Pick Your Favorite Petro-Fascist

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Includes: CEO, OGZPY, PBR, SNP
by: Contrarian Profits

By Irwin Greenstein

The U.S. has lost the oil wars and the only way investors can cash in on this historic turn of events is to invest in emerging markets.That’s the deeper message of a great New York Times article yesterday titled “As Oil Giants Lose Influence, Supply Drops.”

The writer’s take on the geopolitical implications of nationalized oil in emerging markets clearly gives the Petro-Fascists the upper hand in the scramble to find more oil.

And if you read between the lines, the alarm rings loud and clear that it’s time to sink your emerging-market allocation into energy companies.

The most visible of these state-controlled energy giants whose stock you can trade include Petrobras of Brazil (NYSE:PBR), CNOOC (NYSE:CEO) of China, China Petroleum & Chemical Corporation (NYSE: SNP) and Gazprom of Russia [RTS:GAZP] (OTCPK:OGZPY) among others.

Yes, these companies are inefficient; yes they are run like the Mafia; and yes they have big armies behind them when it comes to negotiating favorable terms.

But this isn’t really about maximum ROI or value. It’s about access to large reserves of oil and natural gas. As the New York Times clearly states, the major Western oil companies control diminishing reserves in areas such as the North Sea.

The New York Times piece maintains that the 10 largest holders of petroleum reserves are state-owned companies, like Russia’s Gazprom and Iran’s national oil company.

The most accessible reserves lie within the borders of countries run by anti-Western regimes. These tough guys are no longer rolling over for the likes of ExxonMobile (NYSE:XOM), BP (NYSE:BP) or Royal Dutch Shell (NYSE:RDS.A).

It’s certainly no coincidence that the rise of Petro-Fascism coincides with a rash of new wealth outside the U.S. Forbes wrote that the number of billionaires in emerging foreign markets has reached 37% of the total in 2008 compared with 32% who are American.

If you find this statistic alarming, then it’s time to seriously consider what’s going down.

As the New York Times reports:

The scope of the supply problem became more clear in the latest quarter when the five biggest publicly traded oil companies, including Exxon Mobil, said their oil output had declined by a total of 614,000 barrels a day, even as they posted $44 billion in profits. It was the steepest of five consecutive quarters of declines.

The article quotes Amy Myers Jaffe, associate director of Rice University’s energy program in Houston, who observes

It’s a crisis of leadership, a crisis of strategy and a crisis of what the future looks like for the supermajors. They are like a deer caught in headlights. They know they have to move, but they can’t decide where to go.

The so-called supermajors have called the shots for so long that they truly have become fat, dumb and happy. They are stymied by Muslim insurgents, Nigerian rebels and Russian strongmen. Bribery pales in comparison to the big payoff of controlling the reserves.

The notion of Peak Oil then becomes one of politics instead of geology. Yes, there is a finite amount of oil if you consider from a Western perspective. Take the view of the emerging markets, however, and Peak Oil is somewhat of a canard.

For the foreseeable future, the national energy companies of emerging economies have the upper hand in the oil wars. The question remains: How can I make money from the situation?

Disclosure: none