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Will Middle East Tensions Drive Oil to $300?

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I wanted to revist an article which I posted on SeekingAlpha (hence the title) on January 4th, 2010; I think many of these issues are still relevant today nearly two years later. This article was never posted on Value Walk.

I would like to add that fanatics do not always act in their best interests even when money is involved or even a risk to their life; Mummar Qaddafi is a good recent example:

While I am very reluctant to provide short term forecasts on area such as commodity prices or stock prices, I have a strong opinion about future oil prices. I am confident in my prediction because huge oil disruptions might occur due to tensions in the Middle East this coming year. I strongly believe that the media, politicians and investors do not realize the severity of situation. I think the coming year can see geo-political events that may cause the price of oil to skyrocket from current levels. While I think oil prices are currently over-priced, tensions in the Middle East could increase that will cause oil spikes this coming year. These Middle Eastern tensions are related to the current actions of the Iranian government.

There have been some major events regarding tensions with Iran that have been underplayed by the media, although the media is slowly picking up these stories.

Yemen/ Saudi Arabia

The media completely ignored the severity of the situation of Yemen until it was revealed that the recent terror attempt on a US bound airline was planned by Al Qaida in Yemen. However, I have been following the situation in Yemen for several months already and it is has been a concern me for.

For several years the government of Yemen a Sunni country has been fighting a civil war with Shia rebels who are trying to challenge the Government and introduce a shia country with an Islamic radical agenda. The rebels are heavily backed with moral and military support from the Iranian Government. The Government of Yemen is very weak and poor, and therefore is unable to exercise full control over the country. The situation is so bad that the last Jews in Yemen who have been there for over 3,000 years have been forced to leave in the past few months due to violence from the Shia rebels.

The situation is deteriorating so rapidly that the Saudi (Sunni) Government has sent its military into Yemen to help the Yemeni Government. There have been reports that many Arab Sunni countries including Jordan, Morocco and Egypt have sent commando units to Yemen to help the government. The US is also helping Yemen financially and militarily to fight the rebels. The ultimate goal of Iran is to impose a shia Government that will be obedient to it. While Yemen does not have much oil, a collapse of the government could have a large impact on oil prices. Iran’s main goal in defeating Yemen would be to overthrow the Saudi Government which is the largest producer of oil in the war. Even though Saudi Arabia has a majority Sunni population, if the Government collapsed, Sunni Al Qaida extremists could take over who will align with the Shia government in Iran.

Assuming Iran overthrew the Yemeni Government, and not the Government of Saudi Arabia, it would be able to halt traffic traveling through the Suez Canal, which is a major shipping route. All Yemen would have to do is block off the tiny area and it would cripple all shipping going through the Suez Canal.


Egypt is another country that feels severely threatened by Iran. Egypt uncovered a cell of several dozen Hezbollah operatives in the country several months ago planning terrorist attacks on Egyptian targets. Hezbollah is a shia organization that is heavily backed by Iran. Egypt and Iran have had been enemies for many years. Iran has a street named in honor of the assassin who murdered former Egyptian president Anwar Sadat.

However, recently tensions have been escalating further. Egypt has accused Iran of planting terrorist cells in Egypt to create chaos and try to topple the Government. Although Egypt is a Sunni country there is fear that Iran could align with the Sunni Muslim brotherhood that would be willing to team up with Iran despite their different sects in Islam. Like Yemen, Egypt is not a major oil producer, however it is in very strategic location. If the Suez Canal, which Egypt controls, would be closed to traffic, it would cripple international shipping and could lead to higher oil prices.

Below is a map of the Middle East. As clearly shown in the map the coast of Yemen and the Suez Canal can easily be blocked off if the Iran is able to overthrow either Government 

Will Middle East Tensions Drive Oil to $300?

Disclosure: None

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