$120 Oil by September?

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from Uncommon Wisdom,

The world’s three major geopolitical hotspots — Russia, the Middle East and China — have one common thread: energy. Today we’ll consider what it means.

Hotspots: Russia & the Middle East

The table below lists the world’s largest energy producers in 2011 and 2012.

The countries in red are perpetual hotspots. They include Russia and several Middle Eastern countries.

– The Middle East has been in conflict for thousands of years. Most world economic powers are involved in the Middle East because of the region’s huge, easily tapped energy reserves.

– Iran, Iraq, Syria and Libya are currently the most-unstable Middle East energy producers.

– The Russia-Ukraine crisis is currently on the minds of many energy investors and analysts.

Notice the production difference between Russia and Iran. If we lost both producers due to economic sanctions or any other reason, prices would skyrocket … and the global economy would probably fall into a recession.

The world can probably cope without Iranian oil because other producers could make up the difference. Replacing Russian oil would be much harder.

This is why Europe and Russia’s other trading partners are reluctant to apply tougher sanctions over the Ukraine matter.

China & the South China Sea

The U.S. Geological Survey estimates that the South China Sea has potentially 21.6 billion barrels of oil and 299 trillion cubic feet of gas. Because of these potentially large reserves, countries in the area are disputing territorial claims.

Here is a map of the area with territorial claims:

As the map shows, China is claiming almost all of the area.

The U.S. is shifting some of its military assets to this region to prevent potential conflicts over territorial claims.

Analysts regard the area as Asia’s most-dangerous potential problem spot.

These global hot spots will continue to keep oil prices elevated and volatile.

Of course, if any of the conflicts mentioned above get worse, then prices can break above $120.

Such a breakout would have serious impact on the global economy,

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