The Next Huge Oil Spike

The Iran Saudi assassination attempt could escalate. This type of international volatility has many Motley Fool writers convinced a portion of your portfolio should be in oil stocks as sky-high oil prices are not as far off as you may think.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Four months ago, Dan Dzombak, warned Fools to carefully watch relations between Iran and Saudi Arabia as both vie for power as the U.S. leaves Iraq. Yesterday, the world learned of a foiled Iranian government plot to kill the Saudi ambassador to the United States. Escalations such as this have me and many fellow Motley Fool writers convinced a portion of your portfolio should be in oil stocks as sky-high oil prices are not as far off as you may think.

The plot
Alleged members of the Iranian Quds Force, a branch of the Iranian Islamic Revolutionary Guard that "conducts sensitive covert operations abroad," tried to hire an undercover agent posing as a member of a Mexican drug cartel for $1.5 million to assassinate Adel Al-Jubeir, the Saudi Arabian ambassador to the United States. While U.S. officials said it was unclear how many people knew about the plan within Iranian President Mahmoud Ahmadinejad's government, if a plot like this had succeeded and cast the two Middle Eastern rivals into war, it would be disastrous for world oil markets.

Why it matters
People don't realize chaos and unrest have a huge effect on oil production. When large oil powers go through chaotic times, a significant amount of their oil-producing capabilities is lost for years. Often, these countries never return to the production levels they had before chaos started.

The most recent example is Libya. Production had averaged 1.6 million barrels per day but plummeted with the revolution in March:



Q1 2011

Q2 2011

August 2011

September 2011

Libyan Production (thousand barrels/day) 1,559 1,096 153 7 96

Source: OPEC Monthly Oil Market Report, October 2011

Now that Libya is almost completely controlled by the new government, the country believes it can have full production back in 14 months. Wood Mackenzie predicts Libya can have production back in three years. However, both these estimates look optimistic compared to the historical record, which shows an average return time to full production of eight to 10 years.

The worrisome part of this example is the large price increase oil had after the relatively minor loss of production. The loss of 1.5 million barrels per day (total world supply was roughly 82 million barrels per day at the time) added an estimated $10 to $15 premium to Brent crude oil prices.

Saudi Arabia and Iran are much larger producers than Libya, and were they to go to war the effect on prices would likely be an order of magnitude more.


2011 Average Production

Saudi Arabia 9.2 million barrels/day
Iran 3.6 million barrels/day

Source: OPEC Monthly Oil Market Report, October 2011

While I worry more about what will happen after the U.S. leaves Iraq at the end of the year, the Saudis are worried that Iran may try to cause unrest in the kingdom during the annual hajj pilgrimage to Mecca next month. CNN quoted a senior Saudi advisor who said, "We are on our toes. We expect the worst and we think Iranians are capable of using any person from any country to stir trouble during hajj season."

Foolish bottom line

A good way to protect your portfolio from rising oil prices is to invest in oil producers or oil service companies. To get you started on your search here are five Australian oil & gas service companies.

Company Market Cap $m P/E



WorleyParsons (ASX:WOR)





Matrix Composites… (ASX:MCE)





Ausenco Limited (ASX:AAX)





Coretrack Ltd. (ASX:CKK)




Neptune Marine… (ASX:NMS)




Source: S&P Capital IQ

With situations like this in mind, The Motley Fool has created a new special report, "The Best Stock For $100 Oil". If you're looking for Australian stocks to profit off the energy boom or an oil spike then you can download the report for free by clicking here.

Article originally written by Dan Dzombak and published at This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »