Why Markets Are Too Worried About Conflict in the Middle East

Markets often react sharply to conflict in the Middle East, but many of these countries aren't huge oil exporter.

Jul 13, 2014 at 11:41AM

Few news items can rile markets more than conflict erupting in oil-supplying countries. Libya had markets on edge last year, affecting both oil and stocks. When Russia's military merely approached Crimea in Ukraine earlier this year, markets got nervous. When conflict erupted in northern Iraq last month, oil prices spiked and stock markets took notice as well.

This week, Iraq was in focus again, but this time because a drop in production there had less of an impact on the world's oil supply than previously feared. Oil fell, the Dow Jones Industrial Average (DJINDICES:^DJI) stayed near its highs, and ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) both fell.

^DJI Chart

^DJI data by YCharts

The truth is that over the long term, supply concerns often blow over and short-term movements are often unjustified. So just how concerned should we be with these potential conflicts?

The world's leading exporters
To understand how conflict could affect oil and therefore the economy, it's important to understand where the world's oil comes from. In 2012, the most recent date for which we have data from the Energy Information Administration, Saudi Arabia was the world's No. 1 producer, followed by the U.S. and Russia. Together, these three countries produced 37% of the 89.4 million barrels per day consumed globally.

Of the countries that have seen recent military or political conflicts either at home or in their region, few are big enough to make a big dent in global supply. Saudi Arabia is clearly the largest exporter of oil, followed by Russia, but places such as Iraq, Iran, and Libya are fairly small by comparison.

Country

Net Exports in 2012 (Thousand Barrels Per Day)

Saudi Arabia

8,865

Russia

7,201

United Arab Emirates

2,595

Iraq

2,235

Iran

1,808

Venezuela

1,712

Libya

1,313

Source: Energy Information Administration.

To put these numbers into further context, since 2005 the U.S. has reduced oil consumption by 2,022 thousand barrels per day, increased production by 4,835 thousand barrels per day, and reduced net imports by 6,857 thousand barrels per day. So while conflicts that emerge in Iraq, Iran, or any other oil-exporting country may have an impact on the global energy market, they're not going to bring the economy to its knees.  

The impact on markets
For companies, the impact may be greater. ExxonMobil has operations in nearly every oil-producing country, and a $500 billion joint venture with Russia's Rosneft was part of a political battle earlier this year. The company also has production sharing contracts that cover more than 848,000 acres of the Kurdistan region of Iraq, precisely where conflict is the worst today.

Chevron's dealings in Northern Iraq have also been contentious. The company signed oil contracts with the Kurdistan regional government that give it access to 490 square miles in two separate blocks. But Baghdad says the deals were illegal and barred the company from dealings with the central government.

While the impact on the Dow Jones Industrial Average as a whole may be small, these conflicts can affect earnings of companies as big as ExxonMobil and Chevron. Just keep in mind the scale of the potential impact when these countries hit the headlines. The impact is often not as big as the media makes it appear.

Get rich on domestic energy
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers