Introduction
Prior to the revolution in Egypt, I wrote:
It is highly likely there will be one or more serious disruptions in the next 12 months causing an oil spike. In light of this, risk oriented investors should have some form of oil hedge in their portfolios.
I based this on an appraisal of political uncertainties in the leading oil exporting nations, as shown in Table 1. I view only Russia, Canada, Norway, Mexico, and Argentina as likely to be free of any political disturbances moving forward. That leaves 82% of the oil exports of the countries listed at some risk. And unlike Egypt and Tunisia, major disturbances in any of these countries could cause an immediate spike in global oil prices.
Table 1. Democracy in Leading Oil Export Nations
| Freedom | Oil | |
| Country | Status | Exports* |
| Saudi Arabia | Not Free | 8,649 |
| Russia | Not Free | 5,388 |
| United Arab Emirates | Not Free | 2,507 |
| Kuwait | Partly Free | 2,349 |
| Venezuela | Partly Free | 2,182 |
| Nigeria | Partly Free | 2,157 |
| Iran | Not Free | 2,048 |
| Norway | Free | 1,954 |
| Algeria | Not Free | 1,877 |
| Iraq | Not Free | 1,793 |
| Libya | Not Free | 1,541 |
| Angola | Not Free | 1,379 |
| Kazakhstan | Not Free | 1,181 |
| Canada | Free | 809 |
| Qatar | Not Free | 753 |
| Mexico | Free | 704 |
| Oman | Not Free | 576 |
| Azerbaijan | Not Free | 526 |
| Equatorial Guinea | Not Free | 362 |
| Sudan | Not Free | 292 |
| Colombia | Partly Free | 277 |
| Ecuador | Partly Free | 273 |
| Argentina | Free | 262 |
| Congo (Brazzaville ) | Not Free | 239 |
Source: Freedom House and the CIA Factbook.
*Energy data in thousands of barrels per day.
Libya is the 11th largest oil exporter. A breakdown of who buys oil from Libya is presented in Table 2. 32% of Libya’s oil goes to Italy, 5% to the US, etc. As a precaution, these countries will be scrambling to find alternate sources of supply. That, coupled with speculators riding the wave, has caused an oil spike.
Table 2.- Libyan Oil Exports, 2009, (% share)
| Export | |
| Country | Share |
| Italy | 32% |
| Germany | 14% |
| China | 10% |
| France | 10% |
| Spain | 9% |
| US | 5% |
| Brazil | 3% |
| Other Europe | 14% |
| Other Asia | 4% |
Source: http://www.eia.doe.gov/cabs/Libya/Oil.html
I have written before about the delicate oil balance[1]. Political leaders of all countries will do whatever is needed to insure oil supplies for their citizens.
Investment Implications
Looking ahead, it is highly likely there will be one or more serious disruptions in the next 12 months causing an oil spike. In light of this, risk oriented investors should have some form of oil hedge in their portfolios.
[1] Morss, Elliott R. (2008) “Global Energy: A Factual Framework for Future Research,” New
Global Studies: Vol. 2 : Iss. 1, Article 5 and http://www.morssglobalfinance.com/energy-the-frantic-global-search-for-more/.