Dear A-Letter Reader:
Oil recently pushed through $75 a barrel for the first time in history. In a few short years-even months-you may look back on these as the halcyon days of affordable energy. Energy wars heating up across the globe promise to send prices relentlessly higher for the foreseeable future.
The latest in a series of recent international confrontations over energy has occurred between the U.S. and Europe on one side and Russia on the other.
The United States and Europe have enjoyed amicable relations with Russia since the demise of the Soviet Union in 1991. That is, until now. The surging price of crude oil and Russia's bullying has prompted a hard stand in Washington and Brussels.
In a dramatic sign of how surging energy prices have influenced foreign policy for several oil-producing nations this year, the United States is taking its hardest stand yet against countries using their oil and gas reserves as political weapons.
Speaking in Lithuania yesterday, U.S. Vice President, Dick Cheney, accused Russia of subscribing to "blackmail" tactics to influence the country's energy policy. Since January, Russia has temporarily siphoned-off natural gas supplies to Ukraine and Belarus. In mid-April, Gazprom, the world's largest gas producer and a Russian state-owned concern, warned the European Union not to interfere with its quest to sell capacity to China and the Middle East.
Europe, which receives a hefty 25% of its gas supplies from Russia, is concerned the Putin administration might be levering the high price of oil to determine Gazprom's best price. And they're concerned Russia might be positioning itself to influence geopolitical events using the oil "weapon." Russia, which sits on the United Nations Security Council, is voting against Iranian economic sanctions. Both countries harbor close economic ties dating back to 1979 when the Shah of Iran was deposed.
Other countries have also joined the oil wars. Venezuela and Bolivia for instance, have roiled the energy markets with recent moves towards nationalizing their oil and gas fields. Coming on the heels of the Russian Gazprom episode, this shows a growing number of countries are refusing to let free markets function and are opting instead to play politics with their resources.
The latest developments will likely drive oil prices even higher as traders and suppliers grow increasingly nervous. Bolivia, for instance, has not only changed the rules in its energy industry, it is now contemplating nationalizing mining interests as well. Several Canadian silver-mining companies operating in Bolivia were slammed on Wednesday, following the announcement to nationalize energy interests.
Any short-term decline in oil should be viewed as a bull market opportunity to add or purchase new positions in quality large-cap energy stocks and oil futures. As Shoulder Season ends this spring and the traditional American driving season begins, natural gas prices should also begin a major recovery following their massive plunge this season. In this bull market, short-term weakness remains an investor's best friend.
ERIC ROSEMAN, Investment Director
on behalf of The Sovereign Society
EDITOR'S NOTE: The Sovereign Society research team recently finished a report on the current oil situation entitled "70 Days to Empty." Click here to see how you can get a FREE copy.