Yesterday, on Street Signs, I provided a startling statisticthat highlights the stakes involved for the global economy, in terms of energy security: approximately 60% of the world's oil reserves are concentrated among Saudi Arabia, Iran, Iraq, Kuwait, United Arab Emirates, and Libya.
Nations with the most oil reserves:
#1 Saudi Arabia 19.78%
#3 Iran 11.10%
#4 Iraq 10.60%
#5 Kuwait 8.71%
#7 UAE 7.25%
#9 Libya 3.24%
Of that list, so far, only Libya and Iran have experienced protests or unrest against their regimes. Although, it should be noted that the unrest in Bahrain, not on the list due to its negligible reserves, is basically attached to Saudi Arabia via a land bridge.
The recent events in Egypt, Tunisia, and Yemenhave given the oil markets a not-so-free look at how a regime in the region gets toppled, complete with levels of escalation, secondary and tertiary effects, and the ability of unrest to spread and foment further unrest both within and without the affected country.
With regard to energy, in Egypt's case, concern quickly focused on the status of the Suez Canal and the nearby SUMED pipeline and the potential impact on crude oil, refined products, such as diesel fuel, and general maritime traffic into Europe.
Typically, in analyzing or considering potential supply disruption threats, the focus tends to be on military or terrorist attacks involving munitions or explosives. What seems to be less considered, but which is all too real, may be simple work stoppages or strikes that curtail output or impede transit.
Obviously, it takes people to load vessels and monitor everything from oil wells to refineries to pipelines. A simple strike could be very disruptive to the supply chain. Recall the significant impact of the refinery strikes in France last year, which involved really a small amount of global refined productive capacity.
Stability in Saudi Arabia is the ultimate concern, and there is a lot to be concerned about. There is a fair amount of repression, a young population, and an aging ruling family. Sound familiar? The Middle East freedom fever does appear to be encircling the Kingdom. Bahrain proximity was noted above, and, the country of greatest concern to me, Yemen, represents a figurative Achilles's heel on Saudi's southern flank. Yemen is also home to Al Qaeda on the Arabian Peninsula - a group with designs on overthrowing the Saudi ruling family, among other anti-Western objectives.
The geopolitical premium looks to be with us for some time. The outlook for oil prices from a purely fundamental supply perspective is lower. Inventories in the United States for crude oil and gasoline are at or near record highs. But the markets are pricing those stores in terms of how dear those barrels and gallons would be if unrest spreads and mere strikes or simple attacks impact output.
If Saudi Arabia begins to appears vulnerable, in the least, to publicly expressed internal discontent, $100 oil will look cheap in a hurry!
John P. Kilduff is Partner at Again Capital LLC . He's also a CNBC contributor.