -- and almost certainly unrealistic -- objective of 12 million daily barrels in five years, it nevertheless has again become a meaningful factor in global oil production. There are even those who think its reserves ultimately could surpass those of Saudi Arabia. However, as the Kagans contend, it's also " danger once again of becoming a failed state."

Given the escalating tension in the Middle East, it's arguable that the road to a return to those gruesome days of yesteryear for Iraq would imply the spread of a conflagration across much of the region. You can speculate as effectively as I what impact such an occurrence might have for global crude prices. It's largely for that reason that I continue to urge Fools to keep at least one eye on disintegrating events in the Middle East, while also insuring that the biggest of big oil, ExxonMobil, is included on My Watchlist, at least as a proxy for its vitally important industry.

Fool contributor David Lee Smith doesn't own shares in any of the companies named above. The Motley Fool owns shares of ExxonMobil. 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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David Smith

A longtime securities analyst and multiple-term member of The Wall Street Journal's All-Star Research team, Dave specializes in energy and natural resources.

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