The hour of reckoning that will bring with it a military confrontation between the U.S. and Syria’s Assad regime — and even more dauntingly, potentially pitting American and European forces against Russia’s military — may be close at hand.
You’re of course well aware of the civil war that has raged in Syria for nigh onto two years, resulting in more than 100,000 deaths in the country and creating millions of refugees in neighboring Jordan, Turkey, and Lebanon, among other spots. And, clearly, it was the alleged unleashing of chemical weapons by Assad’s minions east of Damascus that may have broken the camel’s back. If so, it would be by crossing a red line that President Obama had established a year ago this month against the use of those hideous weapons.
Crude scrambles northward
We can point to a host of offshoots from Syria’s conflagration and its attendant human tragedies. As investors, we needn’t have a wise elf tap us on the shoulder and point out that crude prices have moved steadily upward as concern has mounted about a U.S. military involvement in the country’s tragedy. Indeed, both Brent crude — typically traded in Europe — and West Texas Intermediate were catapulted to higher ground in early trading Wednesday.
We also don’t need that same cuddly elf for awareness that energy has been steadier of late than most other sectors. While the ultimate magnitude of crude’s rise will depend upon a host of factors, including the intensity and duration of any U.S. involvement in Syria, it’s also obvious that the oil price rise has been affected by events in Egypt as well.
While neither Syria nor Egypt is a major crude producer, both represent the importance of what those in real estate refer to as location, location, location. Egypt controls the Suez Canal, through which something less than 10% of crude traded in commerce passes daily. That may not sound like much, but remove it from total global supplies, and in a world with a close supply-demand balance, watch Brent and WTI scurry still higher.
Bowing out of Egypt
It’s also noteworthy that Egypt shares a western border with Libya, which is a significant producer, but where chaos and contretemps also reign. Is it any wonder, then, that Chevron Corporation (NYSE:CVX) announced on Tuesday that it will unload its Egyptian downstream operations, including 66 service stations and a couple of oil depots, to TOTAL S.A. (ADR) (NYSE:TOT) ? The French company is also buying the retail assets in the land of the Sphinx from Royal Dutch Shell plc (ADR) (NYSE:RDS.B). Perhaps it knows something of which the rest of us are unaware.
Syria’s location is no less consequential. It borders on majority-Shiite Iraq, which has itself been descending steadily in uninterrupted internecine attacks. And with the Syrian majority Sunni population, Iraq’s Prime Minister Nouri al-Maliki is more than a little interested in perpetuating a maintenance of the Alawite branch of Shiite Islam embodied by Syrian President Bashar al-Assad.
Shiite Iran also shares that interest, and will do all it can to back the Assad regime. Can you say Strait of Hormuz? The rogue country already has its Hezbollah proxy making mischief in Syria.
A catastrophic confrontation with Russia
Then there’s Russia. On Syria’s Mediterranean coast (not far from where four U.S. destroyers are now prowling) sits the city of Tartus, which, among other things, includes a Russian naval base. Putin and his pals have already warned Washington that a U.S. attack on Syria would be “catastrophic.” At this juncture, we can only wonder whether fisticuffs between the U.S. and its traditional rival could become serious enough to endanger Exxon Mobil Corporation (NYSE:XOM)‘s sparkling new and wide-ranging partnership with Russian oil giant Rosneft.
Foolish bottom line
As energy investors we can safely proclaim a couple of truisms emanating from Syria. First, crude prices are unlikely to retreat precipitously, barring a major turnaround by the parties involved. And second, both refiners and all those who tend to pump gasoline into their vehicles are certain to be affected by crude lingering at even relatively high levels?
It seems clear that the first item should have Fools redoubling their attention to exploration and production companies, which will constitute the boats that will all be levitated by the rising tide of crude prices. For my money, I’m attracted to EOG Resources, an especially oily domestic producer with the leading position in the prolific Eagle Ford play, among others.
I’d also point out that is a Chesapeake Energy Corporation (NYSE:CHK) major player in the Eagle Ford, and still is beset by something of an Aubrey McClendon discount. Finally, I wouldn’t turn up my nose at Chevron Corporation (NYSE:CVX), which, unlike many of its peers, isn’t active in Iraq, but operates in a host of promising and relatively safe areas worldwide.
The article Could A U.S. Hit on Syria Propel Crude to $150? originally appeared on Fool.com and is written by David Smith.
Fool contributor David Smith owns shares of Chesapeake Energy (NYSE:CHK). The Motley Fool recommends Chevron and Total SA. (ADR). The Motley Fool has the following options: long January 2014 $30 calls on Chesapeake Energy.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
