It's been years -- decades, actually -- since the energy industry has been completely devoid of at least minor skirmishes. But I'd be hard-pressed to believe that prior episodes of violence and chaos have spread as rapidly as is now occurring daily in the Middle East and North Africa, threatening a major hike in crude oil prices.
I'll spare you a recitation of most of the details that began a couple of months ago when a Tunisian fruit vendor set himself ablaze, inducing anti-government protests in his own country. Those protests have since spread at warp speed to Egypt, Yemen, Algeria, Bahrain, Djibouti, Iran, Jordan, Kuwait, Sudan, Syria, and Moroco.
Deaths mounting
The targets of the riots have essentially been governments headed by despots who've been in power for eons, and who are almost without exception using military force in an effort to keep their citizens in line. Up to this point, there have been hundreds of deaths resulting from the uprisings, and key questions involve which countries will be victimized next by this outlandish turn of events, whether tranquility will return to the Middle East and North Africa in the reasonably near term and the ultimate impact the clashes might have on the world's crude oil supplies and prices.
At this juncture, the most significant dangers -- especially from the perspective of the world's concerns about crude oil -- appear to be found in Iran and Libya, unless, of course, the rapidly spreading contagion gains a foothold in Saudi Arabia. As I wrote last week, that's far from a ludicrous notion. For now, however, Iran appears to have gained an element of tranquility ...
Sailing the Suez
That is, if you can ignore the nation's somewhat daunting plans to begin a passage of a pair of their naval vessels through the Suez Canal beginning on Tuesday. Such a journey would represent the first time in about 30 years that Iranian vessels have traveled through the canal, which links the Mediterranean and the Red Sea. The prospect of such a journey has displeased Israel, which referred to the potential passage as a provocation.
Beyond that, the situation has become more serious in Libya, where longtime dictator Col. Moammar Gadhafi has resorted to the use of violence against the protestors. That violence has reached Tripoli, the country's capital, where Gadhafi's support is the strongest, due to his generous spread of oil money handouts.
Nevertheless, occurrences in Libya mark the first instance thus far that the violence has disrupted a significant oil-producing state. Indeed, in addition to the U.S. State Department removing its staffers from Tripoli, the major Western oil companies that have been working in the country have essentially pulled in their horns.
Shutting down
For instance, BP (NYSE: BP) has halted its preparatory work on a drilling program in Libya's desert. Any oil produced from that program would have been BP's first in Libya. At the same time, Italy's Eni (NYSE: E), the biggest producer in the country with an average of about 244,000 barrels, has withdrawn its nonessential personnel from the country, as has Norway's Statoil (NYSE: STO).
Libya has become an active area for exploration and production by European countries. For example, Royal Dutch Shell (NYSE: RDS-A) reached a major exploratory agreement with the country in 2005, with BP following suit with a $900 million agreement with the country in 2007.
The country, with its reserve estimates approaching 45 billion barrels, tops all other countries in Africa. In addition to its current 1.8 million barrels a day of production, concerns about a falloff in that figure were at least partially responsible for the Brent crude price temporarily moving above $105 a barrel during the long U.S. weekend.
Nevertheless, in a rambling rant broadcast on Libya's state TV on Tuesday, Gadhafi promised to fight on. As he said in promising to die a martyr, "I am a fighter, a revolutionary from tents." He also said that, "I have not yet ordered the use of force, not yet ordered one bullet to be fired."
The Gulf standoff
Closer to home, the U.S. Gulf of Mexico could also help boost crude prices. It retains an atmosphere of contentiousness among the Obama administration, the courts, and others still being affected by the explosion, fire, and oil spill involving Transocean's (NYSE: RIG) Deepwater Horizon rig last April. While the administration-imposed moratorium on drilling in depths exceeding 500 feet that followed the April event has been lifted, it has been reluctant to issue the necessary permits to permit the industry to resume its business in the deepwater Gulf.
As a result, as last week neared its end, U.S. District Court Judge Martin Feldman gave the administration 30 days to grant at least five deepwater drilling permits in the deepwater Gulf. In doing so, the judge termed the administration's foot-dragging on the industry's permit requests "increasingly inexcusable."
On the same day that the judge's order was issued, a group of major oil companies, led by ExxonMobil (NYSE: XOM) and including the likes of Chevron (NYSE: CVX), unveiled a system combining equipment and vessels to contain a spill like the one precipitated by events aboard the BP-operated rig. In going public with the new system, an Exxon spokesman said, "Everything BP did was on the fly. Our engineers have had a lot of time to think about how to get this right."
The bottom line
I'm convinced that both the tumult in the Middle East and North Africa and the disagreements in the Gulf are likely to continue for some time. The results will almost certainly include an increase -- at whatever speed -- in global crude prices. On that basis, I strongly urge Fools to recognize the expanding importance of the energy sector for their investment success.
