On the same day the United States levied new sanctions on companies and businessmen with ties to Vladimir Putin, A Malaysian airlines Boeing 777 was downed by surface to air missile fire about 25 miles from the Russian border in Ukraine.
Also on the same afternoon, Israel sent ground troops into Gaza as Hamas continued rocket fire despite hundreds of casualties and peace offers.
The price of Brent Crude futures, which had been on a steady decline since the Iraq crisis in June, bottomed around $108 yesterday, and as these situations unfold, we expect to see them return upwards during the next few weeks.
There were 298 people aboard the Malaysian airlines flight, on its way from Amsterdam to Kuala Lumpur. According to Reuters, two U.S. officials said that Washington strongly suspects Ukranian separatists backed by Moscow shot down the plane.
If credible evidence surfaces that proves these claims, the effects would have a grand scope. Along with stricter sanctions, on more than just prominent Russian businessmen, we could see whole sectors of Russia’s economy blocked off from the market.
And as a major oil and gas producer, any such sanctions would send oil prices and gas prices to new highs for the year.
Add Israel’s invasion of Gaza to that, and we could see oil prices sustained well above normal for an indefinite period of time.
Israeli Prime Minister Benjamin Netanyahu said he has given orders to troops “to prepare for the possibility of a widening, a significant widening of the ground operation.”
So as Gaza and Israel plunge into a ground war in an already chaotic region of the world, and Ukrainian separatists supposedly shoot down a passenger plane full of civilians, It seems that war will drive up oil prices just as we were seeing some relief from the June surge.
As investors, we can’t allow the violence to heighten our emotions and cloud our judgment. So in order to play this latest crisis, we should keep a few things in mind…
If the two unrelated situations escalate to a point where oil prices hold above $115 for a couple of weeks, the calls for U.S. oil exports would hit full throat in congress, wall street, and main street.
This would be bullish for our U.S. oil drillers who would likely see their share price rise alongside oil prices.
Unfortunately, though, oil exports would likely drive up gas prices here at home – something most of us would rather avoid.
Beyond oil exports and U.S. drillers, we could also find the companies positioned to profit off of the conflicts abroad.
A good example of this is Halliburton (NYSE: HAL). Just look at how well the stock did during the Iraq war…
Other than the setback during the housing crisis, the stock jumped 600% before the end of the conflict. Of course it helps when one of the architects of the Iraq war used to be your CEO.
But we’ll save that for another column.
As far as these new crises are concerned, there are plenty of ways for you to play their escalation, and as peak oil gets its revenge, don’t be surprised to see more chaos follow.
Until Next Time,