Regional Conflicts in the South China Sea Could Rival the Middle East One Day

With billions of barrels of oil lying underneath contested waters, the South China Sea could one day be the next hot bed of oil fueled conflict.

Jan 5, 2014 at 5:33PM

South China Sea

Sea Hawk helicopters maneuver over the South China Sea. Photo credit: Flickr/Official U.S. Navy Page

The South China Sea reportedly holds 11 billion barrels of oil and 190 trillion cubic feet of natural gas. That might actually only tell half of the story as the US Geological Survey estimates that as much as 22 billion barrels of oil could lie underneath the seabed. Unfortunately, there's no clear way to define who "owns" these resources, as China, Vietnam, Malaysia, Taiwan, the Philippines, Indonesia and Brunei all believe some, or all, of these resources belong to them.

What's more, these are growing countries with increasingly greater pressure being placed on the need for new natural resource supplies. Many of these countries are forced to import a considerable percentage of their overall demand.

This is in fact one reason why nearly a third of all global crude oil passes through the South China Sea each year. The combination of potentially disputed oil underneath the sea, as well as its importance in the global oil trade makes this region a potential future hotbed for conflict. Clearly, peace in the South China Sea is vital to maintain regional stability.

Peace in the region could be volatile in the years to come. This is because the Chinese, in particular, have been aggressors in many instances. For example, the country recently declared an Air Defense Identification Zone that encompasses 1 million square miles of the East China Sea. To combat these moves we're seeing countries like Japan quietly build up its military.

These regional tensions are a major catalyst for defense contractors like Boeing (NYSE:BA). Its new submarine destroyer could play a big role in keeping peace in the region as countries like Japan bulk up their defenses. The U.S. Navy is already deploying several of Boeing's submarine hunters to Japan. Future orders could really fuel Boeing's stock price.

That said, while a potential conflict is a catalyst for Boeing, it represents a risk for American oil and gas producers in the region. Companies like ConocoPhillips (NYSE:COP), which has operations in China's Boahi Bay as well as Malaysia, Indonesia and Brunei, could see its production from the region affected if a conflict over oil reaches the boiling point. ConocoPhillips along with partners Murphy Oil Corporation (NYSE:MUR) and Royal Dutch Shell plc (NYSE:RDS-A) see its offshore oil and gas production from Malaysia in the South China Sea being a big driver of margin expansion. Taking this high margin oil production offline would have an impact on cash flows, especially at Murphy Oil as it spent 42% of its development capital on Malaysian projects last year.

Investors need to keep an eye on Southeast Asia, and the South China Sea in particular. The oil in place under that sea, as well as its importance as a trade route, could push some nations to the boiling point as they rush to secure their supply of oil. That's a catalyst for some stocks, while a big risk for others.

Invest here and win either way

The changing landscape of global energy markets isn't worrying OPEC...yet. However, as the world looks to cut out OPEC it's profits could dry up. In an exclusive, brand-new Motley Fool report we reveal the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock that's trying to take away OPEC's profits. 

 

Fool contributor Matt DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers