Make no mistake; the worldwide oil situation is a serious problem.

The financial news continues to boast about the possibility of double digit earnings growth for Q2. Given that oil inventories have fallen for the past two weeks, and with prices headed toward the $75 - $80 per barrel mark, oil profits could very well carry the quarter into double digits.

There always seems to be a reason why oil prices remain mysteriously high. Last summer it was hurricane痴, in the fall it was the potential for a colder than normal winter (it never materialized), and now it is the North Korean missile test.

Don稚 you find it disturbing that there are no hurricanes in the Gulf of Mexico, and gasoline prices are just a stones throw away from the highs we experienced last summer after Katrina and Rita?

In reality, the fed knows there is only one solution to the problem of inflation caused by an oil price shock. That solution is to raise interest rates and depress economic activity.

Increases in oil prices and the funds rate have proceeded every recession since the early 1970s. Higher oil prices usually depress economic activity, but when combined with higher interest rates, a recession is almost assured.

The recent issues in North Korea have distracted investor attention away from the most serious issues of all. I am talking about the problems with China in the Middle East and Latin America.

In May, Iran said that 迭ussia and China had officially informed Tehran they would not support sanctions or military action over the Islamic Republic's nuclear program."

Earlier in the spring, news of China embarking on slant drilling in the Gulf of Mexico was virtually ignored by the press.

In South America, Venezuela痴 leader Hugo Chavez was labeled a bad guy by the State Department because he has taken control of his country痴 oil reserves from international oil giants.

The Venezuelan oil company has over 14,000 gas stations in the U.S. under the name, Citgo. The administration has been highly critical of the Venezuelan President. Does Venezuela have control of something they want and can稚 get their hands on? Yep, oil.

In the winter of 2005, Chavez provided heating oil at lower prices to lower income families on the east coast. Now, Chavez is offering oil to the poor in Europe.- Read Article

If you want to infuriate our politicians, the only thing you have to do is interrupt their major source of income, and irritate the major financial groups and corporations who own them. Chavez has successfully done this, as did the government in Ecuador which recently seized its oil fields from Occidental Petroleum.

China, as witnessed by its desperate attempt to buy Unocal, is in need of energy. U.S. corporate outsourcing has led to our trade deficit, and has provided the Chinese with billions of dollars to buy up world oil assets.

Latin America and Iran have entered into strategic alliances with China, and these countries will favor selling oil and gas to the Chinese over an unfriendly U.S. In addition, the State Department has taken the view that selling a U.S. oil company to the Chinese is a threat to national security. Some Latin American countries may not look at it the same way.

So, don稚 be distracted. A recession is on the way, and oil remains a good investment.