Baltimore, MD - Tensions in the Middle East are about to reach a boiling point. Where will the oil importing countries of the world turn when the balloon goes up?

"Dependence begets subservience and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition."

-Thomas Jefferson

Geopolitical "He Said, She Said"

Recent exchanges in the U.S. showdown with Iran have been heated, with the latest verbal strike coming from Iran and Sudan. They have accused the United States of deliberately creating strife in Iraq, Lebanon and the Palestinian territories.

President Ahmadinejad further attacked the U.S. presence in Iraq:

On the opposite end, the U.S. has relentlessly questioned Iran's nuclear program. And despite countless Iranian claims that their nuclear aspirations are strictly for peaceful purposes, the U.S. remains unconvinced.

But in light of the impending conflict, countries around the world are preparing for the worst.

Even without open military conflict, the tension alone is enough to keep oil prices high. This morning's crude oil price breached $62 per barrel.

Countries dependent on the Middle East for oil imports are scrambling for alternatives. But China's search for new oil sources is already underway.

Freedom from Oil . . . and the Middle East

Over the last few years, China has felt the effects of the oil squeeze. In fact, the Chinese were oil-independent until the early 1990s. But their burgeoning economy quickly changed that. Last year China's GDP grew over 10%.

So how much do they rely on foreign oil?

In 2006, China imported 47% of its oil demand from foreigners. That's an increase of 4.1% from the previous year.

And the forecast for 2007 looks grim. Demand for oil products is anticipated to grow by 6%.

But China's chief worry is that (like nearly everyone else) their addiction is dependent on the Middle East, which supplies China with nearly 61% of its crude oil imports.

The inevitable showdown in the Middle East will certainly disrupt the flow of oil to China, which is why they have been trying to find new sources of oil.

"Disruption" is a pretty light term to use, considering that any military conflict will involve oil locations.

Look at the tactics militants in the Niger Delta have taken over the past year. Their plan involves crippling the Nigerian oil industry. Nigeria is Africa's biggest oil producer. So far, military strikes on Royal Dutch Shell operations have effectively shut down 25% of the country's oil production.

Fearing a similar situation in the Middle East, China has been trying to find new sources of oil imports over the last few years.

Angola has already taken over Saudi Arabia's role as China's top spot for oil imports. But the fact remains that any Middle Eastern conflict would be devastating to the Chinese economy.

Unconventional Answers

The global dependence on oil is unlikely to resolve itself before the Middle East hits its breaking point. In order to alleviate some of the effects, huge attention has begun to be focused on unconventional sources.

Offshore oil exploration has grown substantially since oil prices have risen. Canadian oil sands are also experiencing a strong push, particularly from the U.S., which has called for a significant increase in oil sands imports.

When Iran and the U.S. finally square off, countries will be hard put to meet their energy demands.

The race has already started.

Until next time,

Keith Kohl