After rallying first thing this morning, energy stocks continued to shake shares of stock away from timid investors. Is the ballgame over for the energy sector? Not by a long shot.
I am hearing kook after kook mention how alternative fuels are going to come to the rescue. Heck, even the President is talking about corn husks and wood chips. Yeah, right.
Behind the scenes the global energy crisis is getting more and more interesting. The International Atomic Energy (IAE) agency voted to report Iran to the United NationsÂ’ Security Council. Russia and China decided to vote with the IAE only if they agreed to wait in submitting the report for a month. Argentina voted against the report.
Oddly, Russia and China can still break away from the IAE report since China currently gets 13.6% of its oil imports from Iran. China also is in the process of importing natural gas from Iran.
China's dependency on foreign oil was around 40% in 2004, and Iran and Venezuela have become important trading partners. You need to keep in mind that China and Russia are close to allowing Iran to become a member of the Shanghai Cooperation Organization (SCO)-(See "Barking up the Wrong Tree" post January 19, 2006).
In addition, China has made important inroads with Saudi Arabia, and the "Washington Quarterly" said that increased Chinese-Saudi relations "could translate into a weakening of the oil kingdom's US dependency".
So, someone needs to be careful out there. Instead of the U.S. being the one's to call for an embargo against Iran, the Arab Muslims of the Persian Gulf may call for embargos against the U.S. Why would the oil producing nations care, they can still sell plenty of oil to China and the rest of the world.
Clearly, China's vote against Iran at the IAE meeting was to keep trade relations with the U.S. in line. But what if China had voted against the IAE report and the U.S. called off trade with China in retaliation? What would happen?
Can anyone say "massive inflation" or "stock market crash"?
We are in very interesting, and dangerous times. Demand for energy will only increase as the years go on. If everyone in the U.S. drove hybrid cars, there are still a billion Chinese who want to drive.
The energy markets promise to get much more exciting in the months ahead. For now, someone is trying to scare us away from the sector, and once they do, be sure they will buy them back.
