Investing in Oil in the Face of Terrorism
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Investing in Oil Amid Terrorism: A Strategic Guide
Understanding the Impact of Terrorism on Oil Investment
Terrorist attacks pose significant challenges to the security of nations, creating global uncertainty. This instability affects stock and commodities markets worldwide, complicating investment decisions even for seasoned experts.
Strategies for Investors
To navigate these uncertainties, investors should first assess the likelihood of a major terrorist attack. Next, they should evaluate whether their portfolios are adequately hedged with oil-related investments that could rise in value if a significant attack disrupts oil production and distribution.
The Vulnerability of Oil Transport
"Our biggest challenge with oil security is transportation," explains Roger L. Cory, president of Mammoth Resource Partners Inc., a Kentucky-based oil and gas exploration company. He highlights the global network of oil transport as a difficult security challenge, with potential soft targets for terrorists causing major disruptions.
Mammoth Resource Partners has published a detailed report on the oil industry's vulnerability to terrorism. The report notes that the oil transportation system presents numerous opportunities for exploitation by terror networks.
Prime Targets for Terrorism
Oil infrastructure such as wells, drilling platforms, loading terminals, ports, tanker ships, storage tanks, and refineries are considered prime targets. The extensive pipeline networks, including 200,000 miles in the U.S. and 10,000 miles in Saudi Arabia, are particularly at risk, as they are often above ground and insufficiently guarded.
Straits and canals are also potential targets. Annually, over 6,000 tankers pass through the Bosporus, while 80% of Persian Gulf oil, which constitutes 40% of global production, transits the Strait of Hormuz.
The Ras Tanura complex in Saudi Arabia exemplifies these vulnerabilities. The Mammoth report suggests that an attack on this site could lead to significant global disruptions, potentially causing oil prices to spike from around $60 to $80-$100 per barrel.
Investment Considerations
Given these risks, investors should be cautious, advises Cory. Investing in multinational companies may not yield substantial returns since you're investing in the company rather than oil directly. Natural resource mutual funds, being diversified, might have insufficient oil holdings to generate significant profits.
Investing in oil futures and options involves higher risk, as timing is crucial. Misjudgments of just a few days can be costly, and historically, 80% of options expire worthless.
A viable middle ground is oil and gas partnerships, where investors own a percentage of resources extracted from the wells they have funded. These offer a balanced approach between low-risk and high-risk investments.
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Maximize your returns by understanding the complexities of oil investment amid terrorism and strategically managing risk in these turbulent times.
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